UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One)


ý
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934





For
the fiscal year ended January 3, 2009





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





For
the transition period
from                                    to





Commission
file number 333-116038





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)





Registrant's
telephone number, including area code:(574) 268-2252





Securities
registered pursuant to Section 12(b) of the Act:




Title of each class
              
              Name of each exchange on which
      registeredCommon
      Stock, $0.001
              
              New
      York Stock Exchange





Securities
registered pursuant to section 12(g) of the Act:





None


(Title of
class)





(Title of
class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈ Yes    x No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  ̈ Yes    x No





Note—Checking the box above
will not relieve any registrant required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act from their obligations under those
Sections.





Persons
who respond to the collection of information contained in this form are not
required to respond unless the form displays a currently valid 0MB control
number.





Indicate
by check mark whether the registrant (l) has filed all reports required to
be filed by Section 13 or 1 5(d) of the Securities Exchange Act of l934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x
    No  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K(229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and" smaller
reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ̈
              Accelerated filerx
              Non-accelerated filer  ̈
              Smaller reporting company ̈(Do not check if a smallerreporting company)





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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant's most recently completed second fiscal
quarter.





The
aggregate market value of voting stock of Symmetry Medical, Inc. held by
non-affiliates of the Registrant as of June 28, 2008, based on the closing price
was $15.59, as reported by the New York Stock Exchange: Approximately
$558,044,050.









Note.—If a determination as to
whether a particular person or entity is an affiliate cannot be made without
involving unreasonable effort and expense, the aggregate market value of the
common stock held by non-affiliates may be calculated on the basis of
assumptions reasonable under the circumstances, provided that the assumptions
are set forth in this Form.





APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.  ̈
 Yes     ̈
 No





(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)





Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.





The
number of shares outstanding of the registrant's common stock as of March 3,
2009 was 35,800,865.





DOCUMENTS
INCORPORATED BY REFERENCE





Certain
information is incorporated into Part III of this report by reference to
the Registrant's 2009 Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal
year covered by this Form 10-K.








TABLE
OF CONTENTS




PART
      IItem 1.
                                                            Business
                                                            5Item 1A.
                                                            Risk
      Factors
                                                            12Item 1B.
                                                            Unresolved
      Staff Comments
                                                            19Item 2.
                                                            Properties
                                                            19Item 3.
                                                            Legal
      Proceedings
                                                            19Item 4.
                                                            Submission
      of Matters to a Vote of Security Holders
                                                            20PART
      IIItem 5.
                                                            Market
      for the Registrant's Common Stock, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                            20Item 6.
                                                            Selected
      Financial Data
                                                            21Item 7.
                                                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                            23Item 7A.
                                                            Quantitative
      and Qualitative Disclosures About Market Risks
                                                            30Item 8.
                                                            Financial
      Statements and Supplementary Data
                                                            32Item 9.
                                                            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                            54Item 9A.
                                                            Controls
      and Procedures
                                                            54Item 9B.
                                                            Other
      Information
                                                            55PART
      IIIItem 10.
                                                            Directors,
      Executive Officers and Corporate Governance
                                                            56Item 11.
                                                            Executive
      Compensation
                                                            56Item 12.
                                                            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                            56Item 13.
                                                            Certain
      Relationships and Related Transactions and Director
      Independence
                                                            56Item 14.
                                                            Principal
      Accounting Fees and Services
                                                            56PART
      IVItem 15.
                                                            Exhibits,
      Financial Statement Schedules
                                                            57Signatures
                                                            
                                                            60




3





Cautionary
Note Regarding Forward-Looking Statements





Throughout
this Annual Report on Form 10-K, or in other reports or registration
statements filed from time to time with the Securities and Exchange Commission
under 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 or oral
statements made by our officers or representatives, we may make statements that
express our opinions, expectations, or projections regarding future events or
future results, in contrast with statements that reflect historical facts. These
predictive statements, which we generally precede or accompany by such typical
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 to
operate as "forward-looking statements" of the kind permitted by the Private
Securities Litigation Reform Act of 1995. That legislation protects such
predictive statements by creating a "safe harbor" from liability in the event
that a particular prediction does not turn out as anticipated.





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





We also
refer you to and believe that you should carefully read the portion of this
report described in "Risk Factors" to better understand the risks and
uncertainties that are inherent in our business and in owning our
securities.





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


4


PART
I





ITEM
1.    BUSINESS





General





Symmetry
Medical, Inc. (which we sometimes refer to, together with our consolidated
subsidiaries, as the "Corporation", "we", "our" or "Symmetry") is a leading
independent provider of implants and related instruments and cases to global
orthopedic device manufacturers. We design, develop and produce these products
for companies in other segments of the medical device market, including the
dental, osteobiologic and endoscopy segments, and we also provide limited
specialized products to non-healthcare markets, such as the aerospace market.
Our Total Solutions® concept provides our customers a collaborative process for
developing complete implant systems, including the implant, the surgical
instruments, and the related case. This approach presents our customers with a
broad range of products, as well as comprehensive design, engineering and
project management services and state of the art production capabilities to help
them bring their implant systems to market quickly and efficiently. We believe
that our Total Solutions® approach gives us a competitive
advantage.





During
fiscal year 2008, we generated revenue of $423.4 million, derived primarily from
the sale of products to the orthopedic device market and other medical markets.
Our Total Solutions® approach is supported by an experienced team of designers,
development engineers, logistics specialists and by our global sales force that
work with our customers to coordinate all of our products.





Our
primary products include:





·
            implants,
      including forged, cast and machined products for the global orthopedic
      device market;





·
            instruments
      used in the placement and removal of orthopedic implants and in other
      surgical procedures;





·
            cases,
      including plastic, metal and hybrid cases used to organize, secure and
      transport medical devices for orthopedic, endoscopy, dental and other
      surgical procedures; and





·
            other
      specialized products for the aerospace
market.





History





Our
business was established in 1976 as a supplier of instruments to orthopedic
device manufacturers. Symmetry Medical, Inc. was incorporated in Delaware
on July 25, 1996. During the 1990s, we made several acquisitions, which
expanded our customer base, enhanced our instrument product offerings and
extended our product line to include cases designed for various medical devices
and their related instruments. In June 2003, we acquired Mettis (UK) Limited, a
leading manufacturer of forged, cast and machined implants for the global
orthopedic device market. The Mettis acquisition significantly expanded our
product offerings and increased our European presence, allowing us to develop
and manufacture implants, instruments and cases for orthopedic device
manufacturers on a global basis. In December 2004, we completed an initial
public offering of our common stock.





Recent
Acquisitions





Since the
beginning of 2006, we have completed six acquisitions.





·
            Riley
      Medical.    On May 2, 2006 we acquired all
      of the stock of Riley Medical, Inc., a privately owned company based
      in Auburn, Maine, and Riley Medical Europe S.A., its Swiss subsidiary
      (collectively "Riley Medical"). Riley Medical specializes in cases and
      trays for the orthopedic industry and was acquired for approximately
      $45.8 million. The acquisition of Riley Medical expanded our product
      offering of medical cases and trays to the medical markets, including many
      patented products. In 2008, the Switzerland facility was consolidated into
      our operations in France.





·
            Everest
      Metal.    On August 31, 2006, we acquired
      certain assets of Everest Metal Finishing, LLC now located in
      Hillburn, New York, and all of the issued and outstanding stock of Everest
      Metal International, Limited located in Cork, Ireland (collectively
      "Everest Metal") for approximately $10.3 million. Everest Metal
      specializes in machining and finishing for the orthopedic
      industry.





·
            Clamonta Ltd.    On
      January 9, 2007, we acquired all of the stock of Whedon Limited,
      located in Warwickshire, United Kingdom and the holding company of
      Clamonta Limited (collectively "Clamonta Ltd") for approximately
      $10.4 million. Clamonta Ltd machines and finishes products for the
      global aerospace industry.





·
            TNCO, Inc.    On
      April 3, 2007, we acquired all of the stock of TNCO, Inc.
      (“TNCO”) located in Whitman, Massachusetts. TNCO was a privately owned
      company with a 40-year history of designing and supplying instruments for
      arthroscopic, laparoscopic, sinus and other minimally invasive procedures.
      TNCO was acquired for approximately $7.6 million and allows us to
      leverage our instrument manufacturing while also leveraging their customer
      base in non-orthopedic segments of the healthcare
  market.





·
            Specialty Surgical
      Instrumentation, Inc. and
      UCA, LLC.    On August 31, 2007, we
      acquired Specialty Surgical Instrumentation, Inc. ("SSI") and
      UCA, LLC ("UCA") located in Nashville, Tennessee for approximately
      $15.0 million in cash. SSI distributes surgical instruments directly to
      hospitals while UCA distributes sterilization containers directly to
      hospitals. The addition of SSI and UCA allows us to offer a broad array of
      medical instruments and related products to our customer base. This
      includes over 12,000 individual items, many of which are held in inventory
      for quick delivery. For Symmetry Medical, this was our first entry into
      the medical product distribution industry which provides us direct access
      to hospitals.





·
            New
      Bedford.    On January 25, 2008, we
      acquired DePuy Orthopaedics, Inc.'s New Bedford, Massachusetts
      instrument manufacturing facility ("New Bedford") for approximately
      $45.2 million. This facility manufactures orthopedic instruments as
      well as general surgical instruments and small implants. In connection
      with the acquisition, we entered into a supply agreement which requires
      DePuy to make minimum purchases totaling $106 million from New Bedford for
      a four year period, with specific amounts in each year; starting January
      25, 2008. The agreement stipulates that these purchases are incremental to
      other products we previously produced on DePuy's
  behalf.


5


Our
Total Solutions® Approach





We
believe that we have created a distinctive competitive position in the
orthopedic device market based upon our Total Solutions® approach. Our Total
Solutions® approach presents our customers with a broad range of products, as
well as comprehensive design, engineering and project management services and
state of the art production capabilities to help bring their implant systems to
market quickly and efficiently.




Our Total
Solutions® offering is based on:




·
            Comprehensive
      offerings.    We can support our customers' new
      product offerings from product concept through market introduction and
      thereafter, by providing seamless design, engineering, prototyping and
      manufacturing offerings.





·
            Single source for complete
      systems.    We assist our customers in
      developing new implants, and we design and produce instruments for
      implant-specific surgical procedures. We also provide customized cases
      that provide a secure, clearly labeled and well organized arrangement of
      instruments and devices.





·
            Proprietary Symmetry
      instruments and cases.    Our established lines
      of proprietary products allow our customers to complete their proprietary
      implant systems and bring them to market
sooner.





·
            Precision manufacturing
      expertise.    Our extensive expertise and
      know-how enable us to produce large volumes of specialized products to our
      customers' precise standards, which we believe makes us a supplier of
      choice to the largest orthopedic companies. Our core production
      competencies include net shaped forging, precision casting, thermo
      forming, precision sheet metal working and machining/finishing. During
      2008, we developed high precision machining capabilities to better serve
      the spine implant market.





·
            Quality and regulatory
      compliance.    Our quality systems are based
      upon and in compliance with International Organization for
      Standardization, or ISO, requirements and, where applicable, United States
      Food and Drug Administration ("FDA") regulations. We believe our level of
      quality and regulatory compliance systems meet our customers'
      expectations.





·
            Global
      reach.    Our manufacturing capabilities in the
      United States, United Kingdom, France, Ireland and Malaysia allow us to
      offer single-source products to our multinational customers, and the
      geographic breadth of our experienced sales force effectively brings our
      Total Solutions® approach to customers
globally.





We
believe that our Total Solutions® approach offers a number of benefits to our
customers, including:





·
            Shorter time to
      market.    Our design, engineering and
      prototyping skills, as well as our ability to transition seamlessly from
      product development to production of implants, instruments and cases,
      enable our customers to reduce time to market for their new
      products.





·
            Reduced total product
      acquisition costs.    Our comprehensive
      offerings, including design, engineering, prototyping, project management,
      production and inventory control, allow our customers to reduce their
      procurement costs and inventory levels, resulting in lower product
      acquisition costs.





·
            Increased focus on marketing
      and research and development efforts.    Our
      extensive production capabilities and comprehensive offerings provide a
      one-stop outsourcing solution and allow our customers to focus their
      resources on their design, development and marketing
    efforts.





·
            Rationalized and reliable
      supply chain.    Our scale, scope of products
      and Total Solutions® approach allow large orthopedic companies to reduce
      the number of their independent suppliers and streamline their
      operations.





·
            Enhanced product consistency
      on a global basis.    Our extensive production
      platform, Total Solutions® approach and international presence allow us to
      meet global demand for orthopedic devices, which is expected to
      increase.





Since the
beginning of 2006, we have expanded our Total Solutions® offering through
strategic acquisitions which expanded our product offerings including medical
cases and trays to non-orthopedic medical markets, additional patented products,
expanded implant finishing and minimally invasive instrumentation.





Business
Strategy





Our goal
is to increase our share of the orthopedic device market and to leverage our
strengths to expand in other medical device market segments. The key elements of
our business strategy are to:





·
            Develop strategic
      relationships with our customers through access to key decision
      makers.    Our scale, scope of products and
      Total Solutions® approach, positions us as an important partner to our
      customers. This position gives us access to key decision makers, with whom
      we intend to continue to build strategic
  relationships.





·
            Capitalize on our Total
      Solutions® approach.    We believe that our
      Total Solutions® approach shortens product development cycles, reduces
      design and manufacturing costs and simplifies purchasing and logistics,
      and we intend to aggressively market these benefits to our
      customers.





·
            Increase sales to existing
      customers by cross selling products and
      offerings.    Our cases are currently sold in
      nearly every segment of the medical device market. We believe that our
      diverse customer base offers us a natural entry point to new orthopedic
      and non-orthopedic customers for our implants and
    instruments.





·
            Leverage manufacturing
      skills.    During recent years, we expanded
      most of our facilities and opened new facilities to add manufacturing
      capacity and design resources, and updated much of our manufacturing and
      development equipment. We intend to continue to leverage our investments
      in sophisticated equipment and manufacturing know-how to expand our
      existing customer relationships and to obtain new customers. During 2008,
      we developed high precision machining capabilities to better serve the
      spine implant market.





·
            Increase new product
      offerings.    Our Design and Development
      Centers provide expertise and coordination for our design, engineering and
      prototyping offerings. We intend to use the dedicated expertise of our
      Design and Development Centers to generate additional development projects
      with our customers and to expand our line of innovative and independently
      developed instruments and cases.





·
            Collaborate with emerging
      companies.    We believe that new and
      innovative medical device companies are creating a meaningful market
      presence and that our Total Solutions® approach positions us to help these
      companies, many of which may have limited
  resources.


6


·
            Continued global
      expansion.    Our global facilities allow us to
      serve the global medical marketplace. We believe that having local
      facilities near our global customers and closer to the end consumer allows
      us to better serve their needs. In December 2006, we opened a new facility
      in Malaysia to better serve our customers in Asia. We plan to expand our
      Malaysia operations and increase its product
  offerings.





·
            Leverage
      Technology.    Our expertise in metal
      processing and in particular high integrity net shape forging enables us
      to develop a role as a niche supplier in certain other markets most
      notably the aerospace sector where we supply engine aerofoil blades and
      other similar parts.





We
believe all of our acquisitions support our stated strategies and strengthen our
business model because they diversify our sales into other medical markets,
which allows us to cross sell our products, increase our product offerings and
provide strategic locations that we can use as a base for expansion of our
business.





Products





We
design, develop and manufacture implants and related surgical instruments and
cases for orthopedic device companies. We also design, develop and manufacture
products for companies in other medical device markets, such as dental,
osteobiologic and endoscopy, and we provide specialized products used in the
aerospace and other non-healthcare markets. Our revenue from the sale of
implants, instruments, cases and other products represented 29.0%, 41.9%, 20.4%
and 8.7%, respectively, of our revenue in fiscal 2008, compared with 33.3%,
27.2%, 26.5% and 13.0%, respectively, of our revenue in fiscal
2007.




Implants





We
design, develop and manufacture implants for use in specific implant systems
developed by our customers. We make orthopedic implants used primarily in knee
and hip implant systems. Our orthopedic implants are used in reconstructive
surgeries to replace or repair hips, knees and other joints, such as shoulders,
ankles and elbows, sometimes referred to as extremities that have deteriorated
as a result of disease or injury. An orthopedic implant system is generally
comprised of several implants designed to work in concert to replicate the
structure and function of a healthy joint.





We also
manufacture implant products for trauma, spine and other implant systems. Trauma
implant systems are used primarily to reattach or stabilize damaged bone or
tissue while the body heals. Spinal implant systems are used by orthopedic
surgeons and neurosurgeons in the treatment of degenerative diseases,
deformities and injuries in various regions of the spine.





Our
design, engineering and prototyping expertise is an integral part of our implant
offering. Medical device companies, which typically focus their resources on
developing new implant systems as well as sales and marketing, may rely on us
and companies like us to design, develop and manufacture the implants that
comprise their implant systems. Our manufacturing capabilities, including our
net shaped forging capabilities, technologically advanced casting facility and
machining expertise, allow us to produce consistent, tight tolerance implants in
large volumes for our customers.





We
produce gross shaped, near-net shaped and net shaped implants for medical device
manufacturers. Gross shaped implants require a significant amount of machining
and hand processing post-forging. Near-net shaped implants are distinguished by
geometric features that are thinner; more detailed and have tighter tolerances.
Net shaped and near-net shaped implants require far fewer machine and hand
operations post-forging. Net shaped implants typically require machining only on
vital areas, such as the taper segment of a hip where it is joined to the
femoral head.





We have
the machining expertise needed to provide finished implants to our customers.
Some customers purchase finished implants from us while others purchase
unfinished implants and machine them to final specifications.





Our
primary implant products and their applications are:





·
            Knees.    The
      knee joint includes the surfaces of three distinct bones: the lower end of
      the femur, the upper end of the tibia or shin bone, and the patella (knee
      cap). Cartilage on any of these surfaces can be compromised by disease or
      injury, leading to pain and inflammation that may require knee
      reconstruction. Our knee implants include a femoral component, a patella,
      a tibial tray and an articulating surface (placed on the tibial tray) and
      are used in total knee reconstruction, partial knee reconstruction and
      revision procedures. We provide one or more, and in some cases, all of
      these implants for our customers' knee implant systems. We use proprietary
      manufacturing know-how and advanced computer aided simulation techniques
      to produce tight tolerance near-net shaped to net shaped tibial implants
      that require minimal if any
machining.





·
            Hips.    The
      hip joint consists of a ball-and-socket joint that enables a wide range of
      motion. The hip joint is often replaced due to degeneration of the
      cartilage between the head of the femur (the ball) and the acetabulum or
      hollow portion of the pelvis (the socket). This loss of cartilage causes
      pain, stiffness and a reduction in hip mobility. We produce tight
      tolerance femoral heads, hip stems, acetabular cups and spiked acetabular
      cups used in bone conservation, total-hip reconstruction and revision
      replacement procedures. Our hip stems are forged with tight tolerance
      details.





·
            Extremities, Trauma and
      Spine.    Extremity reconstruction involves the
      use of an implant system to replace or reconstruct injured or diseased
      joints, such as the finger, toe, wrist, elbow, foot, ankle and shoulder.
      Our forging capabilities allow us to produce thin cross sections of
      material to very tight tolerances for these smaller joint procedures.
      Trauma implant procedures commonly involve the internal fixation of bone
      fragments using an assortment of plates, screws, rods, wires and pins. Our
      spinal implant products consist primarily of plates and screws. We
      manufacture trauma and spinal plate implants to exact details to fit bone
      contours. During 2008 we developed a high precision machining cell to
      better serve the spine market.





Instruments





We make
high-precision surgical instruments used in hip, knee and shoulder
reconstruction procedures, as well as in spinal, trauma and other implant
procedures. We design, develop and manufacture implant-specific and
procedure-specific instruments. We typically do not manufacture general surgical
instruments, but will procure them as an offering to our customers in order to
provide our customers with complete instrument sets. We have several reamer
systems used by many of our large customers. We currently have over 1,500
Symmetry standard products in our catalog plus over 12,000 individual items sold
directly to hospitals.





We
primarily make a wide range of knee cutting blocks (instruments that guide
blades that cut bone), osteotome revision systems (instruments used to cut
through bone), reamers (instruments used for shaping bone sockets or cavities)
and retractors (instruments used to pull back tissue for clear sight during
surgery). Some of our instrument handles are made with our patented plastic
insertion machine, which is designed to withstand the intense heat produced
during frequent sterilizations and is attached to the instrument. Our
instruments are made to tight tolerances to ensure precise alignment and fitting
of implants.


7


Each
implant system typically has an associated instrument set that is used in the
surgical procedure to insert that specific implant system. Instruments included
in a set vary by implant system. For example, hip and knee implant procedure
instrument sets often contain in excess of 100 instruments, whereas revision
procedure sets may contain approximately 50 instruments. Usually, instrument
sets are sterilized after each use and then reused.





The
instruments we produce are typically used in either open, minimally invasive, or
revision implant procedures and can generally be categorized as:





·
            Implant-specific
      instruments, which are used solely for a specific brand of implant, such
      as high-precision knee cutting blocks, certain reamers and broaches;
      and





·
            Procedure-specific
      instruments, which are designed for a particular type of procedure, such
      as a minimally invasive hip implant procedure, but can be used with the
      implant systems of multiple
companies.





Implant-Specific
Instruments.    The size, shape and other features of
each implant system are unique. Consequently, unique instruments must be used to
ensure precise alignment and fitting during the surgical procedure to insert an
implant system. Accordingly, when a medical device company develops a new
implant system, it typically also develops instruments specifically designed to
insert the implant system. Medical device companies typically provide complete,
customized implant-specific instrument sets to end users (hospitals, outpatient
centers and physicians) in order to facilitate use of the implant.





We seek
to collaborate with our customers early in the development process to facilitate
the concurrent design of the implant system and the instruments that will
accompany the system. Our implant-specific instruments generally include
customized reamers, cutting blocks, broaches, rasps, guides and other
instruments designed to accommodate the unique size, shape and other features of
our customers' implant systems. These instruments are used by the surgeon to cut
and shape bone and cavities during the surgical procedure and to align and fit
the implant system. We are recognized in the orthopedic community for
constructing these instruments to extremely tight tolerances.





Procedure-Specific
Instruments.    We also manufacture independently
developed instruments referred to as our Symmetry products. We have developed
these products through our years of experience serving the orthopedic market and
our investments in research and development. Complete implant procedure
instrument sets typically include certain instruments that are designed for a
particular type of procedure but can be used with the implant systems of
multiple companies. By purchasing our proven Symmetry products, customers can
leverage our extensive experience and expertise to complete their instrument
sets more quickly and efficiently.





Our
Symmetry products include successful hip and knee revision systems. Instruments
that make up revision systems, which are used to remove orthopedic implants, are
typically designed for a specific type of procedure but can be used to remove
various brands of implants. These self-contained systems include an assortment
of osteotome blades that assist the surgeon in separating an implant from cement
or bone in-growth where access is limited, while minimizing damage to the bone.
Our established revision systems can also be readily modified for a customer by
adding additional instruments. With our acquisition of SSI in August 2007, we
now distribute a wide array of instruments and related products directly to
hospitals.





Cases





We
produce a wide range of plastic, metal and hybrid cases used in over 25 medical
device markets, including orthopedic, arthroscopy, osteobiologic, endoscopy,
cardiovascular, dental, ophthalmology, diagnostic imaging and ear, nose and
throat surgical procedures. Cases are used to store, transport and arrange
implant systems and other medical devices and related surgical instruments. Our
cases are generally designed to allow for sterilization and re-use after an
implant or other surgical procedure is performed. Our plastic cases are designed
to withstand the intense heat produced during the sterilization
process.





The
majority of the cases we make are tailored for specific implant procedures so
that the instruments, implants and other devices are arranged within the case to
match the order of use in the procedure and are securely held in clearly
labeled, custom-formed pockets. We seek to collaborate with our customers early
in the development processes to facilitate the concurrent design of the case and
related instruments.





We also
produce standard cases which are primarily used in the non-orthopedic market
segments where the security or presentation of the instruments and devices is
less important. Over the past several years, we have made a significant
investment to obtain 510(k) clearance for our PolyVac line of standard cases
through the FDA pre-market notification process. We believe this allows our
customers to reduce time to market and to reallocate financial and human
resources that would otherwise be spent on compliance efforts, which provides us
with a significant competitive advantage in selling our standard
cases.





We have
more than 57 patents related to our case designs and manufacturing processes. We
believe that our complete line of plastic, metal and hybrid product offerings
strategically positions us in the case market. Riley Medical expanded our
product offering into other medical markets and provides many new patented
products for us to leverage across our customer base. Our acquisition of UCA
expanded our product offering into medical containers which are used by
hospitals to hold instruments when they are sterilized.





Highlights
of our case product offerings include:





·
            Orthopedic
      Cases.    We produce custom metal, plastic and
      hybrid cases designed to store, transport and arrange surgical instruments
      and related implant systems for orthopedic device manufacturers. Proper
      identification of instruments, such as reamers which are generally
      included in a range of sizes in one to two millimeter increments, is
      critical in orthopedic implant procedures. Our graphics and thermo formed
      tray pockets provide a secure and organized arrangement to assist surgeons
      during procedures.





·
            Endoscopy
      Cases.    We produce cases for endoscope
      sterilization for many types of sterilization methods. Our Riley Medical
      acquisition increased our penetration into the endoscopy
      market.





·
            Dental
      Cases.    We produce cases used in dental
      implant and general dental procedures. Dental implant cases are typically
      complex and include many levels of trays, while cases used in general
      dental procedures tend to be smaller and less
  complex.





·
            Other
      Cases.    We also manufacture and sell cases
      for arthroscopy, osteobiologic, cardiovascular, ophthalmology, diagnostic
      imaging and ear, nose and throat procedures as well as sterilization
      containers.


8


Specialized
Non-Healthcare Products





We offer
specialized non-healthcare products on a limited basis. One of our UK based
facilities produced a range of cutting tools, cutlery and surgical instruments
in the 1950s. This facility evolved to focus on net shaped forgings, which
resulted in a business focusing on orthopedic instruments and aerospace products
for jet engines in the late 1990s. Our core design, engineering and
manufacturing competencies give us the expertise to offer aerospace products.
Our aerospace products primarily are net shaped aerofoils and non-rotating
aircraft engine forgings produced for our aerospace customers. Our acquisition
of Clamonta Ltd in January 2007 expanded our offering in the aerospace
industry by adding aerospace machining capabilities to our
offering.





Product
Development





Our
Design and Development Centers provide dedicated expertise and greater
coordination for our design, engineering and prototyping offerings. Our main
Design and Development Center is located in Warsaw, Indiana, and brings together
talented engineering and design personnel and provides them with
state-of-the-art design software and prototyping equipment. Our Design and
Development Centers serve to centralize and better institutionalize our design
and engineering knowledge and creates a fertile environment for new product
development. We can coordinate the product development projects for our
customers as well as the efforts of our engineers and designers in order to
ensure that we have the appropriate people and technology focused on particular
product development initiatives. We also have Design and Development
Centers in Manchester, New Hampshire, Lansing, Michigan, Cheltenham, UK and
Penang, Malaysia.





We seek
to collaborate with our customers' product development teams and to assist in
the design, engineering and prototyping of new medical device systems from the
beginning of the development process. Our sales staff is technically trained and
works closely with our customers' staff. As new product concepts are formulated,
our sales people bring in our design and engineering personnel and utilize the
resources of our Design and Development Centers to provide dedicated design
teams with exceptional knowledge and experience. As a project evolves, we can
rapidly create prototypes of the proposed product, instrument, case or implant.
Working closely with our customers through the conceptual, planning and
prototyping stages positions allows us to quickly scale up for manufacturing of
the product.





In
addition to supporting our customers' product development efforts, our Design
and Development Centers are continuously developing our own product lines, which
we refer to as Symmetry products. We develop products by utilizing years of
experience and knowledge, investing in research and development and continually
seeking to expand our knowledge of the marketplace by consulting surgeons and
other end users of our products. We currently offer over 1,500 Symmetry
products, including instruments for minimally invasive surgical implant
procedures and hip and knee revision systems.





Environmental
Issues





Our
discussion of environmental issues is presented under the caption
"Environmental" in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations in this
Form 10-K.





Capital
Investment





Information
concerning our capital expenditures is presented under the caption "Capital
Expenditures" in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-K.





Customers





We supply
our products primarily to manufacturers in the medical device market. Our
customers include large orthopedic device manufacturers, including
Biomet Inc., DePuy Orthopaedics, Inc., a subsidiary of
Johnson & Johnson, ("Depuy"), Medtronic Inc., Smith &
Nephew plc, Stryker Corp. and Zimmer Holdings, Inc.
("Zimmer"). We also have established relationships, primarily through our
case product offerings, with leading medical device manufacturers and
distributors in numerous other medical device market segments, including
Cardinal Health, Inc., 3i and St. Jude Medical Inc. With the
addition of SSI and UCA in August 2007, we serve over 1,000 additional
customers, some of which own multiple hospitals.





We sold
to approximately 1,850 customers in fiscal 2008. Sales to our ten largest
customers represented 70.7% and 66.9% of our revenue in fiscal 2008 and 2007,
respectively. Our two largest customers accounted for 33.0% and 11.1% of our
revenue in fiscal 2008 and our two largest customers accounted for 17.9% and
11.7% of our revenue in fiscal 2007. Our two largest customers in alphabetical
order in fiscal 2008 and 2007 were DePuy and Zimmer. No other customer accounted
for more than 10% of our revenue in fiscal 2008 or fiscal 2007. We typically
serve several product teams and facilities within each of our largest customers,
which mitigate our reliance on any particular customer. We also reduced our
concentration in the orthopedic industry with the acquisitions of Riley Medical,
TNCO, SSI and UCA, which are primarily in non-orthopedic medical markets, and
Clamonta Ltd, which serves the aerospace industry. We may experience a
seasonal impact of the orthopedic industry on revenue in the third quarter
because many of our products are used in elective procedures that tend to
decline to some degree during the summer months.





We sell
our products to customers domestically and in a number of regions outside the
United States. In addition, our customers often distribute globally products
purchased from us in the United States. Set forth below is a summary of revenue
by selected geographic locations in our last three fiscal years, based on the
location to which we shipped our products:





Percent
of Revenue by Geographic Location





Fiscal
      Year Ended2008
                      
                      
                      2007
                      
                      
                      2006United
      States
                      
                      
                      71.5
                      %
                      
                      
                      61.1
                      %
                      
                      
                      63.7
                      %United
      Kingdom
                      
                      
                      13.0
                      %
                      
                      
                      18.8
                      %
                      
                      
                      13.5
                      %Ireland
                      
                      
                      7.5
                      %
                      
                      
                      9.1
                      %
                      
                      
                      10.2
                      %Other
      foreign countries
                      
                      
                      8.0
                      %
                      
                      
                      11.0
                      %
                      
                      
                      12.6
                      %Total
      net revenues
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %


9


Sales
and Marketing





Our sales
and marketing efforts emphasize our design and engineering expertise, internally
developed Symmetry products, manufacturing capabilities, international
distribution network and our ability to provide customers with a comprehensive
product offering. We are increasingly presenting our products to customers in a
Total Solutions® concept which offers the customer a collaborator for developing
complete implant, instrument and case solutions.





We have
over 70 sales and marketing personnel worldwide serving our Original Equipment
Manufacturer ("OEM") customers and more than 25 direct sales personnel selling
directly to hospitals. In addition to our internal sales efforts, we also sell
standard cases through distributors. Our sales personnel are trained in all of
our products in order to cross-sell and identify opportunities outside their
immediate area of focus. We typically serve several product teams and facilities
within each OEM customer which diminishes our reliance on any one purchasing
decision. Our customer base for cases extends into nearly every segment of the
medical device market. We believe there is a significant opportunity to leverage
our existing relationships among this customer base to achieve greater
penetration of our customized instrument and implant products. We intend to
increase our marketing of implants, instruments and our Total Solutions® concept
to these customers.





Our sales
personnel are technically trained and are based in close proximity to or located
at our largest customers' sites. This physical proximity allows sales personnel
to engage quickly with the marketing, design, engineering and purchasing staffs
of these orthopedic device manufacturers. Our sales people are empowered to
bring in design and engineering product development teams to facilitate a
customer's efforts. Our goal is to collaborate with customers early in the
development cycle and to continue through production, packaging, delivery and
logistics.





Manufacturing
and Materials





We have
manufacturing facilities in the United States, United Kingdom, France, Ireland
and Malaysia. We have made investments in recent years to modernize our
production facilities, improve our production processes and develop superior
technical skills that complement our manufacturing capabilities. These
investments have allowed us to continue to improve the quality of our products,
increase our manufacturing capacity and improve our efficiency. Our
manufacturing processes include:





·
            Forging.    Our
      forging process uses presses to force heated metal between two dies
      (called tooling) that contain a precut profile of the desired implant. The
      forging process enhances the strength of an implant, which is important
      for hip stems and other implants that must withstand significant stress.
      Many customers prefer forging because it provides greater mechanical
      properties. We forge gross shaped, near-net shaped and net shaped
      implants. Our know-how enables us to produce precision net shaped forgings
      in large volumes.





·
            Casting.    In
      the casting process, metal is heated until it is liquid and then poured
      into an implant mold. Casting can be used to produce implants with
      intricate shapes. We have developed a technologically advanced, highly
      automated, casting facility in Sheffield, United
  Kingdom.





·
            Plastic and Metal
      Forming.    Our know-how and technology
      facilitates our extensive plastic and metal forming capabilities. We use
      thermoform processes to draw uniform plastic cases and specialized
      equipment to form metal. Our laser controlled metal working machines allow
      us to punch and shape metal in intricate and complex
    detail.





·
            Machining/Finishing.    Machining
      is used extensively to enhance our forged, cast and formed products. We
      use computer numerically controlled, multi-axis and wire electric
      discharge equipment to cut, bend, punch, polish and otherwise shape or
      detail metal or plastic. Our finishing processes include polishing, laser
      etch marking, graphics and other customer specific processes. During 2008,
      we developed high precision machining capabilities to better serve the
      spine implant market.





The
majority of products that we produce are customized to the unique specifications
of our customers. Our ability to maintain flexible operations is an important
factor in maintaining high levels of productivity. We endeavor to use
"just-in-time" manufacturing and flexible manufacturing cells in our production
processes. Just-in-time manufacturing is a production technique that minimizes
work-in-process inventory and manufacturing cycles. Manufacturing cells are
clusters of individual manufacturing operations and work stations grouped in a
circular configuration, with the operators placed centrally within the
configuration. Cell manufacturing provides flexibility by allowing efficient
changes to the number of operations each operator performs, which enhances our
ability to maintain product volumes that are consistent with our customers'
requirements and reduce our level of inventory.





We use
raw materials, including titanium, cobalt chrome, stainless steel and nickel
alloys, and various other components in the manufacture of our products.
Although we generally believe these materials are readily available from
multiple sources, from time to time we rely on a limited number of suppliers and
in some cases on a single source vendor. For example, we obtain patented
Radel® R plastic, which is designed to withstand intense heat produced
during frequent sterilizations, from a single supplier for use in our instrument
handles and plastic cases.





Quality
Assurance





We
maintain a comprehensive quality assurance and quality control program, which
includes the control and documentation of all material specifications, operating
procedures, equipment maintenance and quality control methods. Our quality
systems are based upon FDA requirements and the ISO standards for medical device
manufacturers. We believe that all of our facilities are currently in
substantial compliance with regulations applicable to them. For example, in the
United States and United Kingdom these regulations include the current good
manufacturing practice regulations and other quality system regulations imposed
by the FDA. Our Sheffield, United Kingdom facility and our United States based
facilities are registered with and audited by the FDA. Our line of PolyVac
standard cases received FDA 510(k) clearance, which can reduce our customers'
burden in obtaining FDA approval. Our facilities have obtained numerous
industry-specific quality and regulatory assurance certifications.





Competition





Our OEM
customers, to varying degrees, are capable of internally developing and
producing the products we provide. While we believe that our comprehensive
offerings and core production competencies allow medical device companies to
reduce costs and shorten time to market, one or more of our customers may seek
to expand their development and manufacturing operations which may reduce their
reliance on independent suppliers such as ours. We compete on the basis of
development capability, breadth of product offering, manufacturing quality, cost
and on time delivery.




10


We also
compete with independent suppliers of implants, instruments and cases to medical
device companies. The majority of these suppliers are privately owned and
produce some, but not all, of the products required in orthopedic implant
systems. We believe that we are the only independent supplier to offer a
complete implant, instrument and case solution to orthopedic device
manufacturers. We compete with other independent suppliers primarily on the
basis of development capability, breadth of product offering, manufacturing
quality, cost and on time delivery. We believe that we are the largest
independent supplier of implants, instruments and cases to orthopedic device
manufacturers. However, other independent suppliers may consolidate and some of
our current and future competitors, either alone or in conjunction with their
respective parent corporate groups, may have financial resources and research
and development, sales and marketing, and manufacturing capabilities and brand
recognition that are greater than ours.





Intellectual
Property





We
believe our patents are valuable, however, our knowledge, experience,
proprietary and trade secret information, manufacturing processes, product
design and development staff and sales staff have been equally or more important
in maintaining our competitive position. We seek to protect our non-patented
know-how, trade secrets, processes and other proprietary confidential
information principally through confidentiality, non-compete and invention
assignment agreements.





We
currently own 110 total issued patents and 50 patents pending related to
our cases and instruments. These patents expire at various times beginning in
2011 and ending in 2026. We also have 33 issued trademarks and 10 pending
trademarks. Our policy is to aggressively protect technology, inventions and
improvements that we consider important through the use of patents, trademarks,
copyrights and trade secrets in the United States and significant foreign
markets. If our products were found to infringe any proprietary right of a third
party, we could be required to pay significant damages or license fees to the
third party or cease production, marketing and distribution of those products.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or other proprietary information we own and to
determine the validity and scope of our proprietary rights.





We cannot
provide complete assurance that our existing or future patents, if any, will
afford adequate protection, that any existing patent applications will result in
issued patents, that our patents will not be circumvented, invalidated, or held
unenforceable, that our proprietary information will not become known to, or be
independently developed by, our competitors, or that the validity or
enforceability of any patents or other intellectual property owned by or
licensed to us will be upheld if challenged by others in litigation. Due to
these and other risks, we do not rely solely on our patents and other
intellectual property to maintain our competitive position. Although
intellectual property is important to our business operations and in the
aggregate constitutes a valuable asset, we do not believe that any single
patent, trade secret, trademark or copyright, or group of patents, trade
secrets, trademarks or copyrights is critical to the success of our
business.





Employees





As of
February 28, 2009 we had 2,688 employees. Our employees are not represented
by any unions. From time to time in the past, however, some of our employees
have attempted to unionize at two of our facilities. We believe that we have a
good relationship with our employees.





Government
Regulation





Our
business is subject to governmental regulation. We are subject to federal, state
and local environmental laws and regulations governing the emission, discharge,
use, storage and disposal of hazardous materials and the remediation of
contamination associated with the release of these materials at our facilities
and at off-site disposal locations. We are not aware of any material
noncompliance with the environmental laws currently applicable to our business
and we are not subject to any material claim for liability with respect to
contamination at any company facility or any off-site location. We cannot assure
you that we will not be subject to such environmental liabilities in the future
as a result of historic or current operations.





As a
component manufacturer, our medical products are subject to regulation by the
FDA. The FDA and related state and foreign governmental agencies regulate many
of our customers' products as medical devices. In many cases, the FDA must
approve those products prior to commercialization. We believe that our existing
medical manufacturing plants comply with current Good Manufacturing Practices as
applicable.





We have
"master files" on record with the FDA. Master files may be used to provide
confidential detailed information about facilities, processes or articles used
in the manufacturing, processing, packaging and storing of one or more medical
device components. These submissions may be used by device manufacturers to
support the premarket notification process required by Section 510(k) of
the federal Food Drug & Cosmetic Act. This notification process is
necessary to obtain clearance from the FDA to market a device for human use in
the United States.





We are
also subject to various other environmental, transportation and labor laws as
well as various other directives and regulations both in the U.S. and abroad. We
believe that compliance with these laws will not have a material impact on our
capital expenditures, earnings or competitive position. Given the scope and
nature of these laws; however, there can be no assurance that they will not have
a material impact on our results of operations. We assess potential contingent
liabilities on a quarterly basis. At present, we are not aware of any such
liabilities that would have a material impact on our business.





Executive
Officers of the Registrant





Set forth
below are the name, age, position and a brief account of the business experience
of each of the Corporation's executive officers as of January 3,
2009.





Name
                
                Age
                
                PositionExecutive
      Officers:Brian
      S. Moore
                
                62
                
                President
      and Chief Executive OfficerFred
      L. Hite
                
                41
                
                Senior
      Vice President and Chief Financial OfficerD.
      Darin Martin
                
                57
                
                Senior
      Vice President, Quality Assurance/Regulatory Affairs and Compliance
      OfficerMichael
      W. Curtis
                
                54
                
                Senior
      Vice President and Chief Operating Officer, USAJohn
      J. Hynes
                
                48
                
                Senior
      Vice President and Chief Operating Officer,
  Europe





BRIAN S. MOORE has served as
the Corporation's President and Chief Executive Officer and a director of the
Corporation since the Corporation's acquisition of Mettis in June 2003.
From April 1999 to June 2003, Mr. Moore served as the Chief
Executive Officer of Mettis Group Limited, the parent company of Mettis. From
April 1994 to March 1999, Mr. Moore held various positions with
EIS Group plc, including Chairman of the Aircraft and Precision
Engineering Division, and from 1987 to 1999, Mr. Moore served as Chief
Executive Officer of AB Precision (Poole) Limited. Prior thereto, Mr. Moore
served in various management positions at Vanderhoff plc, Land Rover
Vehicles, Bass Brewing and Prudential Insurance, and as the Financial Director
for a subsidiary of GEC Ltd. (UK). Mr. Moore has qualified as a
Graduate Mechanical Engineer by the Institution of Mechanical Engineers (the
qualifying body for mechanical engineers in the United Kingdom) and as an
Accountant with the UK Chartered Institute of Management
Accountants.


11


FRED L. HITE has served as the
Corporation's Senior Vice President and Chief Financial Officer since
March 2004. From 1997 to 2004, Mr. Hite served in various capacities
at General Electric Industrial Systems, including Finance Manager of General
Electric Motors and Controls from 2001 to 2004, Manufacturing Finance Manager
from 2000 to 2001 and Finance Manager of Engineering Services from 1997 to 2000.
From 1995 to 1997, Mr. Hite served as Sourcing Finance Manager and
Commercial Finance Analyst at General Electric Industrial Control Systems. From
1990 to 1995, Mr. Hite served in various finance positions at General
Electric Appliances. Mr. Hite received a B.S. in Finance from Indiana
University.





D. DARIN MARTIN has served as
the Corporation's Senior Vice President of Quality Assurance, Regulatory
Affairs, and Chief Compliance Officer since June 2003. From 1994 to 2003,
Mr. Martin served as the Corporation's Vice President of Quality Assurance
and Regulatory Affairs. Mr. Martin joined the Corporation in 1990 as
Director of Quality Assurance. From 1984 to 1990, Mr. Martin served as
Quality Assurance Supervisor for Owens-Illinois Inc.'s Kimble HealthCare
Division. Mr. Martin has been a member in various medical device industry
associations, including a 20 year membership with the American Society of
Quality, Biomedical Devices-NE Indiana Division. Mr. Martin received a B.S.
in Business Management from Ball State University, a S.P.C. Instructor
Certification from Baldwin-Wallace College and a M.B.A. from Kennedy-Western
University.





MICHAEL W. CURTIS was promoted
to the position of the Corporation's Senior Vice President and Chief Operating
Officer, USA as of January 1, 2008. Mr. Curtis joined the Corporation
in November 2002. Prior to joining the Corporation, Mr. Curtis served as
Vice President of Operations for Lightchip, Inc. from May 2000 to
2002, and from 1998 to 2000, Mr. Curtis served as Vice President/General
Manager of Communications Products at Thomas & Betts Corporation. From
1994 to 1997, Mr. Curtis was employed at Amphenol Aerospace—Amphenol
Corporation, initially as a Business Unit Manager and subsequently as Director
of Filter Products. From 1976 through 1994, Mr. Curtis served in various
capacities at Hamilton Standard Division of United Technologies Corporation, the
last of which was Product Line Manager. Mr. Curtis received his B.S.,
M.B.A. and M.S. in Engineering Management from Western New England
College.





JOHN J. HYNES was appointed by
the Board of Directors on October 17, 2007 as the Corporation's Chief
Operating Officer, Europe, effective November 1, 2007. Prior to his
appointment, from April 2004 until October 2007, Mr. Hynes was
employed by Rolls-Royce PLC where he served as Supply Chain Director from
January 2007 to October 2007, Supply Chain Control Director from May 2006
to January 2007 and Logistics Director from April 2004 to March 2006.
Prior to Rolls-Royce, Mr. Hynes served as the General Manager of Land Rover
Group Ltd. from May 1998 to April 2004. Mr. Hynes received
his Masters Degree in Business Administration from Warwick University as well as
attending Ford's Lean Manufacturing Academy in Liverpool.





For
information regarding our directors, and additional information regarding our
executive officers, see our 2009 Proxy Statement which will be filed with the
Securities Exchange Commission no later than 120 days after the end of our
fiscal year.





Family
Relationships





There are
no family relationships between any of the executive officers or directors of
the Corporation.





Available
Information





Symmetry Medical
Website.    Our Annual reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 are available through our
websitewww.symmetrymedical.com (from the "Investor Relations" link on the home
page, and "SEC Filings" within the "Investor Relations" box located in the text)
free of charge as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission
(SEC). You may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that site is
http://www.sec.gov.





Information
relating to corporate governance at Symmetry, including our Corporate Governance
Guidelines, Code of Business Conduct and Ethics for Board Members and
information concerning our executive officers, directors and Board committees
(including committee charters), and transactions in Symmetry securities by
directors and officers, is available on or through our website atwww.symmetrymedical.com
under “Investor Relations” then "Corporate Governance".





We are
not including the information on our website as a part of, or incorporating it
by reference into, our Form 10-K.





ITEM
1A.    RISK FACTORS





Our
profitability is subject to risks described under this section on "Risk Factors"
described below. Although the following are not necessarily the only ones facing
our company, our business, financial condition or results of operations they
could be materially adversely affected by many of the following
risks.





Risks
Related to Our Business





We
depend heavily on sales to our significant customers, and our business could be
adversely affected if any of them reduced or terminated purchases from
us.





A limited
number of large orthopedic device manufacturers, all of whom are our customers,
control the predominate share of the orthopedic device market. We depend heavily
on revenue from these large companies. Revenue from our ten largest customers
represented approximately 70.7% of our revenue in fiscal year 2008 and 66.9% of
our revenue in fiscal year 2007. Our two largest customers accounted for
approximately 33.0% and 11.1% of our revenue in the fiscal year 2008 and our two
largest customers accounted for 17.9% and 11.7% of our revenue in fiscal
2007.





We expect
that we will continue to depend on a limited number of large customers for a
significant portion of our revenue. In addition, our customer base could become
more concentrated if, among other things, there is further consolidation among
orthopedic device manufacturers. If a significant customer reduces or delays
orders from us, terminates its relationship with us or fails to pay its
obligations to us, our revenues could decrease significantly.





If
we are unable to continue to improve our current products and develop new
products, we may experience a decrease in demand for our products or our
products could become obsolete, and our business would be adversely
affected.





We sell
our products to customers in markets that are characterized by technological
change, product innovation and evolving industry standards. We are continually
engaged in product development and improvement programs, both in collaboration
with our customers and independently. Our customers may engage in additional
in-house development and manufacturing, and we may be unable to compete
effectively with our independent competitors, unless we can continue to develop
and assist our customers in developing innovative products. Our competitors'
product development capabilities could become more effective than ours, and
their new products may get to market before our products, may be more effective
or less expensive than our products or render our products obsolete. If one or
more of these events were to occur, our business, financial condition and
results of operation could be adversely affected.


12


We
face competition from our customers' in-house capabilities, established
independent suppliers and potential new market entrants, and if we lose
customers it could have an adverse effect on our revenue and operating
results.





Our
customers have varying degrees of development and manufacturing capabilities,
and one or more of them may seek to expand their in-house capabilities in the
future, including adding capacity in existing sites or expanding into low labor
cost areas such as Asia. Many of our customers are larger and have greater
financial and other resources than we do and can commit significant resources to
product development and manufacturing. Many of our independent competitors are
smaller companies, many of which have close customer relationships and either a
low cost structure or highly specialized design or production capabilities. Our
independent competitors may continue to consolidate and some of our current and
future competitors, either alone or in conjunction with their respective parent
corporate groups, may have financial resources and research and development,
sales and marketing and manufacturing capabilities or brand recognition that are
greater than ours. In addition, the innovative nature of our markets may attract
new entrants to the field. Our products may not be able to compete successfully
with the products of other companies, which could result in the loss of
customers and, as a result, decreased revenue and operating
results.





If
product liability lawsuits are brought against us or our customers our business
may be harmed.





The
manufacture and sale of our healthcare and other products, including our
aerospace products, expose us to potential product liability claims and product
recalls, including those which may arise from misuse or malfunction of, or
design or manufacturing flaws in, our products, or use of our products with
components or systems not manufactured by us. Product liability claims or
product recalls, regardless of their ultimate outcome, could require us to spend
significant time and money in litigation or otherwise require us to pay
significant damages, which could adversely affect our earnings and financial
condition.





We carry
product liability insurance but it is limited in scope and amount and may not be
adequate to protect us against product liability claims. We may be unable to
maintain this insurance at reasonable costs and on reasonable terms, if at
all.





Our
operating results are subject to significant potential fluctuation and you
should not rely on historical results as an indication of our future
results.





Our
operating results have fluctuated in the past and may vary significantly from
quarter to quarter or year to year in the future due to a combination of
factors, many of which are beyond our control. These factors
include:





·
            the
      timing of significant orders and shipments, including the effects of
      changes in inventory management practices by our
  customers;





·
            the
      number, timing and significance of new products and product introductions
      and enhancements by us, our customers and our
  competitors;





·
            changes
      in pricing policies by us and our
competitors;





·
            changes
      in medical treatment or regulatory
practices;





·
            restrictions
      and delays caused by regulatory review of our customers'
      products;





·
            recalls
      of our customers' products;





·
            availability
      and cost of raw materials; and





·
            general
      economic factors.





Our
quarterly revenue and operating results may vary significantly in the future and
period-to-period comparisons of our results of operations are not necessarily
meaningful and should not be relied upon as indications of our future
performance. We cannot assure you that our revenue will increase or be sustained
in future periods or that we will be profitable in any future period. Any
shortfalls in revenue or earnings from levels expected by securities or industry
analysts could have an immediate and significant adverse effect on the trading
price of our common stock in any given period.





If
we do not retain key individuals and retain and attract skilled manufacturing
workers, we may not be able to operate successfully, and we may not be able to
meet our strategic objectives.





Our
success depends in part upon the retention of key managerial, sales and
technical personnel, particularly skilled manufacturing workers. We compete for
such personnel with other companies and other organizations, many of which are
larger and have greater name recognition and financial and other resources than
we do. There can be no assurance that we will be successful in retaining our
current personnel or in hiring or retaining qualified personnel in the future.
The loss of key personnel or the inability to hire or retain qualified personnel
in the future could have a material adverse effect on our ability to operate
successfully.





We
compete with numerous precision manufacturing companies to attract and retain
qualified and highly skilled manufacturing employees. Our Warsaw, Indiana
facilities, in particular, face significant competition, including from certain
of our customers and other companies located in or near Warsaw that are larger
and have greater financial and other resources than we do, for skilled
production employees. If we are not able to retain and attract skilled
manufacturing employees, we may be unable to support our anticipated growth,
which could adversely affect our profitability.





A significant shift
in technologies or methods used in the treatment of damaged or diseased bone and
tissue could make our products obsolete or less attractive.





The
development of new technologies could reduce demand for our products. For
example, pharmaceutical advances could result in non-surgical treatments gaining
more widespread acceptance as a viable alternative to orthopedic implants. The
emergence of successful new biological tissue-based or synthetic materials to
regenerate damaged or diseased bone and to repair damaged tissue could
increasingly minimize or delay the need for implant surgery and provide other
biological alternatives to orthopedic implants. New surgical procedures could
diminish demand for our instruments. A significant shift in technologies or
methods used in the treatment of damaged or diseased bone and tissue could
adversely affect demand for our products.





We
depend on third party suppliers, and in some cases a single third party
supplier, for key components and raw materials used in our manufacturing
processes and the loss of these sources could harm our business.





We use
titanium, cobalt chrome, stainless steel and nickel alloys, and various other
raw materials in our products. Although we generally believe these materials are
readily available from multiple sources, from time to time we rely on a limited
number of suppliers and in some cases on a single source vendor. For example, we
obtain patented Radel® R plastic, which is designed to withstand intense
heat produced during frequent sterilizations, for use in our instrument handles
and plastic cases from a single supplier. Any supply interruption in a limited
or sole-sourced component or raw material could materially harm our ability to
manufacture our products until a new source of supply, if any, could be found.
We may be unable to find a sufficient alternative supply channel in a reasonable
time period or on commercially reasonable terms if at all. This could interrupt
our business or reduce the quality of our products.


13


Our
current or future levels of indebtedness may limit our ability to operate our
business, finance acquisitions and pursue new business strategies.





As of
January 3, 2009, our total indebtedness, including short-term debt, long-term
debt and capital lease obligations was $131.4 million. Presently, we have
available $22.0 million of borrowings under our $40.0 million
revolving credit facility and $15.0 million of term loans. Although covenants
under our senior credit facility limit our ability to incur additional
indebtedness, in the future we may incur additional debt to finance
acquisitions, business opportunities, capital expenditures or other capital
requirements.





Our
indebtedness could:





·
            make
      us more vulnerable to unfavorable economic
  conditions;





·
            make
      it more difficult to obtain additional financing in the future for working
      capital, capital expenditures or other general corporate
      purposes;





·
            require
      us to dedicate or reserve a large portion of our cash flow from operations
      for making payments on our indebtedness, which would prevent us from using
      it for other purposes;





·
            make
      us susceptible to fluctuations in market interest rates that affect the
      cost of our borrowings to the extent that our variable rate debt is not
      covered by interest rate derivative agreements;
  and





·
            make
      it more difficult to pursue strategic acquisitions, alliances and
      collaborations.





Our
ability to service our indebtedness will depend on our future performance, which
will be affected by prevailing economic conditions and financial, business,
regulatory and other factors. Some of these factors are beyond our control. We
believe that, based upon current levels of operations, we will be able to meet
our debt service obligations when due. Significant assumptions underlie this
belief, including, among others, that we will continue to be successful in
implementing our business strategy and that there will be no material adverse
developments in our business, liquidity or capital requirements. If we cannot
generate sufficient cash flow from operations to service our indebtedness and to
meet our other obligations and commitments, we may be required to refinance our
debt or to dispose of assets to obtain funds for such purpose. We cannot assure
you that refinancing or asset dispositions could be effected on a timely basis
or on satisfactory terms, if at all, or would be permitted by the terms of our
debt instruments. To the extent we incur additional indebtedness or other
obligations in the future, the risks associated with our indebtedness described
above, including our possible inability to service our debt, would
increase.





Our
senior credit facility contains restrictions that limit our ability to pay
dividends, incur additional debt, make acquisitions and make other
investments.





Our
senior credit facility contains covenants that restrict our ability to make
distributions to stockholders or other payments unless we satisfy certain
financial tests and comply with various financial ratios. If we do not satisfy
these tests or comply with these ratios, our creditors could declare a default
under our debt instruments, and our indebtedness could be declared immediately
due and payable. Our ability to comply with the provisions of our senior credit
facility may be affected by changes in economic or business conditions beyond
our control.





Our
senior credit facility also contains covenants that limit our ability to incur
indebtedness, acquire other businesses and make capital expenditures, and impose
various other restrictions. These covenants could affect our ability to operate
our business and may limit our ability to take advantage of potential business
opportunities as they arise. We may be unable to comply with the foregoing
financial ratios or covenants and, if we fail to do so, we may be unable to
obtain waivers from our lenders.





Our
future capital needs are uncertain and we may need to raise additional funds in
the future.





Our
future capital needs are uncertain and we may need to raise additional funds in
the future through debt or equity offerings. Our future capital requirements
will depend on many factors, including:





·
            revenue
      generated by sales of our products;





·
            expenses
      incurred in manufacturing and selling our
  products;





·
            costs
      of developing new products or
technologies;





·
            costs
      associated with capital
expenditures;





·
            costs
      associated with our expansion;





·
            costs
      associated with regulatory compliance, including maintaining compliance
      with the quality system regulations imposed by the
  FDA;





·
            the
      number and timing of acquisitions and other strategic
      transactions;





·
            working
      capital requirements related to our growing new acquisitions;
      and





·
            expansion
      of our international facilities.





As a
result of these factors, we may need to raise additional funds, and these funds
may not be available on favorable terms, or at all. Furthermore, if we issue
equity or convertible debt securities to raise additional funds, our existing
stockholders may experience dilution, and the new equity or convertible debt
securities may have rights, preferences and privileges senior to those of our
existing stockholders. If we cannot raise funds on acceptable terms, we may not
be able to develop or enhance our products, execute our business strategy, take
advantage of future opportunities, or respond to competitive pressures or
unanticipated customer requirements.


14


We
may not realize all of the sales expected from new product development
programs.





We incur
substantial expenses in developing and testing new products and related devices.
The realization of additional revenue from new product development efforts is
inherently subject to a number of important risks and uncertainties, including,
directly or indirectly, end-user acceptance of the product, reimbursement
approval of third-party payers such as Medicaid, Medicare and private insurers
and, in some cases, FDA or comparable foreign regulatory approval of the
product. In addition, our customers typically have no contractual requirement to
purchase from us the products that we develop for their medical devices, and
they could seek to have another supplier or in-house facilities manufacture
products that we have developed for their medical devices. We also incur costs
and make capital expenditures for new product development and production based
upon certain estimates of production volumes for our existing and anticipated
products. If the actual demand for our products is less than planned, our
revenue and net income may decline.





Our
earnings could decline if we write off goodwill or intangible assets created as
a result of our various acquisitions.





As a
result of acquisitions we have accumulated a substantial amount of goodwill,
amounting to $153.5 million as of January 3, 2009, or approximately 33.9%
of our total assets as of such date. Goodwill and certain intangible assets are
not amortized but rather are tested for impairment by us annually or more
frequently if an event occurs or circumstances develop that would likely result
in impairment. Examples of such events or circumstances include, but are not
limited to, a significant adverse change in legal or business climate, an
adverse regulatory action, unanticipated competition or financial
restatements.




If
we are unable to protect our intellectual property and property rights, or are
subject to intellectual property claims by third parties, our business could be
harmed.





We rely
on a combination of patents, trade secrets, copyrights, know-how, trademarks,
license agreements and contractual provisions to establish and protect our
proprietary rights to our technologies and products. We cannot guarantee that
the steps we have taken or will take to protect our intellectual property rights
will be adequate or that they will deter infringement, misappropriation or
violation of our intellectual property. Litigation may be necessary to enforce
our intellectual property rights and to determine the validity and scope of our
proprietary rights. Any litigation could result in substantial expenses and may
not adequately protect our intellectual property rights. In addition, the laws
of some of the countries in which our products are or may be sold may not
protect our products and intellectual property to the same extent as
U.S. laws, or at all. We may be unable to protect our rights in trade
secrets and unpatented proprietary technology in these countries. If our trade
secrets become known, we may lose our competitive advantages.





We seek
to protect our trade secrets, know-how and other unpatented proprietary
technology, in part, with confidentiality agreements with our employees,
independent distributors and customers. We cannot assure you, however,
that:





·
            these
      agreements will not be breached;





·
            we
      will have adequate remedies for any breach;
or





·
            trade
      secrets, know-how and other unpatented proprietary technology will not
      otherwise become known to or independently developed by our
      competitors.





We hold
licenses with third parties that are necessary to utilize certain technologies
used in the design and manufacturing of some of our products. The loss of such
licenses would prevent us from manufacturing, marketing and selling these
products, which could harm our business.





In
addition, third parties may claim that we are infringing, misappropriating or
violating their intellectual property rights. We could be found to infringe
those intellectual property rights, which could affect our ability to
manufacture any affected product. In addition, any protracted litigation to
defend or prosecute our intellectual property rights could drain our financial
resources, divert the time and effort of our management and cause customers to
delay or limit their purchases of the affected product until resolution of the
litigation.





Any
litigation or claims against us, whether or not successful, could result in
substantial costs and could harm our reputation. In addition, intellectual
property litigation or claims could force us to do one or more of the
following:





·
            cease
      selling or using any of our products that incorporate the challenged
      intellectual property, which could adversely affect our
      revenue;





·
            obtain
      a license from the holder of the intellectual property right alleged to
      have been infringed, which license may not be available on reasonable
      terms, if at all; and





·
            redesign
      or, in the case of trademark claims, rename our products to avoid
      infringing the intellectual property rights of third parties, which may
      not be possible and could be costly and time-consuming if it is possible
      to do so.





Efforts
to acquire additional companies or product lines may divert our managerial
resources away from our business operations, and if we complete additional
acquisitions, we may incur or assume additional liabilities or experience
integration problems.





Since the
beginning of 2006, we have completed six acquisitions. Going forward, we may
seek to acquire additional businesses or product lines for various reasons,
including providing new product manufacturing capabilities, adding new
customers, increasing penetration with existing customers or expanding into new
geographic markets. Our ability to successfully grow through additional
acquisitions depends upon our ability to identify, negotiate, complete and
integrate suitable acquisitions and to obtain any necessary financings. These
additional efforts could divert the attention of our management and key
personnel from our business operations and integration of our recently completed
acquisitions. If we complete additional acquisitions, we may also
experience:





·
            difficulties
      in integrating any acquired companies, personnel and products into our
      existing business;





·
            delays
      in realizing the benefits of the acquired company or
    products;





·
            diversion
      of our management's time and attention from other business
      concerns;





·
            limited
      or no direct prior experience in new markets or countries we may
      enter;





·
            higher
      costs of integration than we
anticipated;





·
            difficulties
      in retaining key employees of the acquired business who are necessary to
      manage these businesses;


15


·
              difficulties
      in maintaining uniform standards, controls, procedures and policies
      throughout our acquired companies;
or
 
 ·
              adverse
      customer reaction to the business
combination.
 
 Additional
acquisitions could also materially impair our operating results by causing us to
incur debt or requiring us to amortize acquisition expenses and acquired
assets.
 
 We
are subject to risks associated with our foreign operations.
 
 We
have significant international operations and we continue to expand and grow
these operations. We have operations in the United Kingdom, France, Ireland and
Malaysia. Certain risks are inherent in international operations,
including:
 
 ·
              difficulties
      in enforcing agreements and collecting receivables through certain foreign
      legal systems;
 
 ·
              foreign
      customers who may have longer payment cycles than customers in the United
      States;
 
 ·
              tax
      rates in certain foreign countries that may exceed those in the United
      States and foreign earnings that may be subject to withholding
      requirements or the imposition of tariffs, exchange controls or other
      restrictions including transfer pricing restrictions when products
      produced in one country are sold to an affiliated entity in another
      country;
 
 ·
              general
      economic and political conditions in countries where we operate or where
      end users of orthopedic devices reside may have an adverse effect on our
      operations;
 
 ·
              difficulties
      associated with managing a large organization spread throughout various
      countries;
 
 ·
              difficulties
      in enforcing intellectual property rights;
and
 
 ·
              required
      compliance with a variety of foreign laws and
  regulations.
 
 As
we continue to expand our business globally, our success will depend, in part,
on our ability to anticipate and effectively manage these and other risks. We
cannot assure you that these and other factors will not have a material adverse
effect on our international operations or our business as a whole.
 
 Currency
exchange rate fluctuations could have an adverse effect on our revenue and
financial results.
 
 We
generate a significant portion of our revenue and incur a significant portion of
our expenses in currencies other than U.S. dollars. Currency exchange rates are
subject to fluctuation due to, among other things, changes in local, regional or
global economic conditions, the imposition of currency exchange restrictions and
unexpected changes in regulatory or taxation environments. To the extent that we
are unable to match revenue received in foreign currencies with costs incurred
in the same currency, exchange rate fluctuations in any such currency could have
an adverse effect on our financial results.
 
 We may be
adversely affected as a result of the long lead times required for sales of
certain new products.
 
 We
often compete for business at the beginning of the development of new medical
devices or upon customer redesign of existing medical devices. Our customers
generally must obtain clearance or approval from the FDA before commercially
distributing their products. Unless exempt, a new medical device must be
approved for commercial distribution in the United States by the FDA through the
510(k) pre-market Notification Process or, in some cases, through the more
burdensome pre-market approval, or PMA, process. It generally takes three to six
months from the date of submission to the FDA to obtain 510(k) clearance and one
to three years from the date of submission to the FDA to obtain approval through
the PMA process, but in each case may take significantly longer. This results in
long lead times for some of our customers' new products, which may make it
difficult in the short term for us to obtain sales of new products to replace
any unexpected decline in sales of existing products.
 
 We
may be adversely impacted by work stoppages, other labor matters, or new labor
laws.
 
 Currently,
none of our facilities are unionized. However, from time to time some of our
employees have attempted to unionize at two of our facilities. In addition, some
of our orthopedic device customers have unionized work forces. While we have not
experienced any adverse effects from work stoppages or slow-downs at our
customers' facilities, work stoppages or slow-downs experienced by us, our
suppliers or our customers or their suppliers could result in slow-downs or
closures of facilities where our products are made or used. We cannot assure you
that we will not encounter strikes, further unionization efforts, new labor
laws, or other types of conflicts with labor unions or our employees, which
could have an adverse effect on our financial results.
 
 If a natural or
man-made disaster strikes one or more of our manufacturing facilities, we may be
unable to manufacture certain products for a substantial amount of time and our
revenue could decline.
 
 We
have eighteen manufacturing facilities, which are located in the United States,
United Kingdom, France, Ireland and Malaysia. These facilities and the
manufacturing equipment and personnel know-how that we use to produce our
products would be difficult to replace and could require substantial lead-time
to repair or replace. Our facilities may be affected by natural or man-made
disasters. In the event that one of our facilities was affected by a disaster,
we would be forced to attempt to shift production to our other manufacturing
facilities or rely on third-party manufacturers, and our other facilities or a
third-party manufacturer may not have the capability to effectively supply the
affected products. Although we have insurance for damage to our property and the
interruption of our business, this insurance may not be sufficient in scope or
amount to cover all of our potential losses and may not continue to be available
to us on acceptable terms, or at all.
  The
recent financial crisis and current uncertainty in global economic conditions
could adversely affect our business, results of operations, and financial
condition.
 
 The
United States and other countries around the world have been experiencing
deteriorating economic conditions, including unprecedented financial market
disruption. If this trend in economic conditions continues to deteriorate
further, it could lead to delayed or decreased demand for our product. It may
additionally adversely affect our customers’ access to capital, willingness to
spend capital on our products, or ability to pay for products they will order or
have already ordered from us. Furthermore, if our suppliers face challenges in
selling their products or otherwise in operating their businesses, they may
become unable to continue to offer the key components and raw materials needed
in our manufacturing processes.
 
 Risks
Related to Our Industry
 
 Orthopedic
device manufacturers have significant leverage over their independent suppliers
and consolidation could increase their leverage, which could result in the loss
of customers or force us to reduce our prices.
 
 16
 We
compete with many distributors and manufacturers to develop and supply implants,
surgical instruments and cases to a limited number of large orthopedic device
manufacturers. As a result, orthopedic device manufacturers have historically
had significant leverage over their independent suppliers. For example,
independent suppliers like us are subject to continuing pressure from the major
orthopedic device manufacturers to reduce the cost of products while maintaining
quality levels. In recent years, the medical device industry has experienced
substantial consolidation. If the medical device industry and the orthopedic
device industry in particular, continue to consolidate, competition to provide
products to orthopedic device manufacturers may become more intense. Orthopedic
device manufacturers may seek to use their market power to negotiate price or
other concessions for our products. If we are forced to reduce prices or if we
lose customers because of competition, our revenue and results of operations
would suffer.
  Our
business is indirectly subject to healthcare industry cost containment measures
and other industry trends affecting pricing that could result in reduced sales
of or prices for our products.
 
 Acceptance
of our customers' products by hospitals, outpatient centers and physicians
depend on, among other things, reimbursement approval of third-party payers such
as Medicaid, Medicare and private insurers. The continuing efforts of
government, insurance companies and other payers of healthcare costs to contain
or reduce those costs could lead to lower reimbursement rates or
non-reimbursement for medical procedures that use our products. If that were to
occur, medical device manufacturers might insist that we lower prices on
products related to the affected medical device or they might significantly
reduce or eliminate their purchases from us of these related products, which
could affect our profitability.
 
 We
and our customers are subject to substantial government regulation that is
subject to change and could force us to make modifications to how we develop,
manufacture and price our products.
 
 The
medical device industry is regulated extensively by governmental authorities,
principally the FDA and corresponding state and foreign regulatory agencies.
Some of our manufacturing processes are required to comply with quality systems
regulations, including current good manufacturing practice requirements that
cover the methods and documentation of the design, testing, production, control,
quality assurance, labeling, packaging and shipping of our products. Further,
some of our facilities, records and manufacturing processes are subject to
periodic unscheduled inspections by the FDA or other agencies. Failure to comply
with applicable medical device regulatory requirements could result in, among
other things, warning letters, fines, injunctions, civil penalties, repairs,
replacements, refunds, recalls or seizures of products, total or partial
suspensions of production, refusal of the FDA or other regulatory agencies to
grant future pre-market clearances or approvals, withdrawals or suspensions of
current clearances or approvals and criminal prosecution.
 
 In
addition, orthopedic implants and other medical devices produced by our
customers are subject to intensive regulation and potential pre-approval
requirements by the FDA and similar international agencies that govern a wide
variety of product activities from design and development to labeling,
manufacturing, promotion, sales and distribution. Compliance with these
regulations may be time consuming, burdensome and expensive for our customers
and, indirectly, for us to the extent that our customers' compliance depends on
our operations. These regulations could negatively affect our customers'
abilities to sell their products, which in turn would adversely affect our
ability to sell our products. This may result in higher than anticipated costs
or lower than anticipated revenue.
 
 The
regulations that we and our customers are subject to are complex, change
frequently and have tended to become more stringent over time. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state levels. In addition, these
regulations may contain proposals to increase governmental involvement in
healthcare, lower reimbursement rates or otherwise change the environment in
which healthcare industry participants operate. Foreign governmental authorities
that regulate the manufacture and sale of medical devices have become
increasingly stringent and, to the extent we sell our products in foreign
countries, we may be subject to rigorous regulation in the future. Regulatory
changes could result in restrictions on our ability to carry on or expand our
operations, higher than anticipated costs or lower than anticipated
revenue.
 
 If
our customers fail to obtain, or experience significant delays in obtaining,
FDA clearances or approvals to commercially distribute our future products
our ability to sell our products could suffer.
 
 Some
of our medical devices are subject to rigorous regulatory pre-approval by the
FDA and other federal, state and foreign governmental authorities. Our customers
are typically responsible for obtaining the applicable regulatory approval for
the commercial distribution of our products. The process of obtaining this
approval, particularly from the FDA, can be costly and time consuming, and there
can be no assurance that our customers will obtain the required approvals on a
timely basis, if at all. The FDA, for example, assigns medical devices to one of
three classes which determine, among other things, the type and degree of
FDA approval required to commercially distribute the device in the United
States. We produce Class I, II and III devices. Class I devices are
deemed to present little risk to patients and are generally exempt from
FDA approval requirements. Class II devices can generally be
commercially distributed only after the device has received 510(k) clearance.
The FDA will clear marketing of a medical device through the 510(k) process if
certain design, testing and validation requirements are met and it is
demonstrated that the device is "substantially equivalent" to a device that was
legally marketed prior to May 28, 1976, or to another commercially
available device subsequently cleared through the 510(k) Pre-Market Notification
process. This process generally takes three to six months, but may take
substantially longer. Before a Class III device can be commercially
distributed in the United States, a pre-market approval, or PMA, must be
obtained from the FDA. The PMA process can be expensive and uncertain, requires
detailed and comprehensive scientific and other data and generally takes between
one and three years, but may take significantly longer. The commercial
distribution of any products we develop that require regulatory clearance may be
delayed. In addition, because we cannot assure you that any new products or any
product enhancements we develop for commercial distribution in the United States
will be exempt from the FDA market clearance requirements or subject to the
shorter 510(k) clearance process, the regulatory approval process for our
products or product enhancements may take significantly longer than anticipated
by us or our customers.
 
 We
may be
adversely affected by the impact of environmental and safety
regulations.
 
 We
are subject to federal, state, local and foreign laws and regulations governing
the protection of the environment and occupational health and safety, including
laws regulating air emissions, wastewater discharges, and the management and
disposal of hazardous materials and wastes, and the health and safety of our
employees. We are also required to obtain permits from governmental authorities
for certain operations. If we violate or fail to comply with these laws,
regulations or permits, we could incur fines, penalties or other sanctions,
which could have a material adverse effect on us. Environmental laws tend to
become more stringent over time, and we could incur material expenses in the
future relating to compliance with future environmental laws. In addition, we
could be held responsible for costs and damages arising from any contamination
at our past or present facilities or at third-party waste disposal sites. Such
costs could be material. We cannot completely eliminate the risk of
contamination or injury resulting from hazardous materials and we may incur
material liability as a result of any contamination or injury.
 
 Risks
Relating to Our Common Stock
 
 Our common stock
may be volatile and could decline substantially.
 
 There
has been significant volatility in the market price and trading volume of
securities of companies operating in the medical device industry, including our
company, which has often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of our common stock. Price declines in our common stock could
result from general market and economic conditions and a variety of other
factors, including:
 
 ·
              actual
      or anticipated fluctuations in our operating
  results;
  17
  ·
              our
      announcements or our competitors' announcements regarding new products,
      significant contracts, acquisitions or strategic
    investments;
 
 ·
              loss
      of any of our key management or technical
  personnel;
 
 ·
              conditions
      affecting orthopedic device manufacturers or the medical device industry
      generally;
 
 ·
              product
      liability lawsuits against us or our
customers;
 
 ·
              clinical
      trial results with respect or our customers' medical
    devices;
 
 ·
              changes
      in our growth rates or our competitors' growth
  rates;
 
 ·
              developments
      regarding our patents or proprietary rights, or those of our
      competitors;
 
 ·
              FDA
      and international actions with respect to the government regulation of
      medical devices and third-party reimbursement
  practices;
 
 ·
              public
      concern as to the safety of our
products;
 
 ·
              changes
      in health care policy in the United States and
      internationally;
 
 ·
              conditions
      in the financial markets in general or changes in general economic
      conditions;
 
 ·
              our
      inability to raise additional
capital;
 
 ·
              changes
      in stock market analyst recommendations regarding our common stock, other
      comparable companies or the medical device industry generally, or lack of
      analyst coverage of our common
stock;
 
 ·
              sales
      of our common stock by our executive officers, directors and five percent
      stockholders or sales of substantial amounts of common
    stock;
 
 ·
              changes
      in accounting principles; and
 
 ·
              announcement
      of financial restatements.
 
 In
the past, following periods of volatility in the market price of a particular
company's securities or financial restatements, litigation has often been
brought against that company. If litigation of this type is brought against us,
it could be extremely expensive and divert management's attention and the
company's resources.
 
 Our
certificate of incorporation, our bylaws and Delaware law contain provisions
that could discourage another company from acquiring us and may prevent attempts
by our stockholders to replace or remove our current management.
 
 Provisions
of the Delaware General Corporation Law, our certificate of incorporation and
our by-laws may discourage, delay or prevent a merger or acquisition that
stockholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares. In addition, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our
current management by making it more difficult for stockholders to replace or
remove our board of directors. These provisions include:
 
 ·
              providing
      for a classified board of directors with staggered
  terms;
 
 ·
              requiring
      supermajority stockholder voting to effect certain amendments to our
      certificate of incorporation and
by-laws;
 
 ·
              eliminating
      the ability of stockholders to call special meetings of
      stockholders;
 
 ·
              prohibiting
      stockholder action by written
consent;
 
 ·
              establishing
      advance notice requirements for nominations for election to the board of
      directors or for proposing matters that can be acted on by stockholders at
      stockholder meetings;
 
 ·
              limiting
      the ability of stockholders to amend, alter or repeal the by-laws;
      and
 
 ·
              authorizing
      of the board of directors to issue, without stockholder approval, shares
      of preferred stock with such terms as the board of directors may determine
      and shares of our common stock.
 
 We
are also protected by Section 203 of the Delaware General Corporation Law,
which prevents us from engaging in a business combination with a person who
becomes a 15.0% or greater stockholder for a period of three years from the date
such person acquired such status unless certain board or stockholder approvals
were obtained.
 
 As
a result of our 2007 discovery of accounting irregularities at our Sheffield, UK
operating unit and the related restatement, the SEC is conducting an informal
investigation, which may not be resolved favorably.
 
 Following
the discovery of the accounting irregularities at our Sheffield, UK operating
unit, the Audit Committee self-reported the matter to the staff of the SEC in
October 2007. Thereafter, the SEC commenced an informal inquiry regarding this
matter.
  18
  We
have fully cooperated with the SEC in its investigation. At this time we are
unable to predict the time period necessary to resolve the investigation or the
ultimate resolution thereof. To date, considerable legal, tax and accounting
expenses have been incurred in connection with our Audit Committee's
investigation into this matter and expenditures may continue to be incurred in
the future with regard to the SEC's investigation. It is also possible that the
investigation may continue to require management’s time and attention and
accounting and legal resources, which could otherwise be devoted to the
operation of our business. Moreover, any action by the SEC against us, or
members of our management, may cause us to be subject to injunctions, fines and
other penalties or sanctions or result in private civil actions, loss of key
personnel or other adverse consequences and may require us to devote additional
time and resources to these matters. The investigation may adversely affect our
ability to obtain, and/or increase the cost of obtaining, directors' and
officers' liability insurance and/or other types of insurance, which could have
a material adverse affect on our business, results of operations and financial
condition. In addition, the SEC investigation and the remedies applied may
affect certain of our business relationships and consequently may have an
adverse effect on our business in the future.
 
 ITEM
1B.    UNRESOLVED STAFF COMMENTS
 
 None.
 
 ITEM
2.    PROPERTIES
 
 Our
corporate office is located in Warsaw, Indiana. We have operations facilities,
including warehouse, administrative and manufacturing facilities, located at
nineteen locations throughout the world. We believe that these facilities are
adequate for our current and foreseeable purposes and that additional space will
be available if needed.
 
 The
lease on our approximately 122,000 square foot Manchester, New Hampshire
facility is a capital lease that runs through October 1, 2016. The initial
annual base rent under the lease, as amended, was $0.6 million, payable in
equal monthly installments. On October 31, 2001, and every five years
thereafter, including extensions, (next occurring October 31, 2011) the
annual base rent will change based on the percentage increase, if any, in the
Consumer Price Index for the Northeast U.S. region. The current annual base rent
under the lease is $0.8 million. We have an option to extend the lease for
an additional five-year period and have a right of first opportunity to purchase
the leased property.
 
 The
table below provides selected information regarding our facilities.
 
 Location
                                                              
                                                              Use
                                                              
                                                              Approximate
                                                                Square
                                                                Footage(1)(2)
                                                              
                                                              Own/
                                                                LeaseAuburn,
      Maine
                                                              
                                                              Case
      design and manufacturing
                                                              
                                                              33,500
                                                              
                                                              OwnAvilla,
      Indiana
                                                              
                                                              Instrument
      and implant design and manufacturing
                                                              
                                                              41,000
                                                              
                                                              LeaseCheltenham,
      United Kingdom
                                                              
                                                              Instrument
      design and manufacturing
                                                              
                                                              25,000
                                                              
                                                              LeaseClaypool,
      Indiana
                                                              
                                                              Instrument
      design and manufacturing
                                                              
                                                              33,000
                                                              
                                                              OwnCork,
      Ireland
                                                              
                                                              Implant
      finishing
                                                              
                                                              10,000
                                                              
                                                              LeaseFort
      Wayne, Indiana
                                                              
                                                              Office
      space
                                                              
                                                              1,900
                                                              
                                                              LeaseHillburn,
      New York
                                                              
                                                              Implant
      finishing
                                                              
                                                              16,000
                                                              
                                                              LeaseLansing,
      Michigan
                                                              
                                                              Implant
      design, forging and machining
                                                              
                                                              65,000
                                                              
                                                              OwnLansing,
      Michigan
                                                              
                                                              Implant
      Finishing and Design and Development Center
                                                              
                                                              15,000
                                                              
                                                              LeaseLille,
      France
                                                              
                                                              Case
      design and assembly
                                                              
                                                              25,000
                                                              
                                                              LeaseManchester,
      New Hampshire
                                                              
                                                              Plastic
      and metal case design and manufacturing
                                                              
                                                              122,000
                                                              
                                                              LeaseNashville,
      Tennessee
                                                              
                                                              Medical
      products distribution
                                                              
                                                              16,500
                                                              
                                                              OwnNew
      Bedford, Massachusetts
                                                              
                                                              Instrument
      and implant manufacturing
                                                              
                                                              85,000
                                                              
                                                              OwnPenang,
      Malaysia
                                                              
                                                              Case
      assembly
                                                              
                                                              50,000
                                                              
                                                              LeaseSheffield,
      United Kingdom
                                                              
                                                              Implant
      and specialized non-healthcare product design, forging, casting and
      machining
                                                              
                                                              134,600
                                                              
                                                              OwnSheffield,
      United Kingdom
                                                              
                                                              Implant
      machining
                                                              
                                                              43,400
                                                              
                                                              OwnWarsaw,
      Indiana
                                                              
                                                              Instrument
      design and manufacturing
                                                              
                                                              63,000
                                                              
                                                              OwnWarsaw,
      Indiana
                                                              
                                                              Design
      and Development Center; instrument design and manufacturing; Corporate
      Headquarters
                                                              
                                                              30,000
                                                              
                                                              OwnWarsaw,
      Indiana
                                                              
                                                              Office
      space
                                                              
                                                              10,000
                                                              
                                                              OwnWarwickshire,
      United Kingdom
                                                              
                                                              Specialized
      non-healthcare machining
                                                              
                                                              20,300
                                                              
                                                              OwnWhitman,
      Massachusetts
                                                              
                                                              Minimal
      invasive instruments
                                                              
                                                              24,600
                                                              
                                                              LeaseTotal
      square footage
                                                              
                                                              864,800
 
 (1)
We own approximately 16 acres of land in Warsaw, Indiana, and approximately 9
acres in Lansing, Michigan. These sites are available for future
expansion.
 
 (2) All
of our owned properties are encumbered by our Senior Credit Facility. See
Note 5 of our consolidated financial statements. Our capital lease
arrangements are discussed in Note 6 of our Financial
Statements.
 
 ITEM
3.    LEGAL PROCEEDINGS
 
 SEC
Inquiry
 
 Following
the discovery of the accounting irregularities at our Sheffield, UK operating
unit, the Audit Committee self-reported the matter to the staff of the SEC in
October 2007. Thereafter, the SEC commenced an informal inquiry regarding this
matter.
  19
  We
have fully cooperated with the SEC in its investigation. At this time we are
unable to predict the time period necessary to resolve the investigation or the
ultimate resolution thereof. To date, considerable legal, tax and accounting
expenses have been incurred in connection with our Audit Committee's
investigation into this matter and expenditures may continue to be incurred in
the future with regard to the SEC's investigation. It is also possible that the
investigation may continue to require management’s time and attention and
accounting and legal resources, which could otherwise be devoted to the
operation of our business. Moreover, any action by the SEC against us, or
members of our management, may cause us to be subject to injunctions, fines and
other penalties or sanctions or result in private civil actions, loss of key
personnel or other adverse consequences and may require us to devote additional
time and resources to these matters. The investigation may adversely affect our
ability to obtain, and/or increase the cost of obtaining, directors' and
officers' liability insurance and/or other types of insurance, which could have
a material adverse affect on our business, results of operations and financial
condition. In addition, the SEC investigation and the remedies applied may
affect certain of our business relationships and consequently may have an
adverse effect on our business in the future.
 
 ITEM
4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None.
 
 PART
II
 
 ITEM
5.    MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
 Our
common stock trades on the New York Stock Exchange ("NYSE") under the trading
symbol SMA. As of March 6, 2009, there were approximately 376 registered
holders of record of our common stock. The transfer agent and registrar for our
common stock is Computershare Trust Company, N.A., P.O. Box 43023,
Providence, RI 02940-3023, telephone (877) 282-1168.
 
 In
the two most recent fiscal years, we have not paid dividends on our common stock
and do not expect to pay dividends for the foreseeable future. Instead, we
anticipate that our earnings in the foreseeable future will be used in the
operation and growth of our business. The payment of dividends by us to holders
of our common stock is restricted by our senior credit facility. Any future
determination to pay dividends will be at the discretion of our board of
directors and will depend upon, among other factors, our results of operations,
financial condition, capital requirements and contractual
restrictions.
 
 We
currently do not have a share repurchase plan or program.
 
 See
Part III, Item 12, Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters, for information regarding common
stock authorized for issuance under equity compensation plans.
 
 Our
common stock has been listed on the New York Stock Exchange since our initial
public offering on December 9, 2004. The following table sets forth, for
the period indicated, the highest and lowest closing sale price for our common
stock by quarter for 2008, 2007, 2006 and 2005, as reported by the New York
Stock Exchange:
  2008High
                    
                    
                    LowFourth
      Quarter
                    
                    $
                    15.97
                    
                    
                    $
                    7.31Third
      Quarter
                    
                    $
                    18.82
                    
                    
                    $
                    15.66Second
      Quarter
                    
                    $
                    17.25
                    
                    
                    $
                    13.05First
      Quarter
                    
                    $
                    19.15
                    
                    
                    $
                    15.97
 
 2007High
                    
                    
                    LowFourth
      Quarter
                    
                    $
                    17.89
                    
                    
                    $
                    15.49Third
      Quarter
                    
                    $
                    17.64
                    
                    
                    $
                    14.57Second
      Quarter
                    
                    $
                    17.70
                    
                    
                    $
                    14.88First
      Quarter
                    
                    $
                    16.89
                    
                    
                    $
                    12.88
  The
closing sale price for our common stock on March 6, 2009 was
$4.41.
  20
  
 
 End
      of Fiscal YearDec 9, 2004
                                                        
                                                        
                                                        2004
                                                        
                                                        
                                                        2005
                                                        
                                                        
                                                        2006
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2008Symmetry
      Medical, Inc.
                                                        
                                                        $
                                                        100
                                                        
                                                        
                                                        $
                                                        140
                                                        
                                                        
                                                        $
                                                        129
                                                        
                                                        
                                                        $
                                                        92
                                                        
                                                        
                                                        $
                                                        116
                                                        
                                                        
                                                        $
                                                        62S&P
      500 Stock Index
                                                        
                                                        $
                                                        100
                                                        
                                                        
                                                        $
                                                        102
                                                        
                                                        
                                                        $
                                                        105
                                                        
                                                        
                                                        $
                                                        119
                                                        
                                                        
                                                        $
                                                        124
                                                        
                                                        
                                                        $
                                                        79S&P
      Health Care Index
                                                        
                                                        $
                                                        100
                                                        
                                                        
                                                        $
                                                        102
                                                        
                                                        
                                                        $
                                                        107
                                                        
                                                        
                                                        $
                                                        114
                                                        
                                                        
                                                        $
                                                        121
                                                        
                                                        
                                                        $
                                                        96
 
 *
Assuming $100 was invested on December 9, 2004 (the first date the company
common stock was traded on the New York Stock Exchange) in company common stock
and each index. Values as of yearend assuming dividends are reinvested. No
dividends have been declared or paid on company common stock. Returns over the
indicated period should not be considered indicative of future
returns.
 
 ITEM 6.    SELECTED
FINANCIAL DATA
 
 The
following selected consolidated financial data should be read in connection with
our consolidated financial statements, the notes related thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations and has been derived from our consolidated financial
statements.
  21
 
 Fiscal
      Year Ended2008(5)
                        
                        
                        2007(4)
                        
                        
                        2006(3)
                        
                        
                        2005
                        
                        
                        2004(unaudited)Consolidated
      Statements of Operations Data:Revenue
                        
                        $
                        423,406
                        
                        
                        $
                        290,922
                        
                        
                        $
                        245,017
                        
                        
                        $
                        259,702
                        
                        
                        $
                        201,696Cost
      of Revenue
                        
                        
                        323,048
                        
                        
                        
                        238,343
                        
                        
                        
                        188,579
                        
                        
                        
                        192,930
                        
                        
                        
                        146,204Gross
      Profit
                        
                        
                        100,358
                        
                        
                        
                        52,579
                        
                        
                        
                        56,438
                        
                        
                        
                        66,772
                        
                        
                        
                        55,492Selling,
      general and administrative expenses
                        
                        
                        58,340
                        
                        
                        
                        39,484
                        
                        
                        
                        28,278
                        
                        
                        
                        27,570
                        
                        
                        
                        22,569Impairment
      of goodwill and intangible assets
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        33,580
                        
                        
                        
                        -Operating
      Income
                        
                        
                        42,018
                        
                        
                        
                        13,095
                        
                        
                        
                        28,160
                        
                        
                        
                        5,622
                        
                        
                        
                        32,923Interest
      expense, net
                        
                        
                        10,092
                        
                        
                        
                        6,917
                        
                        
                        
                        4,448
                        
                        
                        
                        2,954
                        
                        
                        
                        13,757Loss
      on debt extinguishment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        8,956
                        (2)Derivative
      valuation(gain)/loss(1)
                        
                        
                        (2,460
                        )
                        
                        
                        1,740
                        
                        
                        
                        2,317
                        
                        
                        
                        (98
                        )
                        
                        
                        (1,451
                        )Other
      (income)/expense
                        
                        
                        2,874
                        
                        
                        
                        (503
                        )
                        
                        
                        (3,699
                        )
                        
                        
                        2,320
                        
                        
                        
                        (823
                        )Income
      before income taxes
                        
                        
                        31,512
                        
                        
                        
                        4,941
                        
                        
                        
                        25,094
                        
                        
                        
                        446
                        
                        
                        
                        12,484Income
      tax expense
                        
                        
                        7,493
                        
                        
                        
                        5,090
                        
                        
                        
                        6,580
                        
                        
                        
                        10,315
                        
                        
                        
                        4,103Net
      income (loss)
                        
                        
                        24,019
                        
                        
                        
                        (149
                        )
                        
                        
                        18,514
                        
                        
                        
                        (9,869
                        )
                        
                        
                        8,381Preferred
      stock dividends
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (8,977
                        )Net
      income (loss) applicable to common shareholders
                        
                        $
                        24,019
                        
                        
                        $
                        (149
                        )
                        
                        $
                        18,514
                        
                        
                        $
                        (9,869
                        )
                        
                        $
                        (596
                        )Basic
      per share:Net
      income (loss) applicable to common shareholders
                        
                        $
                        0.68
                        
                        
                        $
                        -
                        
                        
                        $
                        0.53
                        
                        
                        $
                        (0.29
                        )
                        
                        $
                        (0.04
                        )Diluted
      per share:Net
      income (loss) applicable to common shareholders
                        
                        $
                        0.68
                        
                        
                        $
                        -
                        
                        
                        $
                        0.53
                        
                        
                        $
                        (0.28
                        )
                        
                        $
                        (0.03
                        )Weighted
      average common shares and equivalent shares outstanding:Basic
                        
                        
                        35,170
                        
                        
                        
                        35,089
                        
                        
                        
                        34,826
                        
                        
                        
                        33,841
                        
                        
                        
                        16,905Diluted
                        
                        
                        35,357
                        
                        
                        
                        35,268
                        
                        
                        
                        35,156
                        
                        
                        
                        34,670
                        
                        
                        
                        17,767Consolidated
      Balance Sheet Data:Cash
      and cash equivalents
                        
                        $
                        10,191
                        
                        
                        $
                        12,089
                        
                        
                        $
                        11,721
                        
                        
                        $
                        12,471
                        
                        
                        $
                        4,849Working
      capital
                        
                        
                        69,939
                        
                        
                        
                        36,134
                        
                        
                        
                        44,873
                        
                        
                        
                        42,662
                        
                        
                        
                        36,495Total
      Assets
                        
                        
                        453,237
                        
                        
                        
                        400,430
                        
                        
                        
                        354,396
                        
                        
                        
                        293,045
                        
                        
                        
                        303,520Long-term
      debt and capital lease obligations, less current portion
                        
                        
                        110,956
                        
                        
                        
                        72,532
                        
                        
                        
                        68,792
                        
                        
                        
                        34,782
                        
                        
                        
                        43,209Total
      shareholders' equity
                        
                        
                        252,414
                        
                        
                        
                        237,536
                        
                        
                        
                        232,607
                        
                        
                        
                        207,760
                        
                        
                        
                        211,177Other
      Financial Data:Depreciation
      and amortization
                        
                        $
                        21,463
                        
                        
                        $
                        19,998
                        
                        
                        $
                        17,022
                        
                        
                        $
                        13,674
                        
                        
                        $
                        11,198
 
 (1)
We enter into interest rate swap agreements to offset changes in interest rates
on our variable rate long-term debt. We also enter into foreign currency
exchange forward contracts to mitigate fluctuations in foreign currency on the
statement of operations. In accordance with SFAS No. 133, as amended,Accounting For Derivative
Instruments and Hedging Activities, these agreements do not qualify for
hedge accounting and accordingly, changes in the fair market value of such
agreements are recorded each period in earnings.
 
 (2) In
fiscal 2004, we refinanced substantially all of our existing indebtedness as
part of the proceeds from our December 9, 2004 initial public offering,
resulting in a loss on debt extinguishment of $9.0 million. This charge includes
$5.1 million of unamortized discount recorded upon the issuance of the
subordinated notes and $3.9 million of deferred debt issuance costs as a
result of the Mettis acquisition on June 11, 2003.
 
 (3)
Includes the results of Riley Medical since its acquisition on May 2, 2006
and Everest Metal since its acquisition on August 31, 2006.
 
 (4)
Includes the results of Clamonta, Ltd. since its acquisition on
January 9, 2007, TNCO since its acquisition on April 3, 2007 and SSI
and UCA since their acquisition on August 31, 2007.
 
 (5)
Includes the results of New Bedford since its acquisition on January 25,
2008.
  22
  ITEM
7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Overview
  As
a leading independent provider to orthopedic device manufacturers, we offer a
broad range of products, including implants, instruments and cases as well as
design and development services.  We also provide these types of
products and services to companies in other segments of the medical device
market, including dental, osteobiologic, and endoscopy sectors, and we provide
limited specialized products to non-healthcare markets, such as the aerospace
industry.
  We
manufacture many of the products we sell and have manufacturing locations
worldwide to service our global customer base. We believe that our comprehensive
product and services offering, our quality and regulatory expertise, our global
resources and our size and capability provide us a competitive advantage. We
leverage these competitive advantages to accelerate our customers’ time to
market as they develop and launch new products.  This relationship
typically leads to an ongoing supply of products to our customers during the
life of the product.
  Our
core business strategy is built around our business model which leverages our
global resources to expand our leadership position within the orthopedic sector
as well as to diversify within related medical markets.  In the
non-orthopedic sector, we are expanding that core strategy by adding new
distribution channels to reach even more end-users of medical instruments,
containers and related products.  Using this strategy, we strive to
provide the best possible customer experience by offering superior value; the
highest-quality, new technology; customized services; superior support; and the
combination of our products and services into our Total Solutions® offering.
Historically, our growth has been driven organically from our core orthopedic
businesses. In the past several years, we have begun to pursue a targeted
acquisition strategy designed to augment select areas of our business with more
products, services, and technology.
 
 The
global medical device market was estimated to be approximately $300 billion in
2007 with expectations of reaching $336 billion in 2008. According to our most
recent research, the global orthopedic device segment was $32 billion in 2007
which was an 11% increase over 2006 figures. Of the $32 billion of orthopedic
device revenue in 2007, approximately 77% or $25 billion came from the ten
largest OEM companies in the world.  Orthopedic devices consist of
reconstructive implants used to repair knees, hips, shoulders and other joints,
as well as other orthopedic devices to repair bone fractures and the spine.
According to published reports, this segment is expected to show continued
growth in the 8-10% range. The spinal segment of orthopedic device market
accounted for approximately three million procedures in 2007. Growth for the
U.S. orthopedic device market alone is projected to be $29 billion by 2013. The
U.S. orthopedic device market is estimated to be approximately 59% of the global
market.  We expect continued growth in the orthopedic device market to
be driven by a number of trends including:
 
 ·
              growing
      elderly population;
 ·
              aging,
      affluent and active "baby boomers";
 ·
              improving
      technologies that expand the market, including minimally invasive
      surgery;
 ·
              successful
      clinical outcomes increasing patient
confidence;
 ·
              increasing
      patient awareness through orthopedic device companies' direct marketing
      programs;
 ·
              increasing
      volume of procedures to replace older implants (or revision procedures);
      and
 ·
              developing
      international markets.
 
 We offer
our customers Total Solutions® for complete implant systems—implants,
instruments and cases.  While our revenue to date has been derived
primarily from the sale of implants, instruments, and cases separately, or
instruments and cases together, our ability to provide Total Solutions® for
complete implant systems has already proven to be attractive to our customers,
and we expect this capability will provide us with growth
opportunities.  In addition, we expect that our Total Solutions®
capability will increase the relative percentage of value added products that we
supply to our customers.
 
 We
believe that we have well-established relationships with our major customers and
these relationships, to a significant extent, involve the sale of products that
we have developed or modified specifically for our customers' particular product
lines. In connection with the launch of a new implant system, our customers
typically provide a customized implant-specific instrument set in cases to
end-users (hospitals, outpatient centers and physicians) for use with the new
implant system. As a result, our sales of instruments and cases in any
particular period are significantly impacted by the amount of new product launch
activity by our customers. Our revenues are affected by changes in the number
and size of orders and the timing of delivery dates. Our revenues have
fluctuated in the past and may vary in the future due to the effects of changes
in inventory management practices and new product introductions by our
customers.
 
 We
have always strived to add more value add to our customers. To continue to meet
this goal, sustain our business strategy, and improve our business, we are
continually focused on improving our current state and driving growth. We
believe these actions will help position us for sustainable long-term profitable
growth.
 
 ·
              Continuous
      Improvement– We are focused on improving competitiveness by
      becoming more efficient while strengthening our operating processes and
      internal controls. Our experienced leadership team is working together to
      increase efficiency across all functions. We are focused on improving
      processes utilizing lean principles and
  techniques.
 
 ·
              Diversification
      – Within the orthopedic sector we will continue to expand our product
      portfolio and build upon the strength of our presence in the large
      reconstructive joint market. Orthopedic sector diversification will
      include: spine, trauma, extremities and small joints. During 2008, we
      invested in new technology focused on the spinal market, including a high
      precision cell. Diversification outside of the orthopedic market could
      include areas such dental implants, maxillofacial, laboratory testing and
      veterinary.
  ·
              Partnership
      – Continue to develop our existing OEM
  relationships.
  ·
              Intellectual
      Property – Expand and develop our intellectual property portfolio
      with focus on both process and product
patents.
  ·
              Organizational
      Development– Establish an organization structure that is capable
      of delivering a 5 year growth plan and support business
      development.
  A
significant part of our business strategy has been growth through acquisitions
which have enhanced our product offerings and our business model.
 
 We
acquired Mettis on June 11, 2003 for an aggregate consideration of
approximately $164 million. Mettis is a leading manufacturer of forged,
cast and machined implants for global orthopedic device manufacturers. This
acquisition added implants to our product offerings and increased our European
presence.
 
 In
May 2006, we acquired Riley Medical for approximately $45.8 million. Riley
Medical is a leading designer and manufacturer of specialty cases and trays for
the global medical market. Additionally, we acquired Everest Metal in August
2006 for an aggregate consideration of approximately $10.3 million. Everest
Metal specializes in implant finishing.
 
 In
January 2007, we acquired Clamonta Ltd located in Warwickshire, UK for
approximately $10.4 million in cash. Clamonta Ltd was a privately held
company that has a 50-year history of supplying precision machined products to
the global aerospace industry. Clamonta Ltd’s products will help bridge
Symmetry's Total Solutions® business model into the aerospace industry. This
acquisition expanded our added value operation within our existing product
expertise and supports a major customer by providing a more complete Total
Solution®. Clamonta is well known in the industry for producing quality
engineered products for aircraft engines. Clamonta Ltd's pre-acquisition
management team continues to lead this business unit. This acquisition helps to
diversify us and will allow us to capitalize on a long term growth cycle in the
aerospace industry.
  23
  In
April 2007, we acquired TNCO located in Whitman, Massachusetts for approximately
$7.6 million in cash. TNCO was a privately held company that has a 40-year
history of designing and supplying precision instruments for arthroscopic,
laparoscopic, sinus and other minimally invasive procedures. TNCO's strong
intellectual property portfolio and customer relationships extend our product
offering into these additional medical fields. TNCO is well known in the
industry for designing and producing quality engineered products for minimally
invasive procedures. Its operating philosophy closely mirrors our own with its
highly skilled engineering team that partners with its clients during the
product development cycle and moves efficiently from concept and prototype to
production. TNCO sales are expected to benefit significantly as a result of
marketing its products through our global sales and distribution network. TNCO's
pre-acquisition management team continues to lead this business unit. This
acquisition is consistent with our strategy to enhance Symmetry Medical's
product offering into medical markets beyond our existing products and allows us
to offer our Total Solutions(R)  model to an expanded customer base.
 
 In
August 2007, we acquired SSI and UCA located in Nashville, Tennessee for
approximately $15.0 million in cash and at the same time entered into a two
year earn-out agreement with the two principals of SSI and UCA specifying
receipt of additional consideration if SSI and UCA meet certain earnings
levels in 2008 and 2009. These earnings levels were not met in 2008. SSI was a
privately held company that has a 30-year history of offering targeted sales,
marketing and distribution programs to serve the key surgical specialties of
neurological, spine, cardiovascular, ENT, laparoscopy, ophthalmology and
orthopedics. SSI's portfolio includes its own line of Ultra Instruments and
includes the UCA—Ultra Container sterilization system, a hospital proven, closed
container system that is designed to store and transport sterilized instruments.
The Ultra Instruments, UCA containers and multiple other product lines are
offered through SSI's distribution channels and sold to hospitals with their 25
strong sales staff. This acquisition is consistent with our strategy to enhance
Symmetry Medical's product offering into medical markets beyond our existing
products and provides a direct access to hospitals and doctors to accelerate our
own product designs.
 
 In
January 2008, we acquired DePuy’s New Bedford, Massachusetts instrument
manufacturing facility (“New Bedford”).  We purchased substantially
all of the assets and real estate of New Bedford for approximately $45.2 million
in cash.  New Bedford produces orthopedic instruments, general medical
instruments and some small spine related implants. Historically, 100% of the
products produced at the facility are for DePuy. Commensing in the third
quarter, we began to utilize this facility to serve our other medical customers,
as we have a strategy to diversify and expand both product and customer
portfolio at this facility.  In connection with the acquisition, we
entered into a supply agreement which requires DePuy to make minimum purchases
from New Bedford for a four year period. The agreement stipulates that these
purchases are incremental to other products we presently or previously produced
on DePuy's behalf. The commitment from DePuy totals $106.0 million over the
four year period, with specific amounts in each year. Certain key members of New
Bedford's pre-acquisition management team continue to lead this business unit.
We believe this acquisition strengthens our position as a leading provider to
the orthopedic industry and provides additional manufacturing capacity to better
serve our broad customer base, builds on our relationship with DePuy, expands
our east coast presence and allows us to move forward with an existing skilled
workforce to service our growing market.
 
 Our
acquisitions have afforded us the opportunity to offer a comprehensive line of
implants, surgical instruments and cases for orthopedic device manufacturers on
a global basis, instruments and cases into other medical markets and specialized
parts into the aerospace industry.
 
 The
combined Riley, Everest, Clamonta Ltd., TNCO, SSI, UCA and New Bedford
acquisitions are further referred to as the “acquired entities”.
 
 During
fiscal 2008, we sold our products to approximately 1,850 customers. Our two
largest customers accounted for approximately 33.0% and 11.1% of our revenue in
fiscal 2008 and our two largest customers accounted for 17.9% and 11.7% of our
revenue in fiscal 2007. Our ten largest customers collectively accounted for
approximately 70.7% and 66.9% of our revenue in fiscal 2008 and fiscal 2007,
respectively. Within each of our largest customers, we typically serve several
product teams and facilities, which reduce our reliance on any single purchasing
decision. Approximately 71.5%, 13.0%, 7.5% and 8.0% of our revenue in fiscal
2008 and approximately 61.1%, 18.8%, 9.1% and 11.0% of our revenue in fiscal
2007 was from sales to the United States, United Kingdom, Ireland and other
foreign countries, respectively.
 
 Our
revenue from the sale of implants, instruments, cases and other products
represented 29.0%, 41.9%, 20.4% and 8.7% respectively, of our revenue in fiscal
2008, compared with 33.3%, 27.2%, 26.5% and 13.0% respectively, of our revenue
in fiscal 2007.
 
 Results
of Operations
 
 The
following table summarizes our consolidated results of operations for each of
the past three years.  Our historical results are not necessarily
indicative of the operating results that may be expected in the
future.
  24
 
 Fiscal
      Year2008
                                
                                
                                2007
                                
                                
                                2006%
      of
                                
                                
                                
                                
                                
                                %
      of
                                
                                
                                
                                
                                
                                %
      ofDollars
                                
                                
                                Revenue
                                
                                
                                Dollars
                                
                                
                                Revenue
                                
                                
                                Dollars
                                
                                
                                RevenueStatement
      of Operations Data:Revenue
                                
                                $
                                423.4
                                
                                
                                
                                100.0
                                %
                                
                                $
                                290.9
                                
                                
                                
                                100.0
                                %
                                
                                $
                                245.0
                                
                                
                                
                                100.0
                                %Cost
      of Revenue
                                
                                
                                323.1
                                
                                
                                
                                76.3
                                %
                                
                                
                                238.3
                                
                                
                                
                                81.9
                                %
                                
                                
                                188.6
                                
                                
                                
                                77.0
                                %Gross
      Profit
                                
                                
                                100.3
                                
                                
                                
                                23.7
                                %
                                
                                
                                52.6
                                
                                
                                
                                18.1
                                %
                                
                                
                                56.4
                                
                                
                                
                                23.0
                                %Selling,
      general, and administrative expenses
                                
                                
                                58.3
                                
                                
                                
                                13.8
                                %
                                
                                
                                39.5
                                
                                
                                
                                13.6
                                %
                                
                                
                                28.3
                                
                                
                                
                                11.5
                                %Operating
      Income
                                
                                
                                42.0
                                
                                
                                
                                9.9
                                %
                                
                                
                                13.1
                                
                                
                                
                                4.5
                                %
                                
                                
                                28.2
                                
                                
                                
                                11.5
                                %Other
      (income) expense:Interest
      expense
                                
                                
                                10.1
                                
                                
                                
                                2.4
                                %
                                
                                
                                6.9
                                
                                
                                
                                2.4
                                %
                                
                                
                                4.4
                                
                                
                                
                                1.8
                                %Derivatives
      valuation (gain)/loss
                                
                                
                                (2.5
                                )
                                
                                
                                (0.6
                                )%
                                
                                
                                1.7
                                
                                
                                
                                0.6
                                %
                                
                                
                                2.3
                                
                                
                                
                                0.9
                                %Other
                                
                                
                                2.9
                                
                                
                                
                                0.7
                                %
                                
                                
                                (0.5
                                )
                                
                                
                                (0.2
                                )%
                                
                                
                                (3.7
                                )
                                
                                
                                (1.5
                                )%Income
      before income taxes
                                
                                
                                31.5
                                
                                
                                
                                7.4
                                %
                                
                                
                                4.9
                                
                                
                                
                                1.7
                                %
                                
                                
                                25.1
                                
                                
                                
                                10.3
                                %Income
      tax expense
                                
                                
                                7.5
                                
                                
                                
                                1.8
                                %
                                
                                
                                5.1
                                
                                
                                
                                1.7
                                %
                                
                                
                                6.6
                                
                                
                                
                                2.7
                                %Net
      income (loss)
                                
                                $
                                24.0
                                
                                
                                
                                5.6
                                %
                                
                                $
                                (0.1
                                )
                                
                                
                                0.0
                                %
                                
                                $
                                18.5
                                
                                
                                
                                7.6
                                %
 
 Fiscal
Year 2008 Compared to Fiscal Year 2007
 
 Revenue.    Revenue
for fiscal 2008 increased $132.5 million, or 45.5% to $423.4  million
from $290.9 million in fiscal 2007. Revenue for each of our principal
product categories in these periods was as follows:
 
 Product
Category
 2008
                        
                        
                        2007(in
      millions)Implants
                        
                        $
                        122.6
                        
                        
                        $
                        96.8Instruments
                        
                        
                        177.5
                        
                        
                        
                        79.1Cases
                        
                        
                        86.4
                        
                        
                        
                        77.2Other
                        
                        
                        36.9
                        
                        
                        
                        37.8Total
                        
                        $
                        423.4
                        
                        
                        $
                        290.9
 
 The
$132.5 million increase in revenue resulted from organic growth of 23.4%
and the impact of recent acquisitions.  Implant revenue increased
$25.8 million in fiscal 2008 which was primarily driven by increased organic
customer demand as well our New Bedford acquisition in January 2008, which added
$7.4 million of implant revenue. The increase in instrument revenue of $98.4
million for fiscal 2008 was driven by a 52.4% increase in organic customer
demand and $57.0 million of additional instrument revenue from acquired
entities. Case revenues increased $9.2 million for fiscal 2008 primarily
due to increased organic customer demand. The decrease in other revenue was
driven by reduced customer demand.  Impacts of unfavorable foreign
currency exchange rate fluctuations negatively affected our 2008 revenue by
$2.7 million.
 
 We
estimate that global orthopedic device procedures grew at approximately 6% to 7%
in 2008 and expect similar industry procedure growth in the future. In the
second half of 2007 and during 2008, we experienced increased organic demand
from our customers as many of them experienced significant product
launches.
 
 Gross
Profit.    Gross profit for fiscal 2008 increased
$47.8 million, or 90.9%, to $100.4 million from $52.6 million in
fiscal 2007. Gross profit was positively impacted by the 45.5% increase in
revenue.  The increase was also driven by gross profit as a percentage
of revenue which increased by 5.6%.  This increase in gross profit
percentage was driven by increased leverage of fixed costs at our operations
which experienced an increase in revenues during the period while controlling
infrastructure costs and improvements at our Sheffield, UK facility. Our
Sheffield, UK operation experienced improved gross profit as a percentage of
revenue versus 2007 driven by higher selling prices, lower costs and improved
operational management. We continue to drive improvements at Sheffield and
anticipate continued improvements in the future.  Changes in foreign
exchange rates positively affected our total year 2008 gross profit by $0.4
million.
 
 Selling,
General and Administrative Expenses.    Selling,
general and administrative expenses in fiscal 2008 increased $18.9 million, or
47.8%, to $58.3 million from $39.5 million in fiscal 2007. This
increase was primarily driven by the inclusion of $8.1 million of
incremental expenses related to acquired entities. Additional incremental costs
were driven by a $7.4 million increase in employee compensation costs
including $2.6 million of an increase in non-cash stock-based
compensation expense.  Expenditures associated with the Sheffield
investigation and restatement process increased $1.2 million from $3.5 million
in 2007 to $4.7 million in 2008. As a percentage of revenue, selling,
general and administrative expenses were 13.8% of revenue in fiscal 2008 as
compared to 13.6% in fiscal 2007.  Changes in foreign currency
exchange rates decreased our selling, general and administrative expenses by
$0.4 million.
 
 Other
(Income) Expense.    Interest expense for fiscal 2008
increased $3.2 million, or 45.9%, to $10.1 million from $6.9 million
in fiscal 2007. This increase primarily reflects expense from the increase in
debt incurred for acquisitions as well as higher interest rates in the first
quarter 2008 due to the debt covenant violations related to the Sheffield
accounting irregularities. The net derivatives gain in fiscal 2008 consisted of
a $1.8 million loss on interest rate SWAP valuation, offset by a $4.3
million gain on the settlement of foreign currency forward contracts. The
interest rate SWAPs are used to convert our variable rate long-term debt to
fixed rates. The foreign currency forwards are used to mitigate fluctuations in
foreign currency on the statement of operations. The gain of the foreign
currency valuation for fiscal 2008 offset losses on foreign currency
fluctuations, primarily related to intercompany loans that are included within
other expense of $3.3 million.
  25
  Provision
for Income Taxes.   Our effective tax rate in fiscal year 2008
was 23.8% compared to 38.2% in fiscal 2007.  This rate is lower than
the U.S. Federal statutory rate primarily from tax benefits of $12.0
million from the realization of losses on the Corporation’s initial investment
in the Sheffield, UK operations of partially offset by additional tax
provisions for uncertain tax positions of $2.2 million.  We also
recognized $3.0 million of valuation allowance against foreign losses incurred
during the year.
 
 Fiscal
Year 2007 Compared to Fiscal Year 2006
 
 Revenue.    Revenue
for fiscal 2007 increased $45.9 million, or 18.7%, to $290.9 million from
$245.0 million in fiscal 2006. Revenue for each of our principal product
categories in these periods was as follows:
 
 Product
Category
 2007
                        
                        
                        2006(in
      millions)Implants
                        
                        $
                        96.8
                        
                        
                        $
                        91.9Instruments
                        
                        
                        79.1
                        
                        
                        
                        66.8Cases
                        
                        
                        77.2
                        
                        
                        
                        62.2Other
                        
                        
                        37.8
                        
                        
                        
                        24.1Total
                        
                        $
                        290.9
                        
                        
                        $
                        245.0
 
 The
$45.9 million increase in revenue resulted from increased implant, instrument,
cases and other sales of $5.0 million, $12.2 million, $15.0 million and
$13.7 million, respectively. The increase in implant revenue for fiscal
2007 was primarily driven by the acquisition of Everest Metal in August 2006
which added additional revenue during 2007. The increase in instrument revenues
for fiscal 2007 was primarily driven by our SSI acquisition in September 2007
which added $7.5 million of revenue and the addition of our TNCO
acquisition in April 2007 which added $4.2 million of revenue. Case
revenues increased $15.0 million for fiscal 2007 primarily due to increase
in overall sales to our top five customers related to a significant increase in
demand for new product launches and the inclusion of a full year of sales for
Riley Medical following its acquisition in May 2006. The increase in other
revenue was driven by the acquisition of Clamonta Ltd. completed in January
2007, which added $11.3 million of revenue. Change in foreign exchange
rates positively affected our total year 2007 revenue by
$7.6 million.
 
 We
estimate that global orthopedic device procedures grew at approximately 7% to 8%
in 2007. In the second half of 2006 and the first half of 2007, our customers
used inventory that had built up in their distribution channel because of their
reduced growth in the first quarter of 2006. During the second half of 2007,
demand from our major customers returned to more normalized rates and was
complemented by an increase in our customers' new product launches.
 
 Gross
Profit.    Gross profit for fiscal 2007 decreased
$3.9 million, or 6.8%, to $52.6 million from $56.4 million in fiscal 2006.
Gross profit was positively impacted by the $45.9 million increase in
revenue driven by our 2007 and 2006 acquisitions. However, this positive impact
was more than offset by the decline in gross profit as a percentage of revenue
of 4.9%. This decline was driven by higher raw material costs at several of our
operations as a percentage of selling price due to higher material costs during
the period. Also impacting our gross profit percentage was a reduced leveraging
of fixed costs at our U.S. operations which experienced a decline in revenues
during the period while maintaining their cost structures to be prepared for the
ramp up in production experienced in the latter half of 2007 and in 2008.
Finally, our Sheffield, UK operation experienced significantly higher costs as a
percentage of revenue driven by higher fixed costs for depreciation, the adverse
impacts of a flood during the second quarter, and other increased costs of
manufacturing related to operational management inefficiencies. We have
commenced a full and complete review of Sheffield's operations and anticipate
improvements in 2009 and into the future.
 
 Selling,
General and Administrative Expenses.    Selling,
general and administrative expenses in fiscal 2007 increased $11.2 million, or
39.6%, to $39.5 million from $28.3 million in fiscal 2006. This
increase was primarily driven by the inclusion of $6.5 million of expenses
related to Clamonta Ltd., TNCO, SSI, UCA, Riley Medical and Everest Metal since
their respective dates of acquisition. These expenses include $1.1 million
of amortization related to intangibles acquired in our recent acquisitions. As a
percentage of revenue, selling, general and administrative expenses increased to
13.6% of revenue in fiscal 2007 from 11.5% in fiscal 2006. This increase as a
percentage of revenue was driven by the $3.5 million of professional fees
and expenses incurred in 2007 to complete the Sheffield, UK investigation and
related restatement. Changes in foreign exchange rates increased our selling,
general and administrative expenses by $0.6 million.
 
 Other
(Income) Expense.    Interest expense for fiscal 2007
increased $2.5 million, or 55.5%, to $6.9 million from $4.4 million in
fiscal 2006. This increase primarily reflects expense from the increase in debt
incurred for acquisitions. The derivatives loss in fiscal 2007 consisted of a
$1.4 million loss on interest rate SWAP valuation and a $0.3 million
loss on foreign currency forward valuations. The interest rate SWAPs are used to
convert our variable rate long-term debt to fixed rates. The foreign currency
forwards are used to mitigate fluctuations in foreign currency on the statement
of operations. The loss of the foreign currency valuation for fiscal 2007 offset
unrealized gains on foreign currency within the other expense of
$0.5 million.
 
 Provision
for Income Taxes.    Our effective tax rate in fiscal
2007 was significantly impacted by a valuation allowance on the net operating
loss carry-forward at our Sheffield, UK subsidiary of $1.8 million and a
$1.4 million reserve for uncertain tax positions. Excluding these two
items, the tax rate was 38.2% in fiscal 2007 compared to 26.2% in fiscal 2006.
In 2006, benefits from research and development and other state credits, and
income in foreign jurisdictions taxed at lower rates more than offset the impact
of state income taxes. Reconciliation to the Federal statutory rate of 34% for
2007 and 35% for 2006 is more fully described in Note 7 to our consolidated
financial statements that appear elsewhere in this Form 10-K.
 
 Liquidity
and Capital Resources
 
 Our
principal sources of liquidity in fiscal 2008 were cash generated from
operations and borrowings under our term loan facility. Principal uses of cash
in fiscal 2008 included the acquisition of New Bedford, increased working
capital related to our recent acquisitions, capital expenditures and debt
service.   We expect that our principal uses of cash in the
future will be to finance working capital, to pay for capital expenditures, to
service debt and to fund possible future acquisitions. In January 2008, we
obtained a new $60.0 million term loan with a five year maturity to fund
the $45.2 million New Bedford acquisition and to pay down borrowings under
our revolving credit facility.
  26




Cash
Flows
 
 The
following table summarizes our primary sources and uses of cash in the periods
presented:
 
 Fiscal
      Year Ended2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006(in
      millions)Net
      Cash Flow provided by (used in):Operating
      activities
                                        
                                        $
                                        25.7
                                        
                                        
                                        $
                                        24.7
                                        
                                        
                                        $
                                        32.6Investing
      activities
                                        
                                        
                                        (68.0
                                        )
                                        
                                        
                                        (40.8
                                        )
                                        
                                        
                                        (72.9
                                        )Financing
      activities
                                        
                                        
                                        41.5
                                        
                                        
                                        
                                        15.5
                                        
                                        
                                        
                                        39.0Effect
      of exchange rate changes on cash and cash equivalents
                                        
                                        
                                        (1.1
                                        )
                                        
                                        
                                        1.0
                                        
                                        
                                        
                                        0.5Net
      increase (decrease) in cash and cash equivalents
                                        
                                        $
                                        (1.9
                                        )
                                        
                                        $
                                        0.4
                                        
                                        
                                        $
                                        (0.8
                                        )
 
 Operating
Activities.    We generated cash from operations of
$25.7 million in fiscal 2008 compared to $24.7 million in fiscal 2007.
This slight increase is primarily the result of an increase in net income,
partially offset by an increase in net working capital requirements. Working
capital used $31.9 million of cash in 2008 compared to cash generation of $7.3
million in 2007.  This additional cash usage from net working capital
is primarily due to the increase in accounts receivable and inventory, with a
decrease in accounts payable as a result of the New Bedford growth in
working capital from its date of acquisition and strong organic revenue
growth.
 
 Investing
Activities.    Net cash used in investing activities
was $68.0 million for fiscal 2008 compared to $40.8 million in fiscal
2007. Investing activities in fiscal 2008 consisted of $22.8 for capital
expenditures and $46.6 million primarily related to the New Bedford acquisition.
Our investing activities in fiscal 2007 consisted of $8.8 million for
capital expenditures and $33.7 million for the acquisitions of Clamonta,
TNCO, SSI and UCA. These expenditures were partially offset by the proceeds from
the sale of excess land in the UK of $1.4 million.
 
 Financing
Activities.    Financing activities provided
$41.5 million of cash in fiscal 2008. This increase in cash is primarily
due to $60.0 million borrowings used to finance the New Bedford acquisition
offset by debt repayments. This is compared to the 2007 proceeds of
$32.6 million used to finance the Clamonta Ltd, TNCO, SSI and UCA
acquisitions.
 
 Capital
Expenditures.    Capital expenditures totaled
$22.8 million in fiscal 2008, compared to $8.8 million in fiscal 2007
and $20.3 million in fiscal 2006, and were primarily used to expand and
enhance production capacity in several of our facilities, including the addition
of a high precision machining cell to better serve the spine market. In 2007, we
replaced equipment and increased capacity with new equipment. We expect capital
expenditures for fiscal 2009 to total approximately
$20.0 million.
 
 Debt
and Credit Facilities
 
 In
connection with our initial public offering in the fourth quarter of fiscal
2004, we entered into a $75.0 million senior secured credit facility,
consisting of a $35.0 million five-year term loan ("Term Loan A") and a
$40.0 million five-year revolving credit facility. In the second quarter of
2006, we amended and restated this credit facility to increase our term loans by
$40.0 million ("Term Loan A-1") and extended the revolving credit facility
to June 2011. In the first quarter of 2008 we amended the credit facility to
increase our term loans by $60.0 million (“Term Loan A-2”). As of January 3,
2009, we had an aggregate of approximately $128.9 million of outstanding
indebtedness, which consisted of the following:
 
 ·
              An
      aggregate of $124.5 million of borrowings under our senior credit
      facility; and
 ·
              $4.4 million
      of capital lease obligations.
 
 Borrowings
under this senior credit facility bear interest at a floating rate, which is
either a base rate, or at our option, a London Interbank Offered Rate ("LIBOR")
rate, plus an applicable margin. As of January 3, 2009, an aggregate of
$106.5 million was outstanding under the term loans at a weighted average
interest rate of 2.8125%. As of January 3, 2009, we had $18.0 million
borrowings outstanding under the revolving credit facility. We had one
outstanding letter of credit as of January 3, 2009 in the amount of $1.0
million.
 
 Historically,
we have had a significant amount of variable rate long-term indebtedness. We
have managed our exposure to changes in interest rates by entering into interest
rate swap agreements. These agreements do not qualify for hedge accounting under
the applicable accounting guidelines and, as a result, we are required to record
changes to the fair market value of these agreements in our statement of
operations for each period. We recorded interest rate swap valuation expense of
$1.8 million, $1.4 million and $1.1 million for fiscal 2008, fiscal
2007 and fiscal 2006, respectively. For additional information regarding our
interest rate swap agreements, see "Quantitative and Qualitative Disclosures
about Market Risks—Interest Rate Risk."
 
 Our
senior credit agreement ("Senior Credit Agreement") contains various financial
covenants, including covenants requiring a maximum total debt to EBITDA ratio,
minimum EBITDA to interest ratio and a minimum EBITDA to fixed charges ratio.
The Senior Credit Agreement also contains covenants restricting certain
corporate actions, including asset dispositions, acquisitions, payment of
dividends and certain other restricted payments, changes of control, incurring
indebtedness, incurring liens, making loans and investments and transactions
with affiliates. The senior credit facility is secured by substantially all of
our assets. Our Senior Credit Agreement also contains customary events of
default. We were in compliance with all of our covenants as of January 3,
2009.
 
 As
previously disclosed, in October 2007, we discovered accounting irregularities
at our Sheffield, UK operating unit, resulting in our lenders’ administrative
agent's notice to the Corporation that a default had occurred under the Senior
Credit Agreement. On October 10, 2007, we entered into a forbearance
agreement under which the lenders agreed to forbear until January 7, 2008,
from exercising the rights and remedies available to them under the Senior
Credit Agreement with respect to the events of default.
 
 On
December 14, 2007, the Corporation, certain of the Corporation's
subsidiaries, and Wachovia Bank, National Association, as Administrative Agent,
entered into a Waiver, Amendment and Term A-2 Loan Incremental Term Loan
Amendment to Amended and Restated Credit Agreement ("Waiver"). Pursuant to the
terms of the Waiver, the Administrative Agent waived specified events of default
existing under the Senior Credit Agreement. In addition, the Administrative
Agent, on behalf of itself and certain other lenders, (i) consented to the
New Bedford acquisition, (ii) committed to extend additional senior secured
credit in the aggregate amount of $60.0 million (the "Incremental Term
Loan" or "Term Loan A-2"), and (iii) modified the terms of the Senior
Credit Agreement accordingly. Proceeds of the Incremental Term Loan were used to
fund the New Bedford acquisition; to pay, in part, the Corporation's existing
revolving credit facility; and to pay fees and expenses in connection with the
Waiver.
  27
  On
January 25, 2008, the New Bedford acquisition was completed and the
Incremental Term Loan was funded. The Incremental Term Loan will mature
June 13, 2011. Quarterly installments of principal are to be paid so as to
reduce the remaining principal balance by approximately ten percent (10%) in
2009, fifteen percent (15%) in 2010 and seventy percent (70%) in 2011. The
Corporation retained the right to have borrowed funds bear interest at the
London Interbank Offered Rate (LIBOR) plus an applicable margin or at a "base
rate" plus an applicable margin under the Waiver. The applicable margins
increased by 0.50% and the Corporation was limited in its ability to borrow
under the revolving credit facility until the Corporation became current in
filing its reports under Section 13 and 15(d) of the Securities Exchange Act.
Other terms of the Senior Credit Agreement remained substantially unchanged by
the Waiver.
 
 On
March 27, 2008, the Corporation, certain of its subsidiaries and Wachovia
Bank, National Association, as Administrative Agent, entered into a Second
Amendment and Waiver to the Amended and Restated Credit Agreement ("Second
Amendment") for purposes of waiving events of default under the Senior Credit
Agreement relating to the Sheffield accounting irregularities and the
Corporation's required financial statement filing deadlines. The Second
Amendment waived an event of default and amended the terms of the Senior Credit
Agreement to accommodate the financial impact of the Sheffield accounting
irregularities and extended the deadline for the Corporation to file its
financial statements as required under Sections 13 and 15(d) of the
Securities Exchange Act to April 14, 2008.
 
 On
April 14, 2008, the Corporation notified the Administrative Agent that the
filing of its Annual Report on Form 10-K would be extended beyond the
April 14, 2008 target date; certain other financial statements as required
by the Senior Credit Agreement would be provided beyond the time established by
the Senior Credit Agreement; and professional fees incurred in connection with
the Sheffield accounting irregularities would cause the Corporation to be unable
to comply with a financial covenant of the Senior Credit Agreement. The
Administrative Agent, for the Corporation’s lenders, informed the Corporation
that an event of default had occurred due to these circumstances. Under the
circumstances, the Administrative Agent had the right to accelerate the
financial obligations of the Corporation under the Senior Credit Agreement, but
did not.
 
 On
April 22, 2008, the Corporation, certain of its subsidiaries and Wachovia
Bank, National Association, as Administrative Agent, entered into a Third
Amendment and Waiver to Amended and Restated Credit Agreement (“Third
Amendment”) for the purposes of waiving the described defaults. Accordingly, the
Corporation obtained from the lenders (i) a waiver of the Events of Default,
(ii) an extension of the deadline by which the Corporation was required to file
its 2007 Form 10-K, and (iii) an extension of the deadline by which the
Corporation was required to file its 2008 first quarter quarterly report on Form
10-Q. In addition, the Corporation obtained changes to the Credit Agreement
which includes temporary adjustments to its financial statement
covenants.
 
 On
June 24, 2008, the Corporation filed its 2008 first quarter filing on Form 10-Q
and met all of the requirements under the Third Amendment.  As such,
the interest margin decreased 0.50% and the restrictions on borrowings were
lifted.
 
 We
hold certain property and equipment pursuant to capital leases. As of January 3,
2009, these leases have future minimum lease payments of $1.6 million,
$1.0 million, $0.9 million, $0.9 million and $0.8 million in
each of the next 5 fiscal years and $2.2 million thereafter.
 
 The
term loans require quarterly payments of scheduled principal and interest, with
annual scheduled principal payments increasing each year. Term Loan A matures in
December 2009. Term Loan A-1, Term Loan A-2 and borrowings under the revolving
credit facility mature in June 2011.
 
 We
believe that cash flow from operating activities and borrowings under our senior
credit facility will be sufficient to fund currently anticipated working
capital, planned capital spending and debt service requirements for the
foreseeable future, including at least the next twelve months. We regularly
review acquisitions and other strategic opportunities, which may require
additional debt or equity financing.
 
 Contractual
Obligations and Commercial Commitments
 
 The
following table reflects our contractual obligations as of January 3,
2009:
 
 Payments
      due by periodTotal
                                                
                                                
                                                Less than
                                                  1 year
                                                
                                                
                                                1-3 years
                                                
                                                
                                                3-5 years
                                                
                                                
                                                More than
                                                  5 years(in millions)Long-term
      debt obligations (1) (2)
                                                
                                                $
                                                124.5
                                                
                                                
                                                $
                                                16.9
                                                
                                                
                                                $
                                                67.9
                                                
                                                
                                                $
                                                39.7
                                                
                                                
                                                $
                                                -Capital
      lease obligations
                                                
                                                
                                                7.6
                                                
                                                
                                                
                                                1.6
                                                
                                                
                                                
                                                2.0
                                                
                                                
                                                
                                                1.8
                                                
                                                
                                                
                                                2.2Operating
      lease obligations
                                                
                                                
                                                5.7
                                                
                                                
                                                
                                                2.0
                                                
                                                
                                                
                                                2.4
                                                
                                                
                                                
                                                0.7
                                                
                                                
                                                
                                                0.6Purchase
      obligations (3)
                                                
                                                
                                                20.1
                                                
                                                
                                                
                                                8.7
                                                
                                                
                                                
                                                11.4
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Total
                                                
                                                $
                                                157.9
                                                
                                                
                                                $
                                                29.2
                                                
                                                
                                                $
                                                83.7
                                                
                                                
                                                $
                                                42.2
                                                
                                                
                                                $
                                                2.8
 
 (1)Represents principal
maturities only and, therefore, excludes the effects of interest and interest
rate swaps.
 
 (2)In January 2008, we
entered into a new term loan for $60.0 million for the purchase of New
Bedford. The proceeds paid down $13.5 million of the revolving loan due in
2011.
 
 (3)Predominantly represents
purchase agreements to buy minimum quantities of cobalt chrome and titanium
through December 2011.
 
 (4)Liabilities for
unrecognized tax benefits of $8.7 million are excluded as reasonable
estimates could not be made regarding the timing of future cash outflows
associated with those liabilities.
 
 Off-Balance
Sheet Arrangements
 
 Our
off balance sheet arrangements include our operating leases and letters of
credit, which are available under the senior credit facility. We had one letter
of credit outstanding as of January 3, 2009 in the amount of $1.0
million.
  28
  Environmental
 
 Our
facilities and operations are subject to extensive federal, state, local and
foreign environmental and occupational health and safety laws and regulations.
These laws and regulations govern, among other things, air emissions; wastewater
discharges; the generation, storage, handling, use and transportation of
hazardous materials; the handling and disposal of hazardous wastes; the cleanup
of contamination; and the health and safety of our employees. Under such laws
and regulations, we are required to obtain permits from governmental authorities
for some of our operations. If we violate or fail to comply with these laws,
regulations or permits, we could be fined or otherwise sanctioned by regulators.
We could also be held responsible for costs and damages arising from any
contamination at our past or present facilities or at third-party waste disposal
sites. We cannot completely eliminate the risk of contamination or injury
resulting from hazardous materials, and we may incur material liability as a
result of any contamination or injury.
 
 We
incurred approximately $0.6 million and $0.2 million in capital
expenditures for environmental, health and safety in 2008 and 2007,
respectively. During 2008, our significant purchases included an EP passivate
system and a wet dust collection system.  In 2007, we upgraded our
HVAC and dust collection system at multiple locations.
 
 In
connection with our recent acquisitions, we completed Phase I environmental
assessments and did not find any significant issues that we believe needed to be
remediated. We cannot be certain that environmental issues will not be
discovered or arise in the future related to these acquisitions.
 
 In
conjunction with the New Bedford acquisition, we purchased $5.0 million of
environmental insurance coverage for this facility. This policy period expires
January 25, 2013.  In 2000, we purchased pollution legal
liability insurance that covers certain environmental liabilities that may arise
at our Warsaw, Indiana facility, at a former facility located in Peru, Indiana,
and at certain non-owned locations that we use for the disposal of waste. The
insurance has a $5.0 million aggregate limit and is subject to a deductible
and certain exclusions. The policy period expires in 2010. While the insurance
may mitigate the risk of certain environmental liabilities, we cannot guarantee
that a particular liability will be covered by this insurance.
 
 Based
on information currently available, we do not believe that we have any material
environmental liabilities.
 
 Critical
Accounting Policies and Estimates
 
 The
preparation of our financial statements requires management to make estimates,
judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the periods presented.  On
an ongoing basis, we evaluate estimates. We base our estimates on historical
experiences and assumptions believed to be reasonable under the circumstances.
Those estimates form the basis for our judgments that affect the amounts
reported in the financial statements. Actual results could differ from our
estimates under different assumptions or conditions. Our significant accounting
policies, which may be affected by our estimates and assumptions, are more fully
described in Note 2 to our consolidated financial statements that appear
elsewhere in this Form 10-K.
 
 Revenue
Recognition
 
 We
recognize revenue in accordance with Staff Accounting Bulletin No. 101, as
amended by Staff Accounting Bulletin No. 104, on orders received from
customers when there is persuasive evidence of an arrangement with the customer
that is supportive of revenue recognition, the customer has made a fixed
commitment to purchase the product for a fixed or determinable sales price,
collection is reasonably assured under our normal billing and credit terms, and
ownership and all risks of loss have been transferred to the buyer, which is
normally upon shipment.
 
 Inventory
 
 Inventories
generally are stated at the lower of cost (first-in, first-out) or market (net
realizable value). Costs include material, labor and manufacturing overhead
costs. We review our inventory balances monthly for excess products or obsolete
inventory levels and write down, if necessary, the inventory to net realizable
value.
 
 Business
Combinations, Goodwill and Intangible Assets
 
 In
July 2001, the Financial Accounting Standards Board, or "FASB," issued SFAS
No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Intangible
Assets . SFAS No. 141 requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method of
accounting. In June 2007, the FASB issued SFAS No. 141(R),Business Combinations, which
amends SFAS 141 and provides revised guidance for recognizing and measuring
identifiable assets and goodwill acquired. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized, but reviewed
annually or more frequently if impairment indicators arise. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives. The amortization provisions of SFAS
No. 142 apply to goodwill and intangible assets acquired after
June 30, 2001.
 
 We
perform impairment tests annually and whenever events or circumstances occur
indicating that goodwill or other intangible assets might be impaired. Examples
of such events or circumstances include, but are not limited to, a significant
adverse change in legal or business climate or an adverse regulatory action. We
completed our annual impairment tests in 2008 and 2007 which did not result in
the impairment of our goodwill or intangible assets at any reporting unit within
the Corporation.  In 2005, our annual impairment test resulted in the
impairment of goodwill and intangible assets at the Sheffield, UK reporting unit
of $32.1 million and $1.5 million, respectively.
  The
assessment of the recoverability of long-lived assets reflects management’s
assumptions and estimates.  Factors that management must estimate when
performing impairment tests include sales volume, prices, inflation, discount
rates, exchange rates, tax rates and capital spending.  Significant
management judgment is involved in estimating these factors, and they include
inherent uncertainties.  Measurement of the recoverability of these
assets is dependent upon the accuracy of the assumptions used in making these
estimates, as well as how the estimates compare to the eventual future operating
performance of the specific reporting unit to which the assets are
attributed.  Changes in these estimates could change our conclusion
regarding the impairment of goodwill or other intangible assets and potentially
result in a non-cash impairment in the future period.  Subsequent to
year end, there was a significant decline in general economic
conditions.  A continued decline in general economic conditions,
including a sustained decline in our market capitalization relative to our net
book value could materially impact our judgments and assumptions about the fair
value of our business.  If general economic conditions do not improve
we may be required to record a goodwill impairment charge during
2009.
 Foreign
Currency Accounting
 
 Assets
and liabilities have been translated using the exchange rate in effect at the
balance sheet date. Revenues and expenses have been translated using a
weighted-average exchange rate for the period. Currency translation adjustments
have been recorded as a separate component of shareholders' equity. Foreign
currency transaction gains and losses resulting from a subsidiary's foreign
currency denominated assets and liabilities included in other income were a
$3,309 loss, $1,102 loss, and $2,679 gain in 2008, 2007 and 2006,
respectively.
  29
  Environmental
Liability
 
 Governmental
regulations relating to the discharge of materials into the environment, or
otherwise relating to the protection of the environment, have had, and will
continue to have, an effect on our operations and us. We have made and continue
to make expenditures for projects relating to the protection of the
environment.
 
 Any
loss contingencies with respect to environmental matters are recorded as
liabilities in the consolidated financial statements when it is both
(1) probable or known that a liability has been incurred and (2) the
amount of the loss is reasonably estimable, in accordance with Statement of
Financial Accounting Standards Statement (SFAS) No. 5,Accounting for
Contingencies.  If the reasonable estimate of the loss is a
range and no amount within the range is a better estimate, the minimum amount of
the range is recorded as a liability. If a loss contingency is not probable or
not reasonably estimable, a liability is not recorded in the consolidated
financial statements. In the opinion of our management, there are no known
environmental matters that are expected to have a material impact on our
consolidated balance sheet or results of operations; however, the outcome of
such matters are not within our control and are subject to inherent
uncertainty.
 
 New
Accounting Pronouncements
 
 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 assets and liabilities and only applies when other standards require
or permit the fair value measurement of assets and liabilities. It does not
expand the use of fair value measurement. This Statement was effective for the
Corporation on December 20, 2007. The adoption of this Statement did not have a
material impact on our financial position, results of operations or cash
flows.
 
 In
December 2007, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141(R),Business Combinations. This statement amends SFAS 141, and provides
revised guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any non-controlling interest in the acquiree.
It also provides disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The provisions of SFAS 141(R) are effective for our business
combinations occurring on or after January 4, 2009. We are currently
evaluating the potential impacts of the adoption of
SFAS 141(R).
 
 ITEM
7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
 
 Interest
Rate Risk
 
 We
are exposed to market risk from fluctuations in interest rates. We manage our
interest rate risk by balancing the amount of our fixed rate and variable rate
debt and through the use of interest rate swaps. The objective of the swaps is
to more effectively balance borrowing costs and interest rate risk. For fixed
rate debt, interest rate changes affect the fair market value of such debt but
do not impact earnings or cash flows. Conversely for variable rate debt,
interest rate changes generally do not affect the fair market value of such
debt, but do impact future earnings and cash flows, assuming other factors are
held constant. At January 3, 2009, we had approximately $127.8 million of
variable rate debt. The weighted average interest rate for this debt in 2008 was
3.15%. Holding other variables constant (such as foreign exchange rates and debt
levels), a one percentage point change in interest rates would be expected to
have an impact on pre-tax earnings and cash flows for the next year of
approximately $1.3 million, before giving effect to the interest rate swap
agreements described below.
 
 We
entered into an interest rate swap agreement to hedge $35.0 million of our
variable rate term loans into a fixed rate obligation for an approximately
three-year period ending June 30, 2006. We received payments at variable
rates, while we made payments at a fixed rate of 2.285% per annum.  We
also entered into an interest rate swap agreement to economically hedge
$15.0 million of our variable rate term loans into a fixed rate obligation
for the period commencing on June 30, 2006 and ending on December 31,
2007. We received payments at variable rates, while we made payments at a fixed
rate of 3.98% per annum.
 
 When we
borrowed $40.0 million to acquire Riley Medical in May 2006, we
subsequently entered into an interest rate swap agreement to economically hedge
the $40.0 million of debt at a fixed payment obligation of 5.45% per annum
for the period commencing on July 3, 2006 and ending on June 10,
2011.
 
 Subsequent
to year end on January 13, 2009, we entered into an interest rate swap agreement
to hedge $64.1 million of our variable rate term loans into a fixed rate
obligation until June 13, 2011. We will receive payments at variable rates,
while we make payments at a fixed rate of 1.3375%.
 
 Foreign
Currency Risk
 
 Foreign
currency risk is the risk that we will incur economic losses due to adverse
changes in foreign currency exchange rates. As a result of our acquisitions, we
have significant operations in the United Kingdom. Consequently, a significant
portion of our operating results are generated in currencies other than the U.S.
dollar, principally the pound sterling and Euro.  Our operating
results are therefore impacted by exchange rate fluctuations to the extent we
are unable to match revenue received in such currencies with costs incurred in
such currencies.
 
 As
a global company with operations in the United Kingdom, France, Ireland and
Malaysia, we experienced an impact from foreign exchange in fiscal 2008. As a
result of the fluctuation in rates, our revenue decreased for the fourth quarter
2008 by $5.9 million and for the total year 2008 by $2.7 million. The
fluctuation in rates decreased our gross margin for the fourth quarter 2008 by
$0.6 million and increased our gross margin by $0.4 million
for the total year 2008. The impact of rates increased our net income by
$0.8 million in the fourth quarter and for the total year 2008 by
$1.5 million.
 
 We
entered into foreign currency forward contracts to mitigate fluctuations in
foreign currency on the statement of operations. The gain of the foreign
currency valuation of $4.3 million included in derivative income for 2008
offset foreign currency transaction loss included within the other expense of
$3.3 million. As of January 3, 2009, we did not have any outstanding
contracts.
 
 Our
primary exposures to foreign currency exchange fluctuations are pound
sterling/US dollar and Euro/US dollar. At January 3, 2009, the potential
reduction in earnings from a hypothetical instantaneous 10.0% increase or
decrease in quoted foreign currency spot rates applied to foreign currency
sensitive instruments would be approximately $1.4 million, net of tax. This
foreign currency sensitivity model is limited by the assumption that all of the
foreign currencies to which we are exposed would simultaneously decrease by
10.0% because such synchronized changes are unlikely to occur.
  30
  Commodity
Price Risk
 
 We
are exposed to fluctuations in commodity prices through the purchase of raw
materials that are processed from commodities, such as titanium, stainless
steel, cobalt chrome and aluminum. Given the historical volatility of certain
commodity prices, this exposure can impact product costs. Because we typically
do not set prices for our products in advance of our commodity purchases, we can
take into account the cost of the commodity in setting our prices for each
order. However, to the extent that we are unable to offset the increased
commodity costs in our product prices, our results would be affected. A
hypothetical instantaneous 10.0% change in commodity prices would have an
immaterial impact on our results of operations in fiscal 2008.
  31





ITEM
8.    FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA


CONSOLIDATED
      FINANCIAL STATEMENTS:Consolidated
      Balance Sheets
                
                33Consolidated
      Statements of Operations
                
                34Consolidated
      Statements of Shareholders' Equity
                
                35Consolidated
      Statements of Cash Flow
                
                36Notes
      to Consolidated Financial Statements
                
                37Report
      of Independent Registered Public Accounting Firm
                
                51REPORTS
      ON INTERNAL CONTROL OVER FINANCIAL REPORTING:Management's
      Report on Internal Control Over Financial Reporting
                
                52Report
      of Independent Registered Public Accounting Firm
                
                53





All
schedules have been omitted because they are not required or applicable or the
information is included in the consolidated financial statements or notes
thereto.


32





Symmetry
Medical, Inc.





Consolidated
Balance Sheets





January 3,
                                    
                                    
                                    December 29,2009
                                    
                                    
                                    2007(In Thousands)Assets:Current
      Assets:Cash
      and cash equivalents
                                    
                                    $
                                    10,191
                                    
                                    
                                    $
                                    12,089Accounts
      receivable, net
                                    
                                    
                                    52,845
                                    
                                    
                                    
                                    42,992Inventories
                                    
                                    
                                    61,111
                                    
                                    
                                    
                                    45,353Refundable
      income taxes
                                    
                                    
                                    6,610
                                    
                                    
                                    
                                    6,516Deferred
      income taxes
                                    
                                    
                                    3,993
                                    
                                    
                                    
                                    2,551Derivative
      valuation asset
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2Other
      current assets
                                    
                                    
                                    3,154
                                    
                                    
                                    
                                    2,940Total
      current assets
                                    
                                    
                                    137,904
                                    
                                    
                                    
                                    112,443Property
      and equipment, net
                                    
                                    
                                    115,045
                                    
                                    
                                    
                                    100,424Goodwill
                                    
                                    
                                    153,521
                                    
                                    
                                    
                                    141,985Intangible
      assets, net of accumulated amortization
                                    
                                    
                                    45,039
                                    
                                    
                                    
                                    44,567Other
      assets
                                    
                                    
                                    1,728
                                    
                                    
                                    
                                    1,011Total
      Assets
                                    
                                    $
                                    453,237
                                    
                                    
                                    $
                                    400,430Liabilities
      and Shareholders' Equity:Current
      Liabilities:Accounts
      payable
                                    
                                    $
                                    26,929
                                    
                                    
                                    $
                                    34,518Accrued
      wages and benefits
                                    
                                    
                                    12,784
                                    
                                    
                                    
                                    10,922Other
      accrued expenses
                                    
                                    
                                    5,186
                                    
                                    
                                    
                                    8,096Income
      tax payable
                                    
                                    
                                    2,637
                                    
                                    
                                    
                                    2,394Derivative
      valuation liability
                                    
                                    
                                    -
                                    
                                    
                                    
                                    74Deferred
      income taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    407Revolving
      line of credit
                                    
                                    
                                    2,495
                                    
                                    
                                    
                                    6,511Current
      portion of capital lease obligations
                                    
                                    
                                    1,034
                                    
                                    
                                    
                                    2,487Current
      portion of long-term debt
                                    
                                    
                                    16,900
                                    
                                    
                                    
                                    10,900Total
      current liabilities
                                    
                                    
                                    67,965
                                    
                                    
                                    
                                    76,309Deferred
      income taxes
                                    
                                    
                                    18,131
                                    
                                    
                                    
                                    12,136Derivative
      valuation liability
                                    
                                    
                                    3,771
                                    
                                    
                                    
                                    1,917Capital
      lease obligations, less current portion
                                    
                                    
                                    3,356
                                    
                                    
                                    
                                    4,032Long-term
      debt, less current portion
                                    
                                    
                                    107,600
                                    
                                    
                                    
                                    68,500Total
      Liabilities
                                    
                                    
                                    200,823
                                    
                                    
                                    
                                    162,894Commitments
      and contingencies (Note 14)Shareholders'
      Equity:Common
      Stock, $.0001 par value; 72,410 shares authorized; shares issued January
      3, 2009—35,801; December 29, 2007—35,444
                                    
                                    
                                    4
                                    
                                    
                                    
                                    4Additional
      paid-in capital
                                    
                                    
                                    275,890
                                    
                                    
                                    
                                    272,623Accumulated
      deficit
                                    
                                    
                                    (21,507
                                    )
                                    
                                    
                                    (45,526
                                    )Accumulated
      other comprehensive income (loss)
                                    
                                    
                                    (1,973
                                    )
                                    
                                    
                                    10,435Total
      Shareholders' Equity
                                    
                                    
                                    252,414
                                    
                                    
                                    
                                    237,536Total
      Liabilities and Shareholders' Equity
                                    
                                    $
                                    453,237
                                    
                                    
                                    $
                                    400,430





See
accompanying notes to consolidated financial statements.


33


Symmetry
Medical, Inc.





Consolidated
Statements of Operations





Years EndedJanuary 3,
                                                
                                                
                                                December 29,
                                                
                                                
                                                December 30,2009
                                                
                                                
                                                2007
                                                
                                                
                                                2006(In Thousands, Except Per Share Data)Revenue
                                                
                                                $
                                                423,406
                                                
                                                
                                                $
                                                290,922
                                                
                                                
                                                $
                                                245,017Cost
      of Revenue
                                                
                                                
                                                323,048
                                                
                                                
                                                
                                                238,343
                                                
                                                
                                                
                                                188,579Gross
      Profit
                                                
                                                
                                                100,358
                                                
                                                
                                                
                                                52,579
                                                
                                                
                                                
                                                56,438Selling,
      general and administrative expenses
                                                
                                                
                                                58,340
                                                
                                                
                                                
                                                39,484
                                                
                                                
                                                
                                                28,278Operating
      Income
                                                
                                                
                                                42,018
                                                
                                                
                                                
                                                13,095
                                                
                                                
                                                
                                                28,160Other
      (income)/expense:Interest
      expense
                                                
                                                
                                                10,092
                                                
                                                
                                                
                                                6,917
                                                
                                                
                                                
                                                4,448Derivatives
      valuation (gain)/loss
                                                
                                                
                                                (2,460
                                                )
                                                
                                                
                                                1,740
                                                
                                                
                                                
                                                2,317Other
                                                
                                                
                                                2,874
                                                
                                                
                                                
                                                (503
                                                )
                                                
                                                
                                                (3,699
                                                )Income
      before income taxes
                                                
                                                
                                                31,512
                                                
                                                
                                                
                                                4,941
                                                
                                                
                                                
                                                25,094Income
      tax expense
                                                
                                                
                                                7,493
                                                
                                                
                                                
                                                5,090
                                                
                                                
                                                
                                                6,580Net
      income (loss)
                                                
                                                $
                                                24,019
                                                
                                                
                                                $
                                                (149
                                                )
                                                
                                                $
                                                18,514Net
      income per share:Basic
                                                
                                                $
                                                0.68
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                0.53Diluted
                                                
                                                $
                                                0.68
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                0.53Weighted
      average common shares and equivalent shares outstanding:Basic
                                                
                                                
                                                35,170
                                                
                                                
                                                
                                                35,089
                                                
                                                
                                                
                                                34,829Diluted
                                                
                                                
                                                35,357
                                                
                                                
                                                
                                                35,268
                                                
                                                
                                                
                                                35,156





See
accompanying notes to consolidated financial statements.


34





Symmetry
Medical, Inc.





Consolidated
Statements of Shareholders' Equity




AccumulatedAdditional
                                
                                
                                
                                
                                
                                OtherCommon
                                
                                
                                Paid-in
                                
                                
                                Accumulated
                                
                                
                                ComprehensiveStock
                                
                                
                                Capital
                                
                                
                                (Deficit)
                                
                                
                                Income (Loss)
                                
                                
                                TotalBalance
      at December 31, 2005
                                
                                $
                                3
                                
                                
                                $
                                268,973
                                
                                
                                $
                                (63,891
                                )
                                
                                $
                                2,675
                                
                                
                                $
                                207,760Comprehensive
      income:Net
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                18,514
                                
                                
                                
                                
                                
                                
                                
                                18,514Other
      comprehensive income—Foreign
      currency translation adjustment
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                4,589
                                
                                
                                
                                4,589Comprehensive
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                23,103Exercise
      of Common Stock warrantsExercise
      of Common Stock options
                                
                                
                                1
                                
                                
                                
                                1,463
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,464Amortization
      of unearned compensation cost
                                
                                
                                
                                
                                
                                
                                11
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                11Issuance
      of Common Stock—Employee
      Stock Purchase Plan
                                
                                
                                
                                
                                
                                
                                269
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                269Balance
      at December 30, 2006
                                
                                $
                                4
                                
                                
                                $
                                270,716
                                
                                
                                $
                                (45,377
                                )
                                
                                $
                                7,264
                                
                                
                                $
                                232,607Comprehensive
      income:Net
      loss
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (149
                                )
                                
                                
                                
                                
                                
                                
                                (149
                                )Other
      comprehensive income—Foreign
      currency translation adjustment
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3,171
                                
                                
                                
                                3,171Comprehensive
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                3,022Exercise
      of Common Stock options
                                
                                
                                
                                
                                
                                
                                1,416
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,416Amortization
      of unearned compensation cost
                                
                                
                                
                                
                                
                                
                                362
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                362Issuance
      of Common Stock—Employee
      Stock Purchase Plan
                                
                                
                                
                                
                                
                                
                                129
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                129Balance
      at December 29, 2007
                                
                                $
                                4
                                
                                
                                $
                                272,623
                                
                                
                                $
                                (45,526
                                )
                                
                                $
                                10,435
                                
                                
                                $
                                237,536Comprehensive
      income:Net
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                24,019
                                
                                
                                
                                
                                
                                
                                
                                24,019Other
      comprehensive income (loss)—Foreign
      currency translation adjustment
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (12,408
                                )
                                
                                
                                (12,408
                                )Comprehensive
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                11,611Exercise
      of Common Stock options
                                
                                
                                
                                
                                
                                
                                371
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                371Amortization
      of unearned compensation cost
                                
                                
                                
                                
                                
                                
                                2,875
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,875Issuance
      of Common Stock—Employee
      Stock Purchase Plan
                                
                                
                                
                                
                                
                                
                                312
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                312Restricted
      Stock
                                
                                
                                
                                
                                
                                
                                (291
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (291
                                )Balance
      at January 3, 2009
                                
                                $
                                4
                                
                                
                                $
                                275,890
                                
                                
                                $
                                (21,507
                                )
                                
                                $
                                (1,973
                                )
                                
                                $
                                252,414




See
accompanying notes to consolidated financial statements.


35


Symmetry
Medical, Inc.





Consolidated
Statements of Cash Flow




Years EndedJanuary 3,
                                  
                                  
                                  December 29,
                                  
                                  
                                  December 30,2009
                                  
                                  
                                  2007
                                  
                                  
                                  2006(In Thousands)Operating
      activitiesNet
      income (loss)
                                  
                                  $
                                  24,019
                                  
                                  
                                  $
                                  (149
                                  )
                                  
                                  $
                                  18,514Adjustments
      to reconcile net income/(loss) to net cash provided by operating
      activities:Depreciation
                                  
                                  
                                  18,524
                                  
                                  
                                  
                                  17,741
                                  
                                  
                                  
                                  15,837Amortization
                                  
                                  
                                  2,939
                                  
                                  
                                  
                                  2,257
                                  
                                  
                                  
                                  1,185Net
      (gain)/loss on sale of assets
                                  
                                  
                                  (464
                                  )
                                  
                                  
                                  153
                                  
                                  
                                  
                                  (1,211
                                  )Deferred
      income tax provision
                                  
                                  
                                  3,475
                                  
                                  
                                  
                                  (1,873
                                  )
                                  
                                  
                                  619Excess
      tax benefit from stock-based compensation
                                  
                                  
                                  (568
                                  )
                                  
                                  
                                  (845
                                  )
                                  
                                  
                                  (1,062
                                  )Stock-based
      compensation
                                  
                                  
                                  2,875
                                  
                                  
                                  
                                  362
                                  
                                  
                                  
                                  11Derivative
      valuation change
                                  
                                  
                                  1,782
                                  
                                  
                                  
                                  256
                                  
                                  
                                  
                                  2,317Foreign
      currency transaction (gains) losses
                                  
                                  
                                  5,025
                                  
                                  
                                  
                                  (530
                                  )
                                  
                                  
                                  (2,657
                                  )Change
      in operating assets and liabilities:Accounts
      receivable
                                  
                                  
                                  (14,944
                                  )
                                  
                                  
                                  (3,968
                                  )
                                  
                                  
                                  9,981Other
      assets
                                  
                                  
                                  (1,083
                                  )
                                  
                                  
                                  1,401
                                  
                                  
                                  
                                  1,207Inventories
                                  
                                  
                                  (12,136
                                  )
                                  
                                  
                                  (5,238
                                  )
                                  
                                  
                                  (1,254
                                  )Current
      income taxes
                                  
                                  
                                  (1,377
                                  )
                                  
                                  
                                  615
                                  
                                  
                                  
                                  (3,345
                                  )Accounts
      payable
                                  
                                  
                                  (2,131
                                  )
                                  
                                  
                                  8,020
                                  
                                  
                                  
                                  (5,729
                                  )Accrued
      expenses and other
                                  
                                  
                                  (263
                                  )
                                  
                                  
                                  6,454
                                  
                                  
                                  
                                  (1,772
                                  )Net
      cash provided by operating activities
                                  
                                  
                                  25,673
                                  
                                  
                                  
                                  24,656
                                  
                                  
                                  
                                  32,641Investing
      activitiesPurchases
      of property and equipment
                                  
                                  
                                  (22,756
                                  )
                                  
                                  
                                  (8,846
                                  )
                                  
                                  
                                  (20,330
                                  )Proceeds
      from the sale of fixed assets
                                  
                                  
                                  1,374
                                  
                                  
                                  
                                  1,731
                                  
                                  
                                  
                                  2,444Acquisitions,
      net of cash received
                                  
                                  
                                  (46,584
                                  )
                                  
                                  
                                  (33,660
                                  )
                                  
                                  
                                  (55,011
                                  )Net
      cash used in investing activities
                                  
                                  
                                  (67,966
                                  )
                                  
                                  
                                  (40,775
                                  )
                                  
                                  
                                  (72,897
                                  )Financing
      activitiesProceeds
      from bank revolver
                                  
                                  
                                  97,663
                                  
                                  
                                  
                                  64,880
                                  
                                  
                                  
                                  77,993Payments
      on bank revolver
                                  
                                  
                                  (100,680
                                  )
                                  
                                  
                                  (44,177
                                  )
                                  
                                  
                                  (73,479
                                  )Issuance
      of long-term debt
                                  
                                  
                                  60,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  40,000Payments
      on long-term debt and capital lease obligations
                                  
                                  
                                  (16,388
                                  )
                                  
                                  
                                  (6,756
                                  )
                                  
                                  
                                  (6,922
                                  )Proceeds
      from the issuance of common stock
                                  
                                  
                                  357
                                  
                                  
                                  
                                  700
                                  
                                  
                                  
                                  673Excess
      tax benefit from stock-based compensation
                                  
                                  
                                  568
                                  
                                  
                                  
                                  845
                                  
                                  
                                  
                                  1,062Debt
      issuance costs paid
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (355
                                  )Net
      cash provided by financing activities
                                  
                                  
                                  41,520
                                  
                                  
                                  
                                  15,492
                                  
                                  
                                  
                                  38,972Effect
      of exchange rate changes on cash
                                  
                                  
                                  (1,125
                                  )
                                  
                                  
                                  995
                                  
                                  
                                  
                                  534Net
      increase (decrease) in cash and cash equivalents
                                  
                                  
                                  (1,898
                                  )
                                  
                                  
                                  368
                                  
                                  
                                  
                                  (750
                                  )Cash
      and cash equivalents at beginning of period
                                  
                                  
                                  12,089
                                  
                                  
                                  
                                  11,721
                                  
                                  
                                  
                                  12,471Cash
      and cash equivalents at end of period
                                  
                                  $
                                  10,191
                                  
                                  
                                  $
                                  12,089
                                  
                                  
                                  $
                                  11,721Supplemental
      disclosures:Cash
      paid for interest
                                  
                                  $
                                  9,335
                                  
                                  
                                  $
                                  5,458
                                  
                                  
                                  $
                                  3,547Cash
      paid for income taxes
                                  
                                  $
                                  4,946
                                  
                                  
                                  $
                                  4,672
                                  
                                  
                                  $
                                  8,534Assets
      acquired under capital leases
                                  
                                  $
                                  639
                                  
                                  
                                  $
                                  195
                                  
                                  
                                  $
                                  213





See
accompanying notes to consolidated financial statements.


36


Notes
to Consolidated Financial Statements





(in
thousands, except share and per share data)





1.
Description of the Business





The
consolidated financial statements include the accounts of Symmetry
Medical, Inc. and its wholly-owned subsidiaries (collectively referred to
as the Corporation), Symmetry Medical USA Inc., Jet Engineering, Inc.,
Ultrexx, Inc., Riley Medical, Inc., Symmetry Medical Switzerland SA
(formerly known as Riley Medical Europe, SA), Symmetry Medical Everest LLC,
Everest Metal International Limited, Symmetry Medical Cheltenham Limited,
Symmetry Medical PolyVac, SAS, Thornton Precision Components Limited
(“Thornton”), Symmetry Medical Malaysia SDN, Clamonta Limited, Specialty
Surgical Instrumentation, Inc., UCA, LLC., TNCO, Inc. and Symmetry Medical New
Bedford, LLC.





Symmetry
Medical, Inc. is a leading independent provider of implants and related
instruments and cases to global orthopedic device manufacturers. The Corporation
designs, develops and produces these products for companies in other segments of
the medical device market, including the dental, osteobiologic and endoscopy
segments, and also provides limited specialized products to non-healthcare
markets, such as the aerospace market.





On
January 25, 2008, the Corporation acquired DePuy Orthopaedics, Inc's
("DePuy") New Bedford, Massachusetts instrument manufacturing facility ("New
Bedford"). This facility manufactures orthopedic instruments as well as general
surgical instruments and small implants.





On
August 31, 2007, the Corporation acquired Specialty Surgical
Instrumentation, Inc. ("SSI") and UCA, LLC ("UCA") privately owned
companies based in Nashville, Tennessee. SSI distributes surgical instruments
directly to hospitals while UCA distributes sterilization containers directly to
hospitals.





On
April 3, 2007, the Corporation acquired all of the stock of TNCO, Inc.
("TNCO"), a privately owned company based in Whitman, Massachusetts. TNCO
designs and supplies precision instruments for arthroscopic, laparoscopic,
sinus, and other minimally invasive procedures.





On
January 9, 2007, the Corporation acquired all of the stock of Whedon
Limited, a privately owned company based in Warwickshire, UK and the holding
company of Clamonta Limited (collectively "Clamonta Ltd").
Clamonta Ltd manufactures aerospace products for the global aerospace
industry.





On
August 31, 2006, the Corporation acquired certain assets of Everest Metal
Finishing, LLC and all of the stock of Everest Metal International Limited
(collectively “Everest Metal”). Everest Metal specializes in implant
finishing.





On
May 2, 2006, the Corporation acquired all of the stock of Riley Medical, Inc., a
privately owned company based in Auburn, Maine, and a Riley Medical Europe SA,
its Swiss subsidiary (collectively “Riley Medical”). Riley Medical is a leading
designer and manufacturer of speciality cases and trays for the global medical
market.





Refer
to Note 3 for further discussion of these acquisitions.





2.
Summary of Significant Accounting Policies





Principles
of Consolidation





The
consolidated financial statements include the accounts of the Corporation and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.





Year
End





The
Corporation's fiscal year is the 52 or 53 week period ending on the
Saturday closest to December 31. Fiscal year 2008 is a 53 week year (ending
January 3, 2009) with fiscal 2007 (ending December 29, 2007) and fiscal
2006 (ending December 30, 2006) were each 52 weeks. References in
these consolidated financial statements to 2008, 2007 and 2006 refer to these
financial years, respectively.





Use
of Estimates





Preparation
of these consolidated financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, but
management does not believe such differences will materially affect the
Corporation's financial position or results of operations.





Cash
and Cash Equivalents





Cash
and cash equivalents include all highly liquid investments with a maturity of
three months or less at the time of purchase.


37





2.
Summary of Significant Accounting Policies (Continued)





Inventories





Inventories
generally are stated at the lower of cost, determined on the first-in, first-out
(FIFO) method, or market. Costs include material, labor and manufacturing
overhead costs. Inventory balances are reviewed monthly for excess products or
obsolete inventory levels and written down, if necessary, to net realizable
value.





Inventories
consist of the following:





January 3,
                  
                  
                  December 29,2009
                  
                  
                  2007Raw
      material and supplies
                  
                  $
                  12,502
                  
                  
                  $
                  9,244Work-in-process
                  
                  
                  31,420
                  
                  
                  
                  21,412Finished
      goods
                  
                  
                  17,189
                  
                  
                  
                  14,697$
                  61,111
                  
                  
                  $
                  45,353





Property
and Equipment





Property
and equipment, which includes assets under capital lease, are stated on the
basis of cost. Depreciation is calculated on the straight-line method over the
estimated useful lives of the respective assets or lease terms, whichever is
shorter. Repair and maintenance costs are charged to expense as
incurred.





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





January 3,
                    
                    
                    December 29,2009
                    
                    
                    2007Land
                    
                    $
                    6,473
                    
                    
                    $
                    6,759Buildings
      and improvements (20 to 40 years)
                    
                    
                    40,183
                    
                    
                    
                    44,274Machinery
      and equipment (5 to 15 years)
                    
                    
                    127,716
                    
                    
                    
                    98,974Office
      equipment (3 to 5 years)
                    
                    
                    10,859
                    
                    
                    
                    8,909Construction-in-progress
                    
                    
                    4,227
                    
                    
                    
                    2,786189,458
                    
                    
                    
                    161,702Less
      accumulated depreciation
                    
                    
                    (74,413
                    )
                    
                    
                    (61,278
                    )$
                    115,045
                    
                    
                    $
                    100,424





Goodwill





The
changes in the carrying amounts of goodwill for the years ended January 3, 2009
and December 29, 2007, are as follows:




Balance
      as of December 30, 2006
              
              $
              129,966Goodwill
      acquired
              
              
              10,886Effects
      of foreign currency
              
              
              1,133Balance
      as of December 29, 2007
              
              $
              141,985Goodwill
      acquired
              
              
              12,265Effects
      of foreign currency
              
              
              (729
              )Balance
      as of January 3, 2009
              
              $
              153,521


In
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible
Assets, goodwill is not amortized but is subject to an annual impairment
test in accordance with this statement. Goodwill is defined by the Corporation
as the excess of purchase cost over the fair value of the net tangible and
identifiable intangible assets acquired. Statement No. 142 requires the
Corporation to test goodwill for impairment using a two-step process. The first
step is a screen for potential impairment, while the second step measures the
amount of impairment. Potential impairment is determined by comparing estimated
fair value to the net book value of the reporting unit. Fair value is calculated
as the present value of estimated future cash flows. The Corporation has
multiple operating segments as defined by Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Corporation has defined its
reporting units at the operating segment level as this is the lowest level for
which discrete financial information is available and the operating results of
that component are regularly reviewed by management.  The Corporation
completed its annual impairment testing and concluded that no impairment of
goodwill existed for fiscal 2008, 2007 or 2006.




The
assessment of the recoverability of long-lived assets reflects management’s
assumptions and estimates.  Factors that management must estimate when
performing impairment tests include sales volume, prices, inflation, discount
rates, exchange rates, tax rates and capital spending.  Significant
management judgment is involved in estimating these factors, and they include
inherent uncertainties.  Measurement of the recoverability of these
assets is dependent upon the accuracy of the assumptions used in making these
estimates, as well as how the estimates compare to the eventual future operating
performance of the specific reporting unit to which the assets are
attributed.  Changes in these estimates could change our conclusion
regarding the impairment of goodwill or other intangible assets and potentially
result in a non-cash impairment in the future period.  Subsequent to
year end, there was a significant decline in general economic
conditions.  A continued decline in general economic conditions,
including a sustained decline in our market capitalization relative to our net
book value could materially impact our judgments and assumptions about the fair
value of our business.  If general economic conditions do not improve
we may be required to record a goodwill impairment charge during
2009.


38





2.
Summary of Significant Accounting Policies (Continued)




Other
Intangible Assets





Intangible
assets subject to amortization consist of technology, non-compete and customer
related intangible assets acquired in connection with our various acquisitions.
These assets are amortized using the straight-line method, and amortization
expense for the next 5 fiscal years approximates $2,900 per year. The
Corporation is required to reassess the expected useful lives of existing
intangible assets annually. The Corporation also evaluates the recoverability of
intangible assets subject to amortization based on undiscounted operating cash
flows when factors indicate impairment may exist. In the event of impairment,
the Corporation makes appropriate write-downs of recorded costs to fair
value.





In
accordance with Statement of Financial Accounting Standards (SFAS)
No. 142,Goodwill and
Other Intangible Assets, intangible assets with an indefinite life are
not amortized but are subject to review each reporting period to determine
whether events and circumstances continue to support an indefinite useful life
as well as an annual impairment test in accordance with this
statement.  The Corporation reviewed its intangible assets in
accordance with SFAS No. 142 and has not recorded any impairment related to
these assets for fiscal 2008, 2007 or 2006.





As
of January 3, 2009, the balances of intangible assets, other than goodwill, were
as follows:





Weighted-average
                  
                  Gross
                  
                  
                  
                  
                  
                  NetAmortization
                  
                  Intangible
                  
                  
                  Accumulated
                  
                  
                  IntangiblePeriod
                  
                  Assets
                  
                  
                  Amortization
                  
                  
                  AssetsAcquired
      technology and patents
                  10
      years
                  
                  $
                  2,295
                  
                  
                  $
                  (713
                  )
                  
                  $
                  1,582Acquired
      customers
                  18
      years
                  
                  
                  42,330
                  
                  
                  
                  (6,596
                  )
                  
                  
                  35,734Non-compete
      agreements
                  5
      years
                  
                  
                  559
                  
                  
                  
                  (243
                  )
                  
                  
                  316Intangible
      assets subject to amortization
                  17
      years
                  
                  
                  45,184
                  
                  
                  
                  (7,552
                  )
                  
                  
                  37,632Proprietary
      processes
                  Indefinite
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,428Trademarks
                  Indefinite
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,979Indefinite-lived
      intangible assets, other than goodwill
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,407Total
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  45,039





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





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





Foreign
Currency Accounting





The
financial statements of the Corporation's foreign subsidiaries are accounted for
and have been translated into U.S. dollars in accordance with Financial
Accounting Standards Board (FASB) Statement No. 52,Foreign Currency
Translation. Assets and liabilities have been translated using the
exchange rate in effect at the balance sheet date. Revenues and expenses have
been translated using a weighted-average exchange rate for the period. Currency
translation adjustments have been recorded as a separate component of
shareholders' equity. Foreign currency transaction gains and losses resulting
from a subsidiary's foreign currency denominated assets and liabilities included
in other income were a $3,309 loss, $382 gain, and $2,679 gain in 2008, 2007 and
2006, respectively.





Revenue
Recognition





The
Corporation recognizes revenue on orders received from its customers when there
is persuasive evidence of an arrangement with the customer that is supportive of
revenue recognition, the customer has made a fixed commitment to purchase the
product for a fixed or determinable price, collection is reasonably assured
under the Corporation's normal billing and credit terms and ownership and all
risks of loss have been transferred to the buyer, which is normally upon
shipment. In certain circumstances, customer terms require receipt of product
prior to the transfer of the risk of ownership. In such circumstances, revenue
is not recognized upon shipment, but rather upon confirmation of
delivery.


39





2.
Summary of Significant Accounting Policies (Continued)





Shipping
and Handling Costs





In
accordance with EITF 00-10:Accounting for Shipping and
Handling Fees and Costs, the Corporation reflects freight costs
associated with shipping its products to customers as a component of cost of
revenues.





Advertising
Costs





Advertising
costs are expensed as incurred. Advertising costs were $317, $287 and $302 for
the years ending January 3, 2009, December 29, 2007 and December 30,
2006, respectively.





Allowance
for Doubtful Accounts





The
Corporation performs periodic credit evaluations of customers' financial
condition and generally does not require collateral. Receivables are generally
due within 30 to 90 days. The Corporation maintains an allowance for
doubtful accounts for estimated losses in the collection of accounts receivable.
The Corporation makes estimates regarding the future ability of its customers to
make required payments based on historical credit experience and expected future
trends.





The
activity in the allowance for doubtful accounts was as follows:




January 3,
                  
                  
                  December 29,
                  
                  
                  December 30,2009
                  
                  
                  2007
                  
                  
                  2006Beginning
      balance
                  
                  $
                  440
                  
                  
                  $
                  229
                  
                  
                  $
                  188Provision
                  
                  
                  612
                  
                  
                  
                  299
                  
                  
                  
                  189Write-offs,
      net
                  
                  
                  (214
                  )
                  
                  
                  (88
                  )
                  
                  
                  (148
                  )Ending
      balance
                  
                  $
                  838
                  
                  
                  $
                  440
                  
                  
                  $
                  229





New
Accounting Pronouncements





In
December 2007, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141(R),Business Combinations. This statement amends SFAS 141,Business Combinations, and
provides revised guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any non-controlling interest in the
acquiree. It also provides disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The provisions of SFAS 141(R) are effective for
business combinations of the Corporation occurring on or after January 4,
2009. The impacts of adopting SFAS 141(R) will be prospective.





Derivative
Financial Instruments





SFAS
No. 133,Accounting for
Derivative Instruments and Hedging Activities, as amended, requires
recognition of every derivative instrument in the balance sheet as either an
asset or liability measured at its fair value. Changes in the fair value of
derivatives are to be recorded each period in earnings or comprehensive income,
depending on whether the derivative is designated and effective as part of a
hedge accounting transaction. The Corporation's derivatives discussed below do
not qualify for hedge accounting and accordingly, adjustments to fair value are
recorded in earnings.





The
Corporation had an interest rate swap ("SWAP") agreement to economically hedge
$35,000 of outstanding long-term debt at a fixed payment obligation of 2.285%
per annum for the period commencing on July 21, 2003 and ending on
June 30, 2006. Effective December 2004, the Corporation entered into a SWAP
agreement to economically hedge $15,000 of outstanding long-term debt at a fixed
payment obligation of 3.98% per annum for the period commencing on June 30,
2006 and ending on December 31, 2007. Effective July 2006, the Corporation
entered into a SWAP agreement to economically hedge $40,000 of outstanding
long-term debt at a fixed payment obligation of 5.45% per annum for the period
commencing July 3, 2006 and ending on June 10, 2011. The entire change
in the fair market value of the SWAPs in 2008, 2007 and 2006 of $1,856, $1,366
and $1,129 respectively, was included in earnings.





The
Corporation enters into forward contracts to mitigate the impact of fluctuations
in foreign currency on the Statements of Operations. As of January 3, 2009, the
Corporation had no foreign currency contracts outstanding since all contracts
were settled during fiscal 2008, resulting in $4,316 of realized
gains.  As of December 29, 2007, the Corporation had two contracts for
the sale of $5,000 British pounds each with settlement dates no later than
January 18, 2008 and one contract for the sale of $10,000 British pounds
with a settlement date no later than April 21, 2008. As of
December 30, 2006, the Corporation had entered into three contracts for the
sale of $5,000 British pounds each with settlement dates no later than
January 17, 2007, May 2, 2007 and May 11, 2007 for each of the
three contracts, respectively. The entire change in the fair value of the
forwards in 2008, 2007 and 2006 of $4,316, $374 and $1,188, respectively, was
included in earnings.





Stock-Based
Compensation





The
Corporation adopted SFAS 123(R),Share-Based Payment
(SFAS 123(R)), using the modified prospective method. SFAS 123(R)
requires that all share-based payments to employees, including grants of
employee stock options be recognized in the financial statements based upon
their fair value over the requisite service period.





Fair
value of restricted stock grants is determined to be the stock price on the date
of the grant.  There have been no grants of stock options since the
adoption of SFAS 123(R).  The Corporation’s policy is to recognize
expense for awards subject to graded vesting using the straight-line attribution
method.  Refer to Note 9 for additional information on the
Corporation’s compensation plans.


40




3.
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 in Warwickshire, UK and the holding company of Clamonta
Limited (collectively "Clamonta Ltd.") for $10,407 in cash. The acquisition
of Clamonta Ltd. further strengthened our relationship with a key aerospace
customer. Results of Clamonta Ltd. are included from the date of
acquisition.





The
aggregate purchase price of $10,407 was allocated to the opening balance sheet
as follows:




Current
      assets
                    
                    $
                    3,445Property,
      plant & equipment
                    
                    
                    3,695Acquired
      customers (amortized over 15 years)
                    
                    
                    3,070Non-compete
      agreements (amortized over 5 years)
                    
                    
                    120Trademarks
      (indefinite-lived)
                    
                    
                    1,330Goodwill
                    
                    
                    3,025Current
      liabilities
                    
                    
                    (1,765
                    )Deferred
      taxes
                    
                    
                    (1,963
                    )Capital
      leases
                    
                    
                    (550
                    )Purchase
      price, net
                    
                    $
                    10,407





On
April 3, 2007, the Corporation's subsidiary Symmetry Medical USA Inc.
acquired all of the stock of TNCO, Inc. ("TNCO"), a privately owned company
based in Whitman, Massachusetts for $7,583 in cash. TNCO designs and supplies
precision instruments for arthroscopic, laparoscopic, sinus, and other minimally
invasive procedures.





The
aggregate purchase price of $7,583 was allocated to the opening balance sheet as
follows:





Current
      assets
                    
                    $
                    2,570Property,
      plant & equipment
                    
                    
                    1,740Acquired
      technology (amortized over average weighted 8 years)
                    
                    
                    510Acquired
      customers (amortized over 15 years)
                    
                    
                    1,170Non-compete
      agreements (amortized over 5 years)
                    
                    
                    80Trademarks
      (indefinite-lived)
                    
                    
                    190Goodwill
                    
                    
                    1,792Current
      liabilities
                    
                    
                    (469
                    )Purchase
      price, net
                    
                    $
                    7,583





On
August 31, 2007, the Corporation's subsidiary Symmetry Medical
USA Inc. acquired all of the stock of Specialty Surgical
Instrumentation, Inc. (“SSI”) and UCA, LLC ("UCA"), privately owned
companies based in Nashville, Tennessee for $15,048 in cash. SSI distributes
surgical instruments directly to hospitals while UCA distributes sterilization
containers directly to hospitals.





As of
January 3, 2009, the aggregate purchase price of $15,048 was allocated to the
opening balance sheet as follows:





Current
      assets
                    
                    $
                    5,896Property,
      plant & equipment
                    
                    
                    1,687Acquired
      technology (amortized over average weighted 13 years)
                    
                    
                    350Acquired
      customers (amortized over 15 years)
                    
                    
                    6,630Non-compete
      agreements (amortized over 5 years)
                    
                    
                    100Trademarks
      (indefinite-lived)
                    
                    
                    1,500Goodwill
                    
                    
                    6,199Current
      liabilities
                    
                    
                    (4,634
                    )Deferred
      income taxes
                    
                    
                    (2,680
                    )Purchase
      price, net
                    
                    $
                    15,048





On
January 25, 2008, the Corporation acquired substantially all the assets and real
estate of DePuy Orthopaedics, Inc’s (“DePuy”) New Bedford, Massachusetts
instrument manufacturing facility (“New Bedford”) for $45,246 in cash, subject
to certain post closing adjustments.  This facility manufactures
orthopedic instruments as well as general surgical instruments and small
implants.  The aggregate purchase price is preliminary, subject to
adjustment and is expected to be finalized in 2009.





Current
      assets
                    
                    $
                    7,819PP&E
                    
                    
                    22,101Acquired
      customers (amortized over 15 years)
                    
                    
                    5,130Goodwill
                    
                    
                    10,196Purchase
      price, net
                    
                    $
                    45,246





41




3. Acquisitions
(Continued)




Unaudited
Proforma Results    The following table represents
the proforma results of the Corporation's operations had the acquisitions of
Riley Medical, Everest Metal, Clamonta Ltd, TNCO, SSI, UCA and New Bedford
been completed as of the beginning of the periods presented:





Fiscal
      Year Ended2008
                  
                  
                  2007
                  
                  
                  2006Revenue
                  
                  $
                  426,083
                  
                  
                  $
                  339,429
                  
                  
                  $
                  329,839Net
      income (loss)
                  
                  
                  24,085
                  
                  
                  
                  (2,539
                  )
                  
                  
                  17,073Earnings
      per share—basic
                  
                  $
                  0.68
                  
                  
                  $
                  (0.07
                  )
                  
                  $
                  0.49Earnings
      per share—diluted
                  
                  $
                  0.68
                  
                  
                  $
                  (0.07
                  )
                  
                  $
                  0.49





4.
Fair Value of Financial Instruments





In
September 2006, the FASB issued statement No. 157, Fair Value Measurements (SFAS
157).  SFAS 157 defines fair value, established a framework for
measuring fair value in accordance with accounting principles generally accepted
in the United States, and expands disclosures about fair value
measurements.  The Corporation has adopted the provision of SFAS 157
as of December 30, 2007 for financial instruments.  Although the
adoption of SFAS 157 did not materially impact its financial condition, results
of operations, or cash flow, the Corporation is now required to provide
additional disclosures as part of its financial statements.  In
February 2008, the FASB agreed to defer for one year the effective date of SFAS
157 for certain nonfinancial assets and liabilities, except for those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis.





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





As of
January 3, 2009, the Corporation held certain assets that are required to be
measured at fair value on a recurring basis. These included the Corporation’s
interest rate derivative instruments.





The
Corporation’s derivative instruments consist of contracts that are not traded on
a public exchange. The fair values of interest rate derivative instruments are
determined based on inputs that are readily available in public markets or can
be derived from information available in publicly quoted markets. Therefore, the
Corporation has categorized these derivative instruments as Level
2.





The
Corporation’s assets measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS 157 at January 3, 2009 were as
follows:





Fair Value MeasurementsLevel 1
                    
                    
                    Level 2
                    
                    
                    Level 3
                    
                    
                    TotalLiabilitiesInterest
      rate swaps
                    
                    
                    -
                    
                    
                    
                    (3,771
                    )
                    
                    
                    -
                    
                    
                    
                    (3,771
                    )$
                    -
                    
                    
                    $
                    (3,771
                    )
                    
                    $
                    -
                    
                    
                    $
                    (3,771
                    )





Additionally,
financial instruments also consist of cash and cash equivalents, accounts
receivable, and long-term debt, including interest-rate swap agreements, and
foreign exchange forward contracts.  The carrying value of these
financial instruments approximates fair value.





5.
Debt Arrangements





Long-term
debt consists of the following:


January
      3,
                                  
                                  
                                  December
      29,2009
                                  
                                  
                                  2007Bank
      term loan payable in quarterly installments, plus interest at a
      variablerate
      (2.8125% at January 3, 2009), through December 2009
                                  
                                  $
                                  10,500
                                  
                                  
                                  $
                                  21,000Bank
      term loan payable in quarterly installments, plus interest at a
      variablerate
      (2.8125% at January 3, 2009), through June 2011
                                  
                                  
                                  39,000
                                  
                                  
                                  
                                  39,400Bank
      term loan payable in quarterly installments, plus interest at a
      variablerate
      (2.8125% at January 3, 2009), through June 2011
                                  
                                  
                                  57,000
                                  
                                  
                                  
                                  -Revolving
      line of credit, due June 2011
                                  
                                  
                                  18,000
                                  
                                  
                                  
                                  19,000124,500
                                  
                                  
                                  
                                  79,400Less
      current portion
                                  
                                  
                                  (16,900
                                  )
                                  
                                  
                                  (10,900
                                  )$
                                  107,600
                                  
                                  
                                  $
                                  68,500





As
of January 3, 2009, the Corporation's revolving credit facility had a total
capacity of up to $40,000 and the Corporation pays a 0.375% annual commitment
fee for the average unused portion of the revolving line of credit facility.
There were $18,000 of borrowings and $22 million available under this line of
credit facility at January 3,2009.





42




5. Debt Arrangements
(Continued)




The
Senior Credit Agreement, which provides for the term loans and revolving line of
credit (“Senior Credit Agreement”), contains various financial covenants,
including covenants requiring a maximum total debt to EBITDA ratio, minimum
EBITDA to interest ratio and a minimum EBITDA to fixed charges ratio. The Senior
Credit Agreement also contains covenants restricting certain corporate actions,
including asset dispositions, acquisitions, paying dividends and certain other
restricted payments, changes of control, incurring indebtedness, incurring
liens, making loans and investments, and transactions with affiliates. The
senior credit facility is secured by substantially all of the Corporation’s
assets. The Corporation’s Senior Credit Agreement also contains customary events
of default. We were
in compliance with all of our covenants as of January 3,
2009.





As
previously reported in the Corporation's Current Reports on Form 8-K dated
October 5, 2007, and October 11, 2007, the Corporation discovered
accounting irregularities at its Sheffield, UK operating unit, resulting in the
Administrative Agent's notice to the Corporation that a default had occurred
under the Senior Credit Agreement. On October 10, 2007, the Corporation
entered into a forbearance agreement under which the lenders agreed to forebear
until January 7, 2008, from exercising the rights and remedies available to
them under the Senior Credit Agreement with respect to the events of
default.





On
December 14, 2007, the Corporation, certain of the Corporation's
subsidiaries, and Wachovia Bank, National Association, as Administrative Agent,
entered into a Waiver, Amendment and Term A-2 Loan Incremental Term Loan
Amendment to Amended and Restated Credit Agreement
("Waiver").  Pursuant to the terms of the Waiver, the Administrative
Agent permanently waived specified events of default existing under the Senior
Credit Agreement. In addition, the Administrative Agent, on behalf of itself and
certain other lenders, (i) consented to the New Bedford acquisition,
(ii) committed to extend additional senior secured credit in the aggregate
amount of $60,000 (the "Incremental Term Loan"), and (iii) modified the
terms of the Senior Credit Agreement accordingly. Proceeds of the Incremental
Term Loan were used to fund the New Bedford acquisition; to pay, in part, the
Corporation's existing revolving credit facility; and to pay fees and expenses
in connection with the Waiver.





On
January 25, 2008, the New Bedford acquisition was completed and the
Incremental Term Loan was funded. The Incremental Term Loan will mature
June 13, 2011. Quarterly installments of principal are to be paid so as to
reduce the remaining principal balance by approximately ten percent (10%) in
2009, fifteen percent (15%) in 2010 and seventy percent (70%) in 2011. The
Corporation retained the right to have borrowed funds bear interest at the
London Interbank Offered Rate (LIBOR) plus an applicable margin or at a "Base
Rate" plus an applicable margin under the Waiver. The applicable
margins  increased by 0.50% and the Corporation was limited in its
ability to borrow under the revolving credit facility until the Corporation
became current in filing its reports under Section 13 and 15(d) of the
Securities Exchange Act. Other terms of the Senior Credit Agreement remained
substantially unchanged by the Waiver.





On
March 27, 2008, the Corporation, certain of its subsidiaries and Wachovia
Bank, National Association, as Administrative Agent, entered into a Second
Amendment and Waiver to the Amended and Restated Credit Agreement ("Second
Amendment") for purposes of waiving events of default under the Senior Credit
Agreement relating to the Sheffield accounting irregularities and the
Corporation's required financial statement filing deadlines. The Second
Amendment waived an event of default and amended the terms of the Senior Credit
Agreement to accommodate the financial impact of the Sheffield irregularities
and extended the deadline for the Corporation to file its financial statements
as required under Sections 13 and 15(d) of the Exchange Act to
April 14, 2008.





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





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





On June
24, 2008, the Corporation filed its 2008 first quarter filing on Form 10-Q and
met all of the requirements under the Third Amendment.  As such, the
interest margin decreased 0.50% and the restrictions on borrowings were
lifted.





Maturities
of long-term debt for the five years succeeding January 3, 2009 are as
follows:





2009
                      
                      $
                      16,9002010
                      
                      
                      20,4002011
                      
                      
                      87,200$
                      124,500





6.
Leases





The
Corporation has a capital lease arrangement through October 1, 2016 for its
New Hampshire manufacturing facility. On October 1, 2001, and every five
years thereafter, including extensions, the annual base rent will change based
on the Consumer Price Index. The Corporation has an option to extend the lease
for an additional five-year period and has a right of first opportunity to
purchase the leased property. Any leasehold improvements are depreciated over
the shorter of the useful asset life or the minimum lease period. Additionally,
the Corporation has entered into capital leases for various machinery and
equipment.





Property
and equipment and related accumulated amortization for building and equipment
under capital leases are as follows:




January 3,
                    
                    
                    December 29,2009
                    
                    
                    2007Buildings
      and improvements
                    
                    $
                    4,991
                    
                    
                    $
                    4,991Machinery
      and equipment
                    
                    
                    8,016
                    
                    
                    
                    15,57913,007
                    
                    
                    
                    20,570Less
      accumulated amortization
                    
                    
                    (8,680
                    )
                    
                    
                    (10,910
                    )$
                    4,327
                    
                    
                    $
                    9,660
 
 43
 
 6. Leases (Continued)
  Amortization
of leased assets is included in depreciation
expense.




Future
minimum payments for capital leases with initial terms of one year or more are
as follows at January 3, 2009:





2009
                        
                        
                        1,6122010
                        
                        
                        1,0292011
                        
                        
                        9232012
                        
                        
                        9232013
                        
                        
                        871Thereafter
                        
                        
                        2,193Total
      minimum payments
                        
                        
                        7,551Amounts
      representing interest
                        
                        
                        (3,161
                        )Present
      value of net minimum lease payments (including total current portion of
      $1,034)
                        
                        $
                        4,390





7.
Income Taxes





Income
before income taxes consisted of:





Fiscal
      Year EndedJanuary 3,
                      
                      
                      December 29,
                      
                      
                      December 30,2009
                      
                      
                      2007
                      
                      
                      2006Domestic
                      
                      $
                      33,039
                      
                      
                      $
                      9,812
                      
                      
                      $
                      17,156Foreign
                      
                      
                      (1,527
                      )
                      
                      
                      (4,871
                      )
                      
                      
                      7,938$
                      31,512
                      
                      
                      $
                      4,941
                      
                      
                      $
                      25,094





Significant
components of the Corporation's net deferred tax liabilities are as
follows:





January 3,
                    
                    
                    December 29,2009
                    
                    
                    2007Compensation
                    
                    $
                    998
                    
                    
                    $
                    395Intangibles
                    
                    
                    (10,511
                    )
                    
                    
                    (9,290
                    )Inventory
                    
                    
                    2,218
                    
                    
                    
                    1,216Property,
      plant and equipment
                    
                    
                    (11,961
                    )
                    
                    
                    (7,477
                    )Net
      operating loss carryforwards of states and foreign
      subsidiaries
                    
                    
                    14,245
                    
                    
                    
                    5,028Derivative
      agreements
                    
                    
                    1,496
                    
                    
                    
                    790Other
                    
                    
                    2,842
                    
                    
                    
                    1,165Net
      deferred tax liability before valuation allowance and
    reserves
                    
                    
                    (673
                    )
                    
                    
                    (8,173
                    )Valuation
      allowance for operating loss carryforward
                    
                    
                    (3,755
                    )
                    
                    
                    (1,819
                    )$
                    (4,428
                    )
                    
                    $
                    (9,992
                    )





Significant
components of the income tax provision are as follows:





Fiscal
      Year EndedJanuary
      3,
                      
                      
                      December
      29,
                      
                      
                      December
      30,2009
                      
                      
                      2007
                      
                      
                      2006Current:Federal
                      
                      $
                      7,041
                      
                      
                      $
                      3,753
                      
                      
                      $
                      5,584State
                      
                      
                      1,166
                      
                      
                      
                      295
                      
                      
                      
                      340Foreign
                      
                      
                      4,236
                      
                      
                      
                      2,288
                      
                      
                      
                      98812,443
                      
                      
                      
                      6,336
                      
                      
                      
                      6,912Deferred
                      
                      
                      (4,950
                      )
                      
                      
                      (1,246
                      )
                      
                      
                      (332
                      )$
                      7,493
                      
                      
                      $
                      5,090
                      
                      
                      $
                      6,580





44




7. Income Taxes
(Continued)




The
provision for income taxes differs from that computed at the Federal statutory
rate of 35%, 34% and 35% for 2008, 2007 and 2006, respectively as
follows:





Fiscal
      Year EndedJanuary
      3,
                    
                    
                    December
      29,
                    
                    
                    December
      30,2009
                    
                    
                    2007
                    
                    
                    2006Tax
      at Federal statutory rate
                    
                    $
                    11,029
                    
                    
                    $
                    1,679
                    
                    
                    $
                    8,783State
      income taxes
                    
                    
                    1,775
                    
                    
                    
                    205
                    
                    
                    
                    514State
      tax credits
                    
                    
                    (159
                    )
                    
                    
                    (122
                    )
                    
                    
                    (312
                    )Foreign
      income taxes
                    
                    
                    1,765
                    
                    
                    
                    439
                    
                    
                    
                    (635
                    )Qualified
      production activities deduction
                    
                    
                    -
                    
                    
                    
                    (186
                    )
                    
                    
                    (156
                    )Research
      and development credits—current year
                    
                    
                    (290
                    )
                    
                    
                    (689
                    )
                    
                    
                    (745
                    )Research
      and development and other tax credits—prior years
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (318
                    )Valuation
      allowance
                    
                    
                    2,953
                    
                    
                    
                    1,757
                    
                    
                    
                    -Reserve
      for uncertain tax positions
                    
                    
                    2,196
                    
                    
                    
                    1,444
                    
                    
                    
                    -Realization
      of loss in investment of foreignsubsidiary,
      net of reserve
                    
                    
                    (11,952
                    )
                    
                    
                    -
                    
                    
                    
                    -Other
                    
                    
                    176
                    
                    
                    
                    563
                    
                    
                    
                    (551
                    )$
                    7,493
                    
                    
                    $
                    5,090
                    
                    
                    $
                    6,580





At
January 3, 2009, the Corporation had foreign net operating loss carry forwards
of approximately $18,763 and an associated deferred tax asset of $5,264. The
foreign carry forwards have no expiration date. However, due to the uncertainty
of the realization of the full benefit of the foreign net operating loss carry
forwards, the Corporation has established a valuation allowance of $3,755. The
Corporation has a U.S. federal tax net operating loss carryforward of $21,184
and an associated deferred tax asset of $7,412 which will expire beginning in
2029, if unused, and which may be subject to other limitations under IRS
rules.  The Corporation has various multistate income tax net
operating loss carryforwards which have been recorded as a deferred tax asset of
approximately $1,569. No provision has been made for United States federal and
state or foreign taxes that may result from future remittances of undistributed
earnings of foreign subsidiaries because it is expected that such earnings will
be reinvested in these foreign operations indefinitely. At January 3, 2009, we
had an aggregate of $23,212 of unremitted earnings of foreign subsidiaries that
have been or are intended to be permanently reinvested for continued use in
foreign operations.





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





The
Corporation's policy with respect to interest and penalties associated with
reserves for uncertain tax positions is to classify such interest and penalties
in income tax expense in the Statements of Operations. As of January 3, 2009,
the total amount of unrecognized income tax benefits computed under FIN 48
was approximately $8,695, all of which, if recognized, would impact the
effective income tax rate of the Corporation. As of January 3, 2009, the
Corporation had recorded a total of $250 of accrued interest and penalties
related to uncertain tax positions. The Corporation foresees possible changes in
its reserves for uncertain income tax positions as reasonably possible during
the next 12 months that could result in an increase or decrease in the
reserves of $1,465 or $3,984, respectively, due to R&D credits. As of
January 3, 2009, the Corporation is subject to unexpired statutes of limitation
for U.S. federal income taxes for the years 2001-2008. The Corporation is also
subject to unexpired statutes of limitation for various states including most
significantly Indiana, Michigan and New Hampshire generally for the years
2001-2008.





A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):





Balance
      at December 31, 2006
                                          
                                          $
                                          248Additions
      based on tax positions-current year
                                          
                                          
                                          —Additions
      for tax positions-prior years
                                          
                                          
                                          1,362Balance
      at December 29, 2007
                                          
                                          $
                                          1,610Additions
      based on tax positions—current year
                                          
                                          
                                          5,477Additions
      for tax positions—prior years
                                          
                                          
                                          1,608Balance
      at January 3, 2009
                                          
                                          $
                                          8,695





8.    Profit
Sharing Plan





During
fiscal 2008, the Corporation maintained a qualified profit sharing plan, which
qualifies under Section 401(k) of the Internal Revenue Code. Contributions
by the Corporation are based upon both discretionary and matching
nondiscretionary amounts. The matching amounts represent a 50% match of
employees' contributions, up to a maximum of $4 per participant per year.
Expense recorded for the plans was $1,607, $1,665 and $961 for 2008, 2007 and
2006, respectively.





9.    Stock-Based
Compensation Plans





2002
Stock Option Plan    The 2002 Stock Option Plan
provides for the grant of nonqualified stock options to the Corporation's
directors, officers and employees and other persons who provide services to us.
A total of 52,135 shares of common stock are reserved for issuance under this
plan. Options for 52,135 shares of common stock have been granted. These options
vest ratably over a four year period as of the end of each of our fiscal years
during that period, subject to the Corporation achieving certain minimum EBITDA
targets in each fiscal year, and, if those targets are not met, on the seventh
anniversary of the grant date so long as the option holder is still an employee.
Options granted under the 2002 Stock Option Plan are generally not transferable
by the optionee, and such options must be exercised within 30 days after
the end of an optionee's status as an employee, director or consultant (other
than a termination by us for cause, as defined in the 2002 Stock Option Plan),
within 180 days after such optionee's termination by death or disability,
or within 90 days after such optionee's retirement, but in no event later
than the expiration of the option term. All options were granted, as determined
by its board of directors, at the fair market value of the Corporation's common
stock, on the date of grant. The term of all options granted under the 2002
Stock Option Plan may not exceed ten years.





45




9.    Stock-Based
Compensation Plans (Continued)




2003
Stock Option Plan    The 2003 Stock Option Plan
provides for the grant of nonqualified stock options to the Corporation's
directors, officers and employees and other persons who provide services to us.
A total of 907,167 shares of common stock are reserved for issuance under this
plan. Options for 813,034 shares of common stock have been granted. These
options vest ratably over a four year period as of the end of each of our fiscal
years during that period. Options granted under the 2003 Stock Option Plan are
generally not transferable by the optionee, and such options must be exercised
within 30 days after the end of an optionee's status as an employee,
director or consultant (other than a termination by us for cause, as defined in
the 2003 Stock Option Plan), within 180 days after such optionee's
termination by death or disability, or within 90 days after such optionee's
retirement, but in no event later than the expiration of the option
term.





All
options were granted, as determined by its board of directors, at the fair
market value of the Corporation's common stock on the date of grant. The term of
all options granted under the 2003 Stock Option Plan may not exceed ten
years.





A
summary of stock option activity and weighted-average exercise prices for the
periods indicated are as follows:




Number of
                                                            Options
                                                          
                                                          
                                                          Weighted Average
                                                            Exercise
      Price
                                                          
                                                          
                                                          Instrinsic
                                                            ValueOutstanding
      at December 31, 2005
                                                          
                                                          
                                                          629,844
                                                          
                                                          
                                                          $
                                                          3.12
                                                          
                                                          
                                                          
                                                          10,248Exercised
                                                          
                                                          
                                                          (145,119
                                                          )
                                                          
                                                          $
                                                          2.78
                                                          
                                                          
                                                          $
                                                          1,062Cancelled
                                                          
                                                          
                                                          (1,811
                                                          )
                                                          
                                                          $
                                                          3.04Outstanding
      at December 30, 2006
                                                          
                                                          
                                                          482,914
                                                          
                                                          
                                                          $
                                                          3.22
                                                          
                                                          
                                                          $
                                                          5,124Exercised
                                                          
                                                          
                                                          (187,559
                                                          )
                                                          
                                                          $
                                                          3.04
                                                          
                                                          
                                                          $
                                                          845Cancelled
                                                          
                                                          
                                                          —Outstanding
      at December 29, 2007
                                                          
                                                          
                                                          295,355
                                                          
                                                          
                                                          $
                                                          3.34
                                                          
                                                          
                                                          $
                                                          4,167Exercised
                                                          
                                                          
                                                          (38,530
                                                          )
                                                          
                                                          $
                                                          3.97
                                                          
                                                          
                                                          $
                                                          544Cancelled
                                                          
                                                          
                                                          —Outstanding
      at January 3, 2009
                                                          
                                                          
                                                          256,825
                                                          
                                                          
                                                          $
                                                          3.25
                                                          
                                                          
                                                          $
                                                          1,295




Range
      of
                              Exercise
                            
                            Number
                              Outstanding
                            
                            Weighted
                              Average
                              Remaining
                              Life
                            
                            Weighted
                              Average
                              Exercise
                              Price
                            
                            
                            Number
                              Exercisableat
                              January 3, 2009
                            
                            
                            Weighted
                              Average
                              Exercise
                              Price$3.04 - 4.83
                            
                            
                            256,825
                            
                            3.2 years
                            
                            $
                            3.25
                            
                            
                            
                            256,825
                            
                            
                            $
                            3.25





2004
Equity Incentive Plan.    The 2004 Incentive Plan is
designed to enable us to attract, retain and motivate our directors, officers,
employees and consultants, and to further align their interests with those of
the Corporation's stockholders, by providing for or increasing their ownership
interests in our company. The 2004 Incentive Plan provides for the issuance of
stock options, stock appreciation rights ("SARs"), restricted stock, deferred
stock, dividend equivalents, other stock-based awards and performance awards.
Performance awards will be based on the achievement of one or more business or
personal criteria or goals, as determined by the compensation committee. The
compensation committee shall not grant, in any one calendar year, to any one
participant awards to purchase or acquire a number of shares of common stock in
excess of 15% of the total number of shares authorized for issuance under the
2004 Incentive Plan.





An
aggregate of 1,673,333 shares of our common stock are reserved for issuance
under the 2004 Incentive Plan, subject to certain adjustments reflecting changes
in the Corporation's capitalization. Restricted stock is a grant of shares of
common stock that may not be sold or disposed of, and that may be forfeited in
the event of certain terminations of employment, prior to the end of a
restricted period set by the compensation committee. A participant granted
restricted stock generally has all of the rights of a shareholder, unless the
compensation committee determines otherwise. During 2008, the Corporation
granted 314,150 shares of performance based restricted stock to employees that
generally vest at the end of three years if performance targets are achieved, or
ultimately at the end of seven years so long as the holder is still an employee.
The Corporation also granted 88,800 shares of non-performance based restricted
stock to directors during 2008 that generally vest over three years with
one-third vesting on December 31st of
each year.





In
2007 and 2006, the Corporation granted 135,000 and 120,000, respectively, of
performance based restricted stock to employees. Previously recognized
compensation expense related to these awards was $328 and $544 for 2007 and
2006, respectively.  In 2007, the Corporation determined that the
performance based restricted stock targets would not be met, and as such,
reversed most of the stock compensation expense associated with these
awards.  During 2008, the Compensation Committee of the Board of
Directors made a discretionary decision to vest a portion of the 2005 and 2006
restricted stock grants as of December 31, 2008.  In addition, the
performance criteria for certain 2007 restricted stock grants was deemed to be
met for 2007, which will be considered in the performance criteria for the 2007
issuances at December 31, 2009.  The Corporation also granted 14,800
shares of non-performance based restricted stock to directors during 2007 that
generally vest over three years with one-third vesting on December 31st  of each year.





In
2008, 2007 and 2006, the Corporation recorded compensation expense of $2,873,
$328 and $48, respectively, related to restricted stock grants. The
Corporation's policy to recognize expense for awards subject to graded vesting
using the straight-line attribution method. As of January 3, 2009, the
Corporation had unearned compensation cost of $5,233 which will be expensed
through 2014.





46




9.    Stock-Based
Compensation Plans (Continued)




A
summary of all restricted stock activity for the period indicated below is as
follows:





Weighted-AverageNumber of Shares
                    
                    
                    Grant Date Fair
                      ValueOutstanding at
      December 30, 2006
                    
                    
                    170,000
                    
                    
                    $
                    16.07Granted
                    
                    
                    149,800
                    
                    
                    
                    15.87Vested
                    
                    
                    (3,000
                    )
                    
                    
                    17.18Cancelled
                    
                    
                    (7,200
                    )
                    
                    
                    15.60Outstanding
      at December 29, 2007
                    
                    
                    309,600
                    
                    
                    
                    16.48Granted
                    
                    
                    403,000
                    
                    
                    
                    13.75Vested
                    
                    
                    (86,600
                    )
                    
                    
                    14.34Cancelled
                    
                    
                    (111,600
                    )
                    
                    
                    14.43Outstanding
      at January 3, 2009
                    
                    
                    514,400
                    
                    
                    
                    13.61





The
total fair value of restricted stock that vested during 2008, 2007 and 2006 was
$765, $58, and $0, respectively.





10.    Employee
Stock Purchase Plans





2004
Employee Stock Purchase Plan





The
2004 Employee Stock Purchase Plan is designed to provide an incentive for our
domestic employees to purchase our common stock and acquire a proprietary
interest in the Corporation. Each person who was employed either by the
Corporation or by one of its designated subsidiaries on December 8, 2004
and was expected on a regularly-scheduled basis to work more than 30 hours
per week for more than ten months per calendar year automatically was enrolled
in the plan. Persons who subsequently are employed by us or one of our
designated subsidiaries are eligible once they have completed three months of
service or are an employee as of an offering date of an exercise period,
provided they are expected on a regularly-scheduled basis to work more than
30 hours per week for more than ten months per calendar year.





Each
participant is granted an option to purchase shares of the Corporation's common
stock at the beginning of each 6-month "offering period" under the plan, on each
"exercise date," during the offering period. Exercise dates occur on the last
date on which the NYSE is open for trading prior to each June 30 and
December 31. Participants purchase the shares of the Corporation's common
stock through after-tax payroll deductions, not to exceed 10% of the
participant's total base salary on each payroll date. No participant may
purchase more than 750 shares of common stock on any one exercise date or more
than $25 of common stock in any one calendar year. The purchase price for each
share is 95% of the fair market value of such share on the exercise date. If a
participant's employment with the Corporation or one of its designated
subsidiaries terminates, any outstanding option of that participant also will
terminate.





A
total of 600,000 shares of the Corporation's common stock are reserved for
issuance over the term of the plan. On June 30, 2008, 6,821 shares of the
Corporation’s common stock were purchased by the participants in the plan at a
price of $15.41 per share.  On December 31, 2008, 14,429 shares of the
Corporation’s common stock were purchased by the participants in the plan at a
price of $7.57 per share.  On June 29, 2007, 6,038 shares of the
Corporation's common stock were purchased by the participants in the plan at a
price of $15.21 per share. On December 31, 2007, 5,821 shares of the
Corporation’s common stock were purchased by the participants in the plan at a
price of $16.56 per share.  This plan is noncompenstory in accordance
with SFAS 123(R).





UK
Share Incentive Plan 2006





The
UK Share Incentive Plan 2006 is designed to provide an incentive for our
employees in the United Kingdom to purchase our common stock and acquire a
proprietary interest in the Corporation. Each person who was employed by the
Corporation's designated subsidiaries are eligible if they have completed six
months of service and remain permanent employees during the entire qualifying
period.





Each
qualifying employee is eligible to purchase shares of the Corporation's common
stock through payroll deductions, not to exceed 10% of the participant's total
base salary. No participant may purchase more than £1.5 of common stock in any
one tax year (ending April 5). Payroll deductions are transferred to the
plan trustee at the end of each month, and the trustee purchases shares based on
the average market price on the award date. When the participant accumulates 20
shares of common stock under the plan, one matching share is awarded to the
participant. Matching shares become vested after a three year holding
period.





A
total of 300,000 shares of the Corporation's common stock are reserved for
issuance over the term of the plan. No shares have been issued under this
plan.





11.    Related
Party Transactions





During
the years ended January 3, 2009 and December 29, 2007, the Corporation
purchased contract manufacturing services totaling $285 and $719, respectively,
from ADS Precision Limited (ADS), a company controlled by a relative of the
former general manager of our Sheffield, UK facility. The Audit Committee's
investigation determined that ADS had participated in certain irregular
transactions with the Corporation's Sheffield, UK operating unit. These
irregularities involved the sale and repurchase of inventory in connection with
short-term financing to the unit. The Corporation has outstanding payables to
ADS of $96 as of January 3, 2009.





The
Corporation also did business with Laser Engineering Inc. (LEI), a company
owned by the principles of SSI and UCA. Subsequent to August 31, 2007, the
date of the SSI and UCA acquisition, through the end of fiscal year 2007, the
Corporation received approximately $84 of commissions from LEI for sales of
product.  There were no transactions with this party during
2008.  All transactions were executed on an arm’s length basis, and
the Corporation believes this relationship is not significant to its overall
financial results.





12.    Segment
Reporting





The
Corporation primarily designs, develops and manufactures implants and related
surgical instruments and cases for orthopedic device companies and companies in
other medical device markets such as dental, osteobiologic and endoscopy. The
Corporation also sells products to the aerospace industry. The Corporation
manages its business in multiple operating segments. Because of the similar
economic characteristics of these operations, including the nature of the
products, comparable level of FDA regulations, same or similar customers, those
operations have been aggregated following the provisions of SFAS 131 for
segment reporting purposes. The results of one segment which sells exclusively
to aerospace customers has not been disclosed separately as it does not meet the
quantitative disclosure requirements.





47




12.    Segment
Reporting (Continued)




The
Corporation is a multi-national company with operations in the United States,
United Kingdom, France, Ireland and Malaysia. As a result, the Corporation's
financial results can be impacted by currency exchange rates in the foreign
markets in which the Corporation sells its products. Revenues are attributed to
geographic locations based on the location to which we ship our
products.





Revenues
to External Customers:


Fiscal
      Year Ended2008
                  
                  
                  2007
                  
                  
                  2006United
      States
                  
                  $
                  302,820
                  
                  
                  $
                  177,795
                  
                  
                  $
                  156,037United
      Kingdom
                  
                  
                  54,954
                  
                  
                  
                  54,678
                  
                  
                  
                  33,078Ireland
                  
                  
                  31,943
                  
                  
                  
                  26,386
                  
                  
                  
                  24,884Other
      foreign countries
                  
                  
                  33,689
                  
                  
                  
                  32,063
                  
                  
                  
                  31,018Total
      net revenues
                  
                  $
                  423,406
                  
                  
                  $
                  290,922
                  
                  
                  $
                  245,017





Long-Lived
Assets:




Fiscal Year Ended2008
                      
                      
                      2007
                      
                      
                      2006United
      States
                      
                      $
                      83,090
                      
                      
                      $
                      55,960
                      
                      
                      $
                      59,996United
      Kingdom
                      
                      
                      29,401
                      
                      
                      
                      42,620
                      
                      
                      
                      41,538Ireland
                      
                      
                      872
                      
                      
                      
                      408
                      
                      
                      
                      181Other
      foreign countries
                      
                      
                      1,682
                      
                      
                      
                      1,436
                      
                      
                      
                      1,192Total
      long-lived assets
                      
                      $
                      115,045
                      
                      
                      $
                      100,424
                      
                      
                      $
                      102,907





Concentration
of Credit Risk:





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





2008—two
customers representing approximately 33%, and 11% of net revenues,
respectively.





2007—two
customers representing approximately 18%, and 12% of net revenues,
respectively.





2006—two
customers representing approximately 23% and 13% of net revenues,
respectively.





The
customers listed above, which are orthopedic implant manufacturers, comprised
approximately 38.8%, 22% and 24% of the accounts receivable balance at January
3, 2009, December 29, 2007 and December 30, 2006,
respectively.





Following
is a summary of the composition by product category of the Corporation's
revenues to external customers. Revenues from aerospace products are included in
the "other" category.





Fiscal Year Ended2008
                  
                  
                  2007
                  
                  
                  2006Implants
                  
                  $
                  122,560
                  
                  
                  $
                  96,862
                  
                  
                  $
                  91,880Instruments
                  
                  
                  177,486
                  
                  
                  
                  79,064
                  
                  
                  
                  66,857Cases
                  
                  
                  86,449
                  
                  
                  
                  77,160
                  
                  
                  
                  62,197Other
                  
                  
                  36,911
                  
                  
                  
                  37,836
                  
                  
                  
                  24,083Total
      net revenues
                  
                  $
                  423,406
                  
                  
                  $
                  290,922
                  
                  
                  $
                  245,017




48





13.    Net
Income (Loss) Per Share





The
following table sets forth the computation of earnings per share.


Fiscal Year Ended2008
                  
                  
                  2007
                  
                  
                  2006Numerator:Net
      income (loss)
                  
                  $
                  24,019
                  
                  
                  $
                  (149
                  )
                  
                  $
                  18,514Denominator:Weighted-average
      shares outstanding:Basic
                  
                  
                  35,170
                  
                  
                  
                  35,089
                  
                  
                  
                  34,829Effect
      of dilutive stock options, restricted stock and stock
    warrants
                  
                  
                  187
                  
                  
                  
                  179
                  
                  
                  
                  327Diluted
                  
                  
                  35,357
                  
                  
                  
                  35,268
                  
                  
                  
                  35,156Net
      income per share:Basic
                  
                  $
                  0.68
                  
                  
                  $
                  -
                  
                  
                  $
                  0.53Diluted
                  
                  $
                  0.68
                  
                  
                  $
                  -
                  
                  
                  $
                  0.53





14.    Commitments
and Contingencies





Environmental





The
Corporation has been notified by the U.S. Environmental Protection Agency and by
certain state governments that it may be liable under environmental laws with
respect to the cleanup of hazardous substances at sites we previously used for
the disposal of wastes. Based on information currently available, the
Corporation does not believe these liabilities will be material to its results
of operations or financial position. No amounts have been accrued for these
exposures as a loss is not considered probable.





Operating
Leases





The
Corporation has various operating leases, primarily for equipment and vehicles.
Total rental expense for these operating leases amounted to $2,357, $1,472 and
$1,731 in 2008, 2007 and 2006, respectively. At January 3, 2009, future minimum
payments for operating leases with initial terms of one year or more are as
follows: $1,969 in Fiscal 2009; $1,447 in Fiscal 2010; $992 in Fiscal 2011; $496
in Fiscal 2012; $219 in Fiscal 2013; and $552 thereafter.





Unconditional
Purchase Obligations





The
Corporation has contracts to purchase minimum quantities of cobalt chrome
through December 2009. Based on contractual pricing at January 3, 2009, the
minimum purchase obligations total $6,079 in 2009. Purchases under 2008 titanium
and cobalt chrome contracts were approximately $5,641 in fiscal year 2008. These
purchases are not in excess of our forecasted
requirements.  Additionally, as of January 3, 2009, the Corporation
has $583 commitments to complete capital projects in progress.





Legal
Matters





The
Corporation is involved, from time to time, in various contractual, product
liability, patent (or intellectual property) and other claims and disputes
incidental to its business. Currently, no material environmental or other
material litigation is pending or, to the knowledge of the Corporation,
threatened. The Corporation currently believes that the disposition of all
claims and disputes, individually or in the aggregate, should not have a
material adverse effect on the Corporation's consolidated and combined financial
condition, results of operations or liquidity.





Following
the discovery of the accounting irregularities at our Sheffield, UK operating
unit, the Audit Committee self-reported the matter to the staff of the
Securities and Exchange Commission (SEC). Thereafter, the SEC commenced an
informal inquiry into this matter. The Corporation has fully cooperated with the
SEC in its investigation. At this time, the Corporation is unable to predict the
timing of the ultimate resolution of this investigation or the impact
thereof.





49





15.    Quarterly
Results of Operations (Unaudited)





The
Corporation's fiscal year end is the 52 or 53 week period ending the
Saturday closest to December 31. Fiscal 2008 was a 53 week
year.    The Corporation’s first two interim quarters for
2008 were 13 weeks long ending the Saturday closest to March 31 and June 30 and
the third quarter was 14 weeks long, ending Saturday October 4, 2008. Fiscal
years 2007, and 2006 were 52 week years. The following quarterly results of
operations refer to these financial periods (in thousands, except per share
data):





Fiscal Year 2008First
                    Quarter
                  
                  
                  Second
                    Quarter
                  
                  
                  Third
                    Quarter
                  
                  
                  Fourth
                    Quarter
                  
                  
                  Fiscal
                    Year(in
      thousands except per share data)Revenue
                  
                  $
                  101,862
                  
                  
                  $
                  109,787
                  
                  
                  $
                  112,095
                  
                  
                  $
                  99,662
                  
                  
                  $
                  423,406Gross
      profit
                  
                  
                  23,946
                  
                  
                  
                  27,414
                  
                  
                  
                  25,650
                  
                  
                  
                  23,348
                  
                  
                  
                  100,358Net
      income(loss)
                  
                  
                  3,967
                  
                  
                  
                  6,202
                  
                  
                  
                  2,533
                  
                  
                  
                  11,317
                  
                  
                  
                  24,019Earnings
      per share:Basic
                  
                  $
                  0.11
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.07
                  
                  
                  $
                  0.32
                  
                  
                  $
                  0.68Diluted
                  
                  $
                  0.11
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.07
                  
                  
                  $
                  0.32
                  
                  
                  $
                  0.68





Fiscal Year 2007First
                    Quarter
                  
                  
                  Second
                    Quarter
                  
                  
                  Third
                    Quarter
                  
                  
                  Fourth
                    Quarter
                  
                  
                  Fiscal
                    Year(in thousands
      except per share data)Revenue
                  
                  $
                  64,724
                  
                  
                  $
                  69,713
                  
                  
                  $
                  75,823
                  
                  
                  $
                  80,662
                  
                  
                  $
                  290,922Gross
      profit
                  
                  
                  11,714
                  
                  
                  
                  14,716
                  
                  
                  
                  11,312
                  
                  
                  
                  14,837
                  
                  
                  
                  52,579Net
      income(loss)
                  
                  
                  1,615
                  
                  
                  
                  4,696
                  
                  
                  
                  (1,087
                  )
                  
                  
                  (5,373
                  )
                  
                  
                  (149
                  )Basic
                  
                  $
                  0.05
                  
                  
                  $
                  0.13
                  
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.16
                  )
                  
                  $
                  -Diluted
                  
                  $
                  0.05
                  
                  
                  $
                  0.13
                  
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.16
                  )
                  
                  $
                  -





16.    Comprehensive
Income





Comprehensive
income is comprised of net income (loss) and gains and losses resulting from
currency translations of foreign operations. Comprehensive income consists of
the following:





Fiscal Year Ended2008
                  
                  
                  2007
                  
                  
                  2006Net
      Income (loss)
                  
                  $
                  24,019
                  
                  
                  $
                  (149
                  )
                  
                  $
                  18,514Foreign
      currency translation adjustments
                  
                  
                  (12,408
                  )
                  
                  
                  3,171
                  
                  
                  
                  4,589Comprehensive
      income
                  
                  
                  11,611
                  
                  
                  $
                  3,022
                  
                  
                  $
                  23,103




On
October 5, 2008, management designated $37.2 of intercompany loans to its
Sheffield, UK subsidiary as a permanent investment. Accordingly, beginning
October 5, 2008, gains and losses associated with this permanent investment were
charged to accumulated other comprehensive income/loss on the consolidated
balance sheets. As of January 3, 2009, accumulated gains/losses of $7.9 million
have been recorded related to these permanent investments.




50





Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Shareholders of Symmetry Medical, Inc.:





We
have audited the accompanying consolidated balance sheets of Symmetry
Medical, Inc. as of January 3, 2009 and December 29,
2007 and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for each of the three years in the period ended
January 3, 2009. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Symmetry
Medical, Inc. at January 3, 2009 and December 29, 2007 and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended January 3, 2009, in conformity with U.S.
generally accepted accounting principles.





We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Symmetry
Medical, Inc.'s internal control over financial reporting as of January 3,
2009, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 10, 2009, expressed an unqualified opinion on the
effectiveness of the Corporation's internal control over financial
reporting.


/s/
      Ernst & Young, LLP





Indianapolis,
Indiana


March 10,
2009





51





Management's
Report on Internal Control Over Financial Reporting





The
management of Symmetry Medical, Inc. (the Corporation) is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Corporation's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. Internal control
over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Corporation; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts
and expenditures of the Corporation are being made only in accordance with
authorizations of management and directors of the Corporation; and
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Corporation's assets that
could have a material effect on the financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.





Management
assessed the effectiveness of the Corporation's internal control over financial
reporting as of January 3, 2009, based on criteria for effective internal
control over financial reporting described in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, we have concluded that internal
control over financial reporting is effective as of January 3,
2009.





Management's
assessment of and conclusion on the effectiveness of the Corporation's internal
control over financial reporting as of January 3, 2009 excluded the internal
controls of New Bedford, whose financial results and positions are included in
the 2008 consolidated financial statements of Symmetry Medical, Inc. and
constituted $53.8 million of total assets as of January 3, 2009 and
$46.8 million of revenues, for the year then ended.





Ernst
and Young, LLP the independent registered public accounting firm that
audited the consolidated financial statements included in this Annual Report,
have also issued an attestation report on the effectiveness of internal control
over financial reporting which appears on the following page.




/s/ Brian S. MooreBRIAN
      S. MOOREChief
      Executive Officer





/s/ FRED L. HITEFred
      L. HiteChief
      Financial Officer





March 10,
2009





52





Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Shareholders of Symmetry Medical, Inc.





We
have audited Symmetry Medical, Inc.'s internal control over financial
reporting as of January 3, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Symmetry Medical, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's
Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company's internal control over financial reporting
based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the
financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





As
indicated in the accompanying Management's Report on Internal Control over
Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of Symmetry New Bedford, whose results and financial positions
are included in 2008 consolidated financial statements of Symmetry
Medical, Inc. and constituted $53.8 million of total assets as of
January 3, 2009 and $46.8 million of revenues for the year then ended. Our
audit of internal control over financial reporting of Symmetry
Medical, Inc. also did not include an evaluation of the internal controls
over financial reporting of Symmetry New Bedford.





In
our opinion, Symmetry Medical, Inc. maintained, in all material respects,
effective internal control over financial reporting as of January 3, 2009, based
on the COSO criteria.





We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Symmetry Medical, Inc. as of January 3, 2009 and December 29, 2007, and the
related consolidated statements of operations, shareholders’ equity and cash
flows for each of the three years in the period ended January 3, 2009 of
Symmetry Medical, Inc. and our report dated March 10, 2009 expressed an
unqualified opinion thereon.




/s/
      Ernst & Young, LLP




Indianapolis,
Indiana


March
10,
2009





53





ITEM
9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE





None.





ITEM
9A.    CONTROLS AND PROCEDURES





This
Report includes the certifications of our Chief Executive Officer and Chief
Financial Officer required by Rule 13a-14 of the Securities Exchange Act of
1934 (the "Exchange Act"). See Exhibits 31.1
and 31.2.
This Item 9A includes information concerning the controls and control
evaluations referred to in those certifications.





Background





During
fiscal 2008, the Audit Committee of our Board of Directors completed an
independent investigation into certain accounting and financial reporting
matters identified at our Sheffield, UK operating unit.  As a result
of the issues identified in that investigation, as well as, issues identified in
additional reviews and procedures conducted by management, the Audit Committee,
in consultation with management and Ernst & Young LLP, our independent
registered public accounting firm, concluded that our previously issued
financial statements for fiscal 2005 and 2006, as well as the interim periods
for fiscal 2006 and 2007, should no longer be relied upon because of certain
accounting errors and irregularities in those financial
statements.  Accordingly, we restated our previously issued financial
statements for those periods.  Restated financial information was
presented in our Annual Report on Form 10-K for fiscal 2007, which also includes
a discussion of the investigation, the accounting errors and irregularities
identified, and the adjustments made as a result of the
restatement.





As
a result of management's review of the Audit Committee's independent
investigation and the other internal reviews performed, we identified several
deficiencies in our internal control over financial reporting, including our
control environment and period-end financial reporting process at our Sheffield,
UK operating unit.  The control deficiencies failed to prevent or
detect a number of accounting errors and irregularities at our Sheffield, UK
operating unit, which led to the restatement described above. The control
deficiencies identified represented material weaknesses in our internal control
over financial reporting as of December 29, 2007 and required corrective and
remedial actions.  As noted below, we believe those material
weaknesses have been corrected and remediated as of January 3,
2009.  A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the annual or interim
financial statement will not be prevented or detected on a timely
basis.





Evaluation
of Disclosure Controls and Procedures





As
required by Rule 13as-15(b) under the Securities Exchange Act of 1934, as
amended, the Corporation's management carried out an evaluation, with the
participation of the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13(a)-15(e) of the Exchange Act), as of the
period covered by this report. Based upon their evaluation, our management
including our Chief Executive Officer and Chief Financial Officer concluded
that, our disclosure controls and procedures were effective as of January 3,
2009 to provide reasonable assurance that (i) information required to be
disclosed by the Corporation (including its consolidated subsidiaries) in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms; and (ii) that information required to be disclosed by the Corporation in
the reports that it files or submits under the Exchange Act is accumulated and
communicated to the Corporation’s management, including its Chief Executive
Officer and Chief Financial Officer, to allow for timely decisions regarding
required disclosure.





Changes
in Internal Control over Financial Reporting





During
fiscal 2007 and 2008, our management was actively engaged in the implementation
of remediation efforts to address the material weaknesses that were identified
as of December 29, 2007.  Those remediation efforts were designed both
to address the identified material weaknesses and to enhance our overall
financial control environment.  The plan to remediate those material
weaknesses was described in detail in our Annual Report on Form 10-K for fiscal
2007, and we executed our plan throughout fiscal 2008.  Below is a
summary of the remedial actions we have undertaken:





·
            We
      have emphasized and invigorated our “tone at the top” and the importance
      of maintaining a strong control environment, high ethical standards and
      financial reporting integrity.  This has been communicated by
      our executive officers to all levels of Corporation employees, and will
      continue to be emphasized on a quarterly
basis.





·
            A
      new Finance Director for Europe began employment in June
      2007.  We have also recruited a new Finance Controller for our
      Sheffield, UK operations who began employment in November 2008, and has
      continued to strengthen the finance team in
  Sheffield.




·
            We
      have increased the presence of Corporate Finance through the addition of a
      new Chief Accounting Officer and Tax Director to enhance the oversight
      over our operating units.  These two new appointments are
      responsible for all accounting, financial and tax reporting worldwide and
      have strengthened our processes and procedures within these
      areas.





·
            We are
      in the process of implementing a new, while refreshing and
      reemphasizing existing, global accounting and finance policies, and we
      also improved the process around the completion and review of quarterly
      management representation letters.





·
            The
      internal audit department activities and resources have been
      expanded.  A European internal auditor based in Sheffield, UK
      has been recruited and additional review procedures of key accounting
      processes have been implemented worldwide, including journal entries and
      supporting documentation, account reconciliations and revenue recognition
      processes.





·
            The
      Sheffield operating unit completed a comprehensive physical inventory at a
      minimum of quarterly during fiscal 2007 and 2008 to validate its inventory
      quantities.  Additional review procedures were implemented
      during fiscal 2008 to mitigate the risk of management override and enhance
      segregation of duties within the process, including an audit
      review.





54





·
            Additional
      review procedures were initiated to strengthen the monthly financial close
      review, including reinforcement of the close schedule, increased review by
      Corporate Finance, assistance and review by Controllers of other
      subsidiaries of the Company, and bi-annual review of the original system
      reports to support the key Balance Sheet accounts at each
      unit.





·
            All
      the key personnel involved with the accounting irregularities have either
      resigned from the Corporation, have been suspended or otherwise
      disciplined.







·
              A
      new enterprise resource planning (ERP) system will be implemented at our
      Sheffield, UK operations during the first quarter 2009.  Both
      financial and operational processes have been enhanced during fiscal 2008
      in preparation for this system implementation.  We anticipate
      this new system will greatly strengthen the internal control environment
      and efficiency of our Sheffield, UK operations, while reducing the
      reliance on manual processes and controls.




Our
efforts to remediate the material weaknesses identified in our Annual Report on
Form 10-K for fiscal 2007 and to enhance our overall control environment have
been regularly reviewed with, and monitored by, our Audit
Committee.  We believe the remediation measures described above have
been successful in correcting and remediating the material weaknesses previously
identified and have strengthened and enhanced our internal control over
financial reporting.





ITEM
9B.    Other Information





None.





55





PART
III





ITEM
10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
information required to be furnished pursuant to this Item 10 will be set
forth under the caption "Governance of the Corporation” and “Information on
Directors and Executive Officers” in our 2009 Proxy Statement which we will file
no later than 120 days after the end of our fiscal year with the Securities
Exchange Commission. We incorporate that information herein by reference.
Information regarding our Corporation's executive officers has been included in
Part I of this report.





ITEM
11.    EXECUTIVE COMPENSATION





The
information required to be furnished pursuant to this Item 11 will be set
forth under the caption "Executive Compensation" in our 2009 Proxy Statement
which we will file no later than 120 days after the end of our fiscal year
with the Securities Exchange Commission. We incorporate that information herein
by reference.





ITEM
12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The
information required to be furnished pursuant to this Item 12 will be set
forth under the caption "Stock Ownership of Directors and Executive Officers”
and “Approval of the Symmetry Medical, Inc. 2009 Equity Incentive Plan” in our
2009 Proxy Statement which we will file no later than 120 days after the
end of our fiscal year with the Securities Exchange Commission. We incorporate
that information herein by reference.





ITEM
13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE





The
information required to be furnished pursuant to this Item 13 will be set
forth under the captions "Governance of the Corporation" and "Related Party
Transactions" in our 2009 Proxy Statement which we will file no later than
120 days after the end of our fiscal year with the Securities Exchange
Commission. We incorporate that information herein by reference.





ITEM
14.    PRINCIPAL ACCOUNTING FEES AND SERVICES





The
information required to be furnished pursuant to this Item 14 will be set
forth under the caption "Audit and Non-Audit Fees" in our 2009 Proxy Statement
which we will file no later than 120 days after the end of our fiscal year
with the Securities Exchange Commission. We incorporate that information herein
by reference.





56




PART
IV





ITEM
15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES


(a)


1. and 2.
See Part II, Item 8. Financial Statements for an index of the
Corporation's consolidated financial statements schedule.




Exhibit
                        Number
                      
                      3.
      Exhibits (Reg. S-K, Item 601)3.1
                      
                      Restated
      Certificate of Incorporation of Symmetry Medical, Inc. (incorporated
      by reference to Exhibit 3.2 of Amendment No. 3 to our
      Registration Statement, on Form S-1/A, filed July 22,
      2004).





3.2
            
            Amended
      and Restated By-Laws of Symmetry Medical, Inc., as amended through
      March 24, 2005 (incorporated by reference to Exhibit 3.2 from
      our 2004 Annual Report on Form 10-K, filed March 25,
      2005).





4.1
            
            Form
      of Common Stock certificate (incorporated by reference to Exhibit 4.1
      of Amendment No. 3 to our Registration Statement, on Form S-1/A,
      filed July 22, 2004).





10.1
            
            Form
      of Common Stock Purchase Warrant of Symmetry Medical, Inc.
      (incorporated by reference to Exhibit 10.2 of our Registration
      Statement on Form S-1, filed May 28,
  2004).





10.7
            
            Amendment
      to Stockholders Agreement dated as of August 3, 2004, by and among
      Symmetry Medical, Inc. and each of the Stockholders party thereto
      (incorporated by reference to Exhibit 10.7 from our 2004 Annual
      Report on Form 10-K, filed March 25,
  2005).





10.8
            
            Symmetry
      Medical, Inc. 2002 Stock Option Plan (incorporated by reference to
      Exhibit 10.10 of our Registration Statement on Form S-1, filed
      May 28, 2004).*





10.9
            
            Form
      of Nonqualified Stock Option Agreement issued under 2002 Stock Option Plan
      (incorporated by reference to Exhibit 10.11 of our Registration
      Statement on Form S-1, filed May 28,
  2004).*





10.10
            
            Symmetry
      Medical, Inc. 2003 Stock Option Plan (incorporated by reference to
      Exhibit 10.12 of our Registration Statement on Form S-1, filed
      May 28, 2004).*





10.11
            
            Form
      of Nonqualified Stock Option Agreement issued under 2003 Stock Option Plan
      (incorporated by reference to Exhibit 10.13 of our Registration
      Statement on Form S-1, filed May 28,
  2004).*





10.12
            
            Symmetry
      Medical, Inc. Amended and Restated 2004 Equity Incentive Plan
      (incorporated by reference to Exhibit 10.12 from our 2004 Annual
      Report on Form 10-K, filed March 25,
  2005).*





10.13
            
            Symmetry
      Medical, Inc. Amended and Restated 2004 Employee Stock Purchase Plan
      (incorporated by reference to Exhibit 10.13 from our 2004 Annual
      Report on Form 10-K, filed March 25,
  2005).*





10.14
            
            Amendment
      to Symmetry Medical, Inc. 2004 Employee Stock Purchase Plan
      (incorporated by reference to Exhibit 10.14 from our 2004 Annual
      Report on Form 10-K, filed March 25,
  2005).*





10.15
            
            Employment
      Agreement, dated as of June 11, 2003, by and between Symmetry
      Medical, Inc. and Brian S. Moore (incorporated by reference to
      Exhibit 10.16 of our Registration Statement on Form S-1, filed
      May 28, 2004).*10.16
            
            Employment
      Agreement, dated as of January 6, 2004, by and between Symmetry
      Medical, Inc. and Fred L. Hite (incorporated by reference to
      Exhibit 10.17 of Amendment No. 4 to our Registration Statement,
      on Form S-1/A, filed July 30,
2004).*





10.18
            
            Form
      of Restricted Stock Agreement issued under the 2004 Equity Incentive Plan
      (incorporated by reference to Exhibit 10.1 to our Form 8-K filed
      May 4, 2005).*





57





10.19
            
            Form
      of Restricted Stock Agreement issued under the Amended and Restated 2004
      Equity Incentive Plan (incorporated by reference to Exhibit 10.1(a)
      to our Form 8-K filed February 15,
  2006).*





10.20
            
            Form
      of Restricted Stock Agreement issued under the Amended and Restated 2004
      Equity Incentive Plan (incorporated by reference to Exhibit 10.1(b)
      to our Form 8-K filed February 15,
  2006).*





10.22
            
            Stock
      Purchase Agreement by and among Symmetry Medical USA Inc.,
      Edward D. Riley and Russell P. Holmes (incorporated by reference
      to Exhibit 10.22 to our Form 10-Q filed March 10,
      2006.





10.23
            
            Amended
      and Restated Credit Agreement, dated June 13, 2006, among Symmetry
      Medical, Inc. as borrower, Wachovia Bank, National Association as
      Administrative Agent, the lenders identified on the signature pages
      thereto, General Electric Capital Corporation as Syndication Agent and CIT
      Lending Services Corporation and Charter One Bank, N.A. as
      Documentation Agents (incorporated by reference to Exhibit 10.1 to
      our Form 8-K filed June 14,
2006.





10.26
            
            Sale
      and Stock Purchase Agreement, dated January 9, 2007, between AL
      Wheeler and ML Donovan and Thornton Precision Components Limited
      (incorporated by reference to Exhibit 10.1 to our Form 8-K filed
      January 11, 2007).




10.27
            
            Form
      of Restricted Stock Agreement (Non-Employee Directors) (incorporated by
      reference to Exhibit 10.1 to our Form 8-K filed
      February 15, 2007).*





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).





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





10.31
            
            Forbearance
      Agreement, executed October 10, 2007, among Symmetry
      Medical, Inc. as borrower, Wachovia Bank, National Association as
      Administrative Agent, the lenders identified on the signature pages
      thereto, General Electric Capital Corporation as Syndication Agent and RBS
      Citizens, N.A. as Documentation Agent (incorporated by reference to
      Exhibit 10.1 to our Form 8-K filed October 11,
      2007).





10.32
            
            Purchase
      Agreement, dated August 29, 2007, between Symmetry Medical
      USA Inc. and Louis C. Wallace and Charles O. Mann, Jr.
      (incorporated by reference to Exhibit 10.1 to our Form 8-K filed
      November 8, 2007).





10.33
            
            Real
      Property Sale and Purchase Agreement, dated August 29, 2007 between
      Symmetry Medical USA Inc. and MFW Investments (incorporated by
      reference to Exhibit 10.2 to our Form 8-K filed November 8,
      2007).





10.34
            
            Earn-Out
      Agreement, dated August 29, 2007 between Symmetry Medical
      USA Inc. and Louis C. Wallace and Charles O. Mann, Jr.
      (incorporated by reference to Exhibit 10.3 to our Form 8-K filed
      November 8, 2007).





10.35
            
            Employment
      Agreement, executed October 17, 2007, by and between Symmetry
      Medical, Thornton Precision Components Limited and John Hynes
      (incorporated by reference to Exhibit 10.4 to our Form 8-K filed
      November 8, 2007).





10.36
            
            Waiver,
      Amendment and Term A-2 Loan Incremental Term Loan Amendment to Amended and
      Restated Credit Agreement, executed December 14, 2007, among Symmetry
      Medical, Inc., as Borrower and Wachovia Bank, National Association,
      as Administrative Agent and Term A-2 Loan Lender (incorporated by
      reference to Exhibit 10.1 to our Form 8-K filed
      December 17, 2007).





10.37
            
            Asset
      Purchase Agreement, dated December 14, 2007, between Symmetry Medical
      New Bedford, LLC, Symmetry New Bedford Real Estate, LLC, and
      DePuy Orthopaedics, Inc. (incorporated by reference to
      Exhibit 10.2 to our Form 8-K filed December 17,
      2007).





58





10.38
            
            Second
      Amendment and Waiver to Amended and Restated Credit Agreement, executed
      March 27, 2008, among Symmetry Medical, Inc., as Borrower and
      Wachovia Bank, National Association as Administrative Agent (incorporated
      by reference to Exhibit 10.1 to our Form 8-K filed April 2,
      2008).





10.39
            
            Third
      Amendment and Waiver to Amended and Restated Credit Agreement, executed
      April 22, 2008, among Symmetry Medical, Inc., as Borrower and
      Wachovia Bank. National Association as Administrative Agent (incorporated
      by reference to Exhibit 10.1 to our Form 8-K filed
      April 23, 2008).





10.40
            
            Form
      of Restricted Stock Agreement (Key Employees) (incorporated by reference
      to Exhibit 10.1 to our Form 8-K filed May 30,
  2008).





10.41
            
            Form
      of Restricted Stock Agreement (Non-Employee Directors) (incorporated by
      reference to Exhibit 10.2 to our Form 8-K filed May 30,
    2008).





21.1
            
            List
      of Subsidiaries.**





23.1
                
                Consent
      of Independent Registered Public Accounting Firm, Ernst &
      Young LLP.**23.2
                
                Consent
      of Independent Registered Public Accounting Firm, BKD,
    LLP.**





24.1
            
            Power
      of Attorney.**





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.**99.1
                
                Audited
      Financial Statements of Symmetry Medical, Inc. 2004 Employee Stock
      Purchase Plan for Years Ended January 3, 2009 and December 29,
      2007.**





*


Management
Contract of compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 15 of Form 10-K.





**


Filed or
furnished herewith.





59





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.





SYMMETRY
      MEDICAL, INC.March
      10, 2009
              By:
              /s/ BRIAN S. MOOREBrian
      S. Moore
                Chief
      Executive Officer and
President





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.





Name
                    
                    Title
                    
                    Date/s/ BRIAN S. MOORE
                    
                    Chief
      Executive Officer, President and Director
                    
                    March
      6, 2009Brian
      S. Moore
                    
                    (Principal
      Executive Officer)/s/ FRED L. HITE
                    
                    Senior
      Vice President,
                    
                    March
      6, 2009Fred
      L. Hite
                    
                    Chief
      Financial Officer and Secretary/s/ RONDA L. HARRIS
                    
                    Chief
      Accounting Officer
                    
                    March
      6, 2009Ronda
      L. Harris*
                    
                    Director
                    
                    March
      6, 2009Frank
      Turner*
                    
                    Director
                    
                    March
      6, 2009Stephen
      B. Oresman*
                    
                    Director
                    
                    March
      6, 2009Francis
      T. Nusspickel*
                    
                    Director
                    
                    March
      6, 2009James
      S. Burns*
                    
                    Director
                    
                    March
      6, 2009Craig
      B. Reynolds*
                    
                    Director
                    
                    March
      6, 2009John
      S. Krelle




*By:
            
            /S/ 
      FRED L. HITEFred
      L. Hite
              Attorney-in-fact
              Pursuant
      to Power of Attorney
              (Exhibit 24.1
      hereto)




60