**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-K**

(Mark One)

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

**Forthe fiscal year ended December 30, 2006**

**OR**

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

**Forthe transition period from                    to                    .**

**CommissionFile Number  333-116038**

**SYMMETRY MEDICAL INC.**

(Exact name of Registrantas Specified in its Charter)

| **Delaware**                                                    |   | **35-1996126**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification No.) |
| **220 W. Market Street, Warsaw,  Indiana**                      |   | **46580**                             |
| (Address of Principal Executive Offices)                        |   | (Zip Code)                            |

 

**Registrant’sTelephone Number, Including Area Code: (574) 268-2252**

**SecuritiesRegistered Pursuant to Section 12(b) of the Act:**

| **Title of Each Class** |   | **Name of Exchange on Which Registered** |
|----------------------------------------|--------|-------------------------------------------------------------------|
| Common Stock,  $0.0001 par value       |   | New York Stock  Exchange                                          |

 

**Securities Registered Pursuant toSection 12(g) of the Act:**

**None**

**(Title of Class)**

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

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

**Note**—Checking  the box above willnot relieve any registrant required to file reports pursuant to Section 13or 15(d) of the Exchange Act from their obligations under those sections.

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x   No o

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

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

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

 

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

The aggregate market valueof voting stock of Symmetry Medical Inc. held by non-affiliates as of theRegistrant as of July 1, 2006, based on the closing price of was $15.40,as reported on the New York Stock Exchange: Approximately $537,369,232.

The number of shares outstanding of the registrant’scommon stock as of March 2, 2007, was 35,131,552.

**DOCUMENTS INCORPORATED BY REFERENCE**

Certain information is incorporated into Part III of this report byreference to the Registrant’s 2007 Proxy Statement to be filed with theSecurities and Exchange Commission not later than 120 days after the end of thefiscal year covered by this Form 10-K.

 

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**TABLE OF CONTENTS**

| ** **        | ** ** | ** **                                                                                                             | ** ** | **Page**   |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|------------|
| **PART I**   |       |                                                                                                                   | ** ** | ** ** |
| Item  1.          |       | Business                                                                                                               |       | 4          |
| Item 1A.     |       | Risk Factors                                                                                                           |       | 16         |
| Item 1B.     |       | Unresolved Staff  Comments                                                                                             |       | 27         |
| Item  2.          |       | Properties                                                                                                             |       | 28         |
| Item  3.          |       | Legal Proceedings                                                                                                      |       | 28         |
| Item 4.           |       | Submission of  Matters to a Vote of Security Holders                                                                   |       | 28         |
| **PART II**  |       |                                                                                                                   | ** ** | ** ** |
| Item 5.           |       | Market for the  Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       | 29         |
| Item 6.           |       | Selected Financial  Data                                                                                               |       | 31         |
| Item 7.           |       | Management’s  Discussion and Analysis of Results of Operations and Financial Condition                            |       | 33         |
| Item 7A.          |       | Quantitative  and Qualitative Disclosures About Market Risks                                                           |       | 43         |
| Item 8.           |       | Financial Statements                                                                                                   |       | 45         |
| Item 9.           |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                                  |       | 74         |
| Item 9A.     |       | Controls and  Procedures                                                                                               |       | 74         |
| Item 9B.     |       | Other Information                                                                                                      |       | 74         |
| **PART III** |       |                                                                                                                   | ** ** | ** ** |
| Item 10.          |       | Directors,  Executive Officers and Corporate Governance                                                                |       | 75         |
| Item 11.          |       | Executive  Compensation                                                                                                |       | 75         |
| Item 12.          |       | Security Ownership  of Certain Beneficial Owners and Management and Related Stockholder Matters                        |       | 75         |
| Item 13.          |       | Certain  Relationships and Related Transactions and Director Independence                                              |       | 75         |
| Item 14.          |       | Principal  Accounting Fees and Services                                                                                |       | 75         |
| **PART IV**  |       |                                                                                                                   | ** ** | ** ** |
| Item 15.     |       | Exhibits,  Financial Statement Schedules                                                                               |       | 76         |
| Signatures        |       | 79                                                                                                                     |

 

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**Special Note Regarding Forward-Looking Statements**

Throughout this report, or inother reports or registration statements filed from time to time with theSecurities and Exchange Commission under the Securities Exchange Act of 1934,or under the Securities Act of 1933, as well as in documents we incorporate byreference or in press releases or oral statements made by our officers orrepresentatives, we may make statements that express our opinions,expectations, or projections regarding future events or future results, incontrast with statements that reflect historical facts. These predictivestatements, which we generally precede or accompany by such typical conditionalwords such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project”or “expect,” or by the words “may,” “will,” or “should,” are intended tooperate as “forward looking statements” of the kind permitted by the PrivateSecurities Litigation Reform Act of 1995, incorporated in Section 27A ofthe Securities Act and Section 21E of the Securities Exchange Act. Thatlegislation protects such predictive statements by creating a “safe harbor”from liability in the event that a particular prediction does not turn out asanticipated.

While we always intend toexpress our best judgment when we make statements about what we believe willoccur in the future, and although we base these statements on assumptions thatwe believe to be reasonable when made, these forward-looking statements are nota guarantee of performance, and you should not place undue reliance on suchstatements. Forward-looking statements are subject to many uncertainties andother variable circumstances, many of which are outside of our control, thatcould cause our actual results and experience to differ materially from thosewe thought would occur.

We also refer you to and believethat you should carefully read the portion of this report described in “RiskFactors” to better understand the risks and uncertainties that are inherent inour business and in owning our securities.

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

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**PART I**

**ITEM1.**   BUSINESS

**General**

Symmetry Medical Inc. (which we sometimes refer to,together with our consolidated subsidiaries, as the “we”, “our” or “Symmetry”)is a leading independent provider of implants and related instruments and casesto global orthopedic device manufacturers. We design, develop and produce theseproducts for companies in other segments of the medical device market,including the dental, osteobiologic and endoscopy segments, and we also providelimited specialized products and services to non-healthcare markets, such asthe aerospace market. Our Total Solutions® approach presents our customers with a broadrange of products, as well as comprehensive design, engineering and projectmanagement services and state of the art production capabilities to help thembring their implant systems to market quickly and efficiently. We believe thatour Total Solutions® approach gives us a competitive advantage.

During fiscal year 2006, we generated revenue of $254million, derived primarily from the sale of products and services to theorthopedic device market. Our Total Solutions® approach is supported by an experienced teamof designers, development engineers, logistics specialists and by our globalsales force that work with our customers to coordinate all of our products andservices.

Ourprimary products and services include:

•     implants,including forged, cast and machined products for the global orthopedic devicemarket;

•     instrumentsused in the placement and removal of orthopedic implants and in other surgicalprocedures;

•     cases,including plastic, metal and hybrid cases used to organize, secure andtransport medical devices for orthopedic, endoscopy, dental and other surgicalprocedures; and

•     otherspecialized products and services for non-healthcare markets, primarily theaerospace market.

**History**

Our business wasestablished in 1976 as a supplier of instruments to orthopedic devicemanufacturers. Symmetry Medical Inc. was incorporated in Delaware on July 25,1996. During the 1990s, we made several acquisitions, which expanded ourcustomer base, enhanced our instrument product offerings and extended ourproduct line to include cases designed for various medical devices and theirrelated instruments. In October 2000, investment funds controlled byOlympus Partners (which we sometimes refer to as the “Olympus Funds”) acquiredcontrol of Symmetry through a recapitalization. In this transaction, theOlympus Funds invested a total of $40.5 million in cash to acquiresecurities representing approximately 94% of our then outstanding voting stock.In June 2003, we acquired Mettis (UK) Limited (which we sometimes referto, together with our consolidated subsidiaries, as “Mettis”), a leadingmanufacturer of forged, cast and machined implants for the global orthopedicdevice market. This acquisition significantly expanded our product offeringsand increased our European presence, allowing us to develop and manufactureimplants, instruments and cases for orthopedic device manufacturers on a globalbasis. In connection with the Mettis acquisition, the Olympus Fundscollectively invested an additional $63.0 million in equity and loanedSymmetry $8.0 million through the purchase of senior subordinated notesand stock purchase warrants. In December, 2004, we completed an initial publicoffering of our common stock and entered into a senior credit facility. In July 2005,we successfully completed a secondary offering which included 11.0 millionshares. 0.5 million were sold as primary shares and 10.5 million shareswere sold by certain selling shareholders.

Since year end 2005, wehave completed three acquisitions, on May 2, 2006, we acquired all of thestock of Riley Medical, Inc., a privately owned company based in Auburn,Maine, and Riley Medical Europe S.A., its Swiss subsidiary (collectively “RileyMedical”). Riley Medical specializes in cases and trays 

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for theorthopedic industry for approximately $46 million. On August 31,2006, we acquired certain assets of Everest Metal Finishing, LLC, andalso acquired all of the stock of Everest Metal International, Limited locatedin Cork, Ireland for approximately $9 million. Collectively (now known asSymmetry Medical Everest, LLC), Symmetry Medical Everest, LLC and Everest MetalInternational, Limited are collectively referred to as “Everest Metal”. EverestMetal specializes in machining and finishing for the orthopedic industry. On January 9,2007, our subsidiary Thornton Precision Components Limited (Thornton) acquiredall of the stock of Whedon Limited, a privately owned company based inWarwickshire, United Kingdom and the holding company of Clamonta Limitedcollectively referred to as “Clamonta Ltd” for approximately $10 million. ClamontaLtd machines and finishes products for the global aerospace industry.

**Our Total Solutions**® Approach

We believe that we havecreated a distinctive competitive position in the orthopedic device marketbased upon our Total Solutions® approach. Our acquisition of Mettis in June 2003expanded our products and services, enabling us to offer an integratedoutsourcing solution. Our Total Solutions® approach presentsour customers with a broad range of products, as well as comprehensive design,engineering and project management services and state of the art productioncapabilities to help bring their implant systems to market quickly andefficiently. Our Total Solutions® offering is based on:

•     *Comprehensive services*.   We cansupport our customers’ new product offerings from product concept throughmarket introduction and thereafter, by providing seamless design, engineering,prototyping and manufacturing services.

•     *Single source for complete systems*.   Weassist our customers in developing new implants, and we design and produceinstruments for implant-specific surgical procedures. We also providecustomized cases that provide a secure, clearly labeled and well organizedarrangement of instruments and devices.

•     *Proprietary Symmetry instruments and cases*.   Ourestablished lines of proprietary products allow our customers to complete theirproprietary implant systems and bring them to market sooner.

•     *Precision manufacturing expertise*.   Ourextensive expertise and know-how enable us to produce large volumes ofspecialized products to our customers’ precise standards, which we believemakes us a supplier of choice to the largest orthopedic companies. Our coreproduction competencies include net shaped forging, precision casting, thermoforming, precision sheet metal working and machining/finishing.

•     *Quality and regulatory compliance*.   Ourquality systems are based upon and in compliance with InternationalOrganization for Standardization, or ISO, requirements and, where applicable,United States Food and Drug Administration, or FDA, regulations. We believe ourlevel of quality and regulatory compliance systems meet our customers’expectations.

•     *Global reach.*   Our manufacturing capabilities in theUnited States and Europe allow us to offer single-source products and servicesto our multinational customers, and the geographic breadth of our experiencedsales force effectively brings our Total Solutions® approach to customers globally.

Webelieve that our Total Solutions® approach offers a number of benefits to ourcustomers, including:

•     *Shorter time to market.  *Our design,engineering and prototyping skills, as well as our ability to transitionseamlessly from product development to production of implants, instruments andcases, enable our customers to reduce time to market for their new products.

•     *Reduced total product acquisition costs.  *Ourcomprehensive services, including design, engineering, prototyping, projectmanagement, production and inventory control, allow our customers to reducetheir procurement costs and inventory levels, resulting in lower productacquisition costs.

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•     *Increased focus on marketing and research anddevelopment efforts.  *Our extensive production capabilities andcomprehensive services offer a one-stop outsourcing solution and allow ourcustomers to focus their resources on their design, development and marketingefforts.

•     *Rationalized and reliable supply chain.*   Our scale,scope of products and services and Total Solutions® approach allow large orthopedic companies toreduce the number of their independent suppliers and streamline theiroperations.

•     *Enhanced product consistency on a global basis.  *Ourextensive production platform, Total Solutions® approach and international presence allow usto meet global demand for orthopedic devices, which is expected to increase.

We expanded our Total Solutions® offeringin 2006 with the addition of Riley Medical and Everest Metal. Riley Medicalexpanded our case and tray product offering, while Everest Metal expanded ourimplant finishing capabilities.

**Business Strategy**

Ourgoal is to increase our share of the orthopedic device market and to leverageour strengths to expand in other medical device market segments. The keyelements of our business strategy are to:

•     *Develop strategic relationships with our customers through access tokey decision makers.*   Our scale, scope of products and servicesand Total Solutions® approach position us as an important partnerto our customers. This position gives us access to key decision makers, withwhom we intend to continue to build strategic relationships.

•     *Capitalize on our Total Solutions*®* approach.  *Webelieve 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 sellingproducts and services.  *Our cases are currently sold in nearlyevery segment of the medical device market. We believe that our diversecustomer base offers us a natural entry point to new orthopedic andnon-orthopedic customers for our implants and instruments.

•     *Leverage manufacturing skills.*   Duringrecent years, we expanded most of our facilities and opened new facilities toadd manufacturing capacity and design resources, and updated much of ourmanufacturing and development equipment. We intend to continue to leverage ourinvestments in sophisticated equipment and manufacturing know-how to expand ourexisting customer relationships and to obtain new customers.

•     *Increase new product offerings.*   OurDesign and Development Centers provide expertise and coordination for ourdesign, engineering and prototyping services. We intend to use the dedicatedexpertise of our Design and Development Centers to generate additionaldevelopment projects with our customers and to expand our line of innovativeand independently developed instruments and cases.

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

We believe our acquisitionsof Riley Medical, Everest Metal and Clamonta Ltd all support the statedstrategy and strengthen our business model because it diversifies our salesinto other medical markets, they allow us to cross sell our products andservices, they increase our product offering and they provide strategiclocations that we can use as a base to expand our business.

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**Products and Services**

We design, develop andmanufacture implants and related surgical instruments and cases for orthopedicdevice companies. We also design, develop and manufacture products forcompanies in other medical device markets, such as dental, osteobiologic andendoscopy, and we provide limited specialized products and services used in theaerospace and other non-healthcare markets. Our revenue from the sale ofimplants, instruments, cases and other products and services represented 38.1%,26.4%, 24.5% and 11.0%, respectively, of our revenue in fiscal 2006, comparedwith 39.2%, 32.9%, 21.0% and 6.9%, respectively, of our revenue in fiscal 2005.Riley Medical expanded our case product line, Everest Metal expanded ourimplant product line and Clamonta Ltd expanded our aerospace products reportedin the other product line.

***Implants***

We design, develop andmanufacture implants for use in specific implant systems developed by ourcustomers. We make orthopedic implants used primarily in knee and hip implantsystems. Our orthopedic implants are used in reconstructive surgeries toreplace or repair hips, knees and other joints, such as shoulders, ankles andelbows, sometimes referred to as extremities that have deteriorated as a resultof disease or injury. An orthopedic implant system is generally comprised ofseveral implants designed to work in concert to replicate the structure andfunction of a healthy joint.

We also manufactureimplant products for trauma, spine and other implant systems. Trauma implantsystems are used primarily to reattach or stabilize damaged bone or tissuewhile the body heals. Spinal implant systems are used by orthopedic surgeonsand neurosurgeons in the treatment of degenerative diseases, deformities andinjuries in various regions of the spine.

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

We produce gross shaped,near-net shaped and net shaped implants for medical device manufacturers. Grossshaped implants require a significant amount of machining and hand processingpost-forging. Near-net shaped implants are distinguished by geometric featuresthat are thinner; more detailed and have tighter tolerances. Net shaped andnear-net shaped implants require far fewer machine and hand operationspost-forging. Net shaped implants typically require machining only on vitalareas, such as the taper segment of a hip where it is joined to the femoralhead.

We have the machiningexpertise needed to provide finished implants to our customers. Some customerspurchase finished implants from us while others purchase unfinished implantsand machine them to final specifications. Everest Metal expanded our implantfinishing capabilities.

Ourprimary implant products and their applications are:

•     *Knees.  *The knee joint includes thesurfaces of three distinct bones: the lower end of the femur, the upper end ofthe tibia or shin bone, and the patella (knee cap). Cartilage on any of thesesurfaces can be compromised by disease or injury, leading to pain andinflammation that may require knee reconstruction. Our knee implants include afemoral component, a patella, a tibial tray and an articulating surface (placedon the tibial tray) and are used in total knee reconstruction, partial kneereconstruction and revision procedures. We provide one or more, and in somecases all, of these implants for our customers’ knee implant systems. We useproprietary manufacturing know-how and advanced computer aided simulationtechniques to produce tight tolerance near-net shaped to net shaped tibialimplants that require minimal if any machining.

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•     *Hips.*   The hip joint consists of aball-and-socket joint that enables a wide range of motion. The hip joint isoften replaced due to degeneration of the cartilage between the head of thefemur (the ball) and the acetabulum or hollow portion of the pelvis (thesocket). This loss of cartilage causes pain, stiffness and a reduction in hipmobility. We produce tight tolerance femoral heads, hip stems, acetabular cupsand spiked acetabular cups used in bone conservation, total-hip reconstructionand revision replacement procedures. Our hip stems are forged with tighttolerance details.

•     *Extremities, Trauma and Spine.*   Extremityreconstruction involves the use of an implant system to replace or reconstructinjured or diseased joints, such as the finger, toe, wrist, elbow, foot, ankleand shoulder. Our forging capabilities allow us to produce thin cross sectionsof material to very tight tolerances for these smaller joint procedures. Traumaimplant procedures commonly involve the internal fixation of bone fragmentsusing an assortment of plates, screws, rods, wires and pins. Our spinal implantproducts consist primarily of plates and screws. We manufacture trauma andspinal plate implants to exact details to fit bone contours.

***Instruments***

We make high-precisionsurgical instruments used in hip, knee and shoulder reconstruction procedures,as well as in spinal, trauma and other implant procedures. We design, developand manufacture implant-specific and procedure-specific instruments. Wetypically do not manufacture general surgical instruments, but will procurethem as a service to our customers in order to provide our customers withcomplete instrument sets. We have several reamer systems used by many of ourlarge customers. We currently have over 1,500 standard products in our catalog.

We primarily make a widerange 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 ofour instrument handles are made with our patented plastic insertion machine,which is designed to withstand the intense heat produced during frequentsterilizations and is attached to the instrument. Our instruments are made totight tolerances to ensure precise alignment and fitting of implants.

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

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

•     Implant-specificinstruments, which are used solely for a specific brand of implant, such ashigh-precision knee cutting blocks, certain reamers and broaches; and

•     Procedure-specificinstruments, which are designed for a particular type of procedure, such as aminimally invasive hip implant procedure, but can be used with the implantsystems of multiple companies.

*Implant-SpecificInstruments.*   The size, shape and other featuresof each implant system are unique. Consequently, unique instruments must beused to ensure precise alignment and fitting during the surgical procedure toinsert an implant system. Accordingly, when a medical device company develops anew implant system, it typically also develops instruments specificallydesigned to insert the implant system. Medical device companies typicallyprovide complete, customized implant-specific instrument sets to end users(hospitals, outpatient centers and physicians) in order to facilitate use ofthe implant.

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We seek to collaboratewith our customers early in the development process to facilitate theconcurrent design of the implant system and the instruments that will accompanythe system. Our implant-specific instruments generally include customizedreamers, cutting blocks, broaches, rasps, guides and other instruments designedto accommodate the unique size, shape and other features of our customers’implant systems. These instruments are used by the surgeon to cut and shapebone and cavities during the surgical procedure and to align and fit theimplant system. We are recognized in the orthopedic community for constructingthese instruments to extremely tight tolerances.

*Procedure-SpecificInstruments.*   We also manufacture independentlydeveloped instruments referred to as our Symmetry Products. We have developedthese products through our years of experience serving the orthopedic marketand our investments in research and development. Complete implant procedureinstrument sets typically include certain instruments that are designed for aparticular type of procedure but can be used with the implant systems ofmultiple companies. By purchasing our proven Symmetry Products, customers canleverage our extensive experience and expertise to complete their instrumentsets more quickly and efficiently.

Our Symmetry Productsinclude successful hip and knee revision systems. Instruments that make uprevision systems, which are used to remove orthopedic implants, are typicallydesigned for a specific type of procedure but can be used to remove variousbrands of implants. These self-contained systems include an assortment ofosteotome blades that assist the surgeon in separating an implant from cementor bony in-growth where access is limited, while minimizing damage to the bone.Our established revision systems can also be readily modified for a customer byadding additional instruments. For example, we developed a hip revision systemin 1996 that we currently sell to six different customers, with the systembeing customized for each customer.

***Cases***

We produce a wide range ofplastic, 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 surgicalprocedures. Cases are used to store, transport and arrange implant systems andother medical devices and related surgical instruments. Our cases are generallydesigned to allow for sterilization and re-use after an implant or othersurgical procedure is performed. Our plastic cases are designed to withstandthe intense heat produced during the sterilization process.

The majority of the caseswe make are tailored for specific implant procedures so that the instruments,implants and other devices are arranged within the case to match the order ofuse in the procedure and are securely held in clearly labeled, custom-formedpockets. We seek to collaborate with our customers early in the developmentprocesses to facilitate the concurrent design of the case and relatedinstruments.

We also produce standardcases which are primarily used in those non-orthopedic market segments wherethe security or presentation of the instruments and devices is less important.Over the past two years, we have made a significant investment to obtain 510(k) clearancefor our PolyVac line of standard cases through the FDA pre-market notificationprocess. We believe this allows our customers to reduce time to market and toreallocate financial and human resources that would otherwise be spent oncompliance efforts, which provides us with a significant competitive advantagein selling our standard cases.

We have more than 50patents related to our case designs and manufacturing processes. We believethat our complete line of plastic, metal and hybrid product offeringsstrategically positions us in the case market. Riley Medical expanded ourproduct offering into other medical markets and provides many new patentedproducts for us to leverage across our customer base.

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Highlightsof our case product offerings include:

•     *Orthopedic Cases.*   We produce custommetal, plastic and hybrid cases designed to store, transport and arrangesurgical instruments and related implant systems for orthopedic devicemanufacturers. Proper identification of instruments, such as reamers which aregenerally included in a range of sizes in one to two millimeter increments, iscritical in orthopedic implant procedures. Our graphics and thermo formed traypockets provide a secure and organized arrangement to assist surgeons duringprocedures.

•     *Endoscopy Cases.*   We produce casesfor endoscope sterilization for many types of sterilization methods. Our RileyMedical acquisition helps us increase our penetration into the endoscopymarket, broaden our case offerings and strengthens our customer base.

•     *Dental Cases.*   We produce cases usedin dental implant and general dental procedures. Dental implant cases aretypically complex and include many levels of trays, while cases used in generaldental procedures tend to be smaller and less complex.

•     *Other Cases.*   We also manufacture andsell cases for arthroscopy, osteobiologic, endoscopy, cardiovascular,ophthalmology, diagnostic imaging and ear, nose and throat procedures.

***SpecializedNon-healthcare Products and Services***

We offer specializednon-healthcare products and services on a limited basis. One of our UK basedfacilities acquired as part of the Mettis acquisition produced a range ofcutting tools, cutlery and surgical instruments in the 1950s. This facilityevolved to focus on net shaped forgings, which resulted in a business focusingon orthopedic instruments and aerospace products for jet engines in the late1990s. Thereafter, this facility began focusing our net shaped forgingcapabilities on orthopedic implants and shifting our non-healthcare operationstoward product development support and specialized products. Our core design,engineering and manufacturing competencies give us the expertise to offeraerospace products and services. Our aerospace products primarily are netshaped aerofoils and non-rotating aircraft engine forgings produced for ouraerospace customers. Our recent acquisition of Clamonta Ltd expands ouroffering in the aerospace industry.

***Product Development***

Our Design and DevelopmentCenters provide dedicated expertise and greater coordination for our design,engineering and prototyping services. The main Design and Development Center islocated in Warsaw, IN, and brings together talented engineering and designpersonnel and provides them with state-of-the-art design software andprototyping equipment. Our Design and Development Centers serve to centralizeand better institutionalize our design and engineering knowledge and creates afertile environment for new product development. We can coordinate the productdevelopment projects for our customers as well as the efforts of our engineersand designers in order to ensure that we have the appropriate people andtechnology focused on particular product development initiatives. We also haveDesign & Development Centers in Memphis, TN, Manchester, NH, Lansing,MI and Cheltenham, UK.

We seek to collaboratewith our customers’ product development teams and to assist in the design,engineering and prototyping of new medical device systems from the beginning ofthe development process. Our sales staff is technically trained and worksclosely with our customers’ staff. As new product concepts are formulated, oursales people bring in our design and engineering personnel and utilize theresources of our Design and Development Centers to provide dedicated design teamswith exceptional knowledge and experience. As a project evolves, we can rapidlycreate prototypes of the proposed product, instrument, case or implant. Workingclosely with our customers through the conceptual, planning and prototypingstages positions allows us to quickly scale up for manufacturing of theproduct.

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In addition to supportingour customers’ product development efforts, our Design and Development Centersare continuously developing our own product lines, referred to as SymmetryProducts. We develop products by utilizing years of experience and knowledge,investing in research and development and continually seeking to expand ourknowledge of the marketplace by consulting surgeons and other end users of ourproducts. We currently offer over 1,500 products, including instruments forminimally invasive surgical implant procedures and hip and knee revisionsystems.

**Environmental Issues**

Our discussion ofenvironmental issues is presented under the caption “Environmental” inItem 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations in this Form 10-K.

**Capital Investment**

Information concerning ourcapital expenditures is presented under the caption “Capital Expenditures” inItem 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations in this Form 10-K.

**Customers**

We supply our productsprimarily to manufacturers in the medical device market. Our customers includeall of the large orthopedic device manufacturers, including Biomet Inc., DePuyInc. (a subsidiary of Johnson & Johnson), Medtronic Sofamor Danek,Smith & Nephew plc, Stryker Corporation and Zimmer Holdings, Inc.We also have established relationships, primarily through our case productofferings, with leading medical device manufacturers and distributors innumerous other medical device market segments, including Cardinal Health, Inc.,3i and St. Jude Medical Inc. We sold to approximately 850 customers, includingover 100 new customers, in fiscal 2006. Sales to our ten largest customersrepresented 70.8% and 78.8% of our revenue in fiscal 2006 and 2005,respectively. Our two largest customers accounted for 22.8% and 12.2% of ourrevenue in fiscal 2006 and our two largest customers accounted for 32.2% and13.6% of our revenue in fiscal 2005. Our two largest customers in alphabeticalorder in fiscal 2005 were DePuy and Zimmer and our two largest customers inalphabetical order for fiscal 2006 were DePuy and Zimmer. No other customeraccounted for more than 10% of our revenue in fiscal 2006 or fiscal 2005. Wetypically serve several product teams and facilities within each of our largestcustomers, which mitigate our reliance on any particular customer. We alsoreduced our concentration in the orthopedic industry with the acquisition ofRiley Medical, which is primarily in other medical markets, and Clamonta Ltd,which serves the aerospace industry. We may experience a seasonal impact of theorthopedic industry on revenue in the third quarter because many of ourproducts are used in elective procedures that tend to decline to some degreeduring the summer months.

We sell our products tocustomers domestically and in a number of regions outside the United States. Inaddition, our customers often distribute globally products purchased from us inthe United States. Set forth below is a summary of revenue by selectedgeographic locations in our last three fiscal years, based on the location towhich we shipped our products:

**Percent of Revenue by Geographic Location**

| ** **              | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| United States           |       | 61.9                            | %          | 65.1 | % | 66.6 | % |
| United Kingdom          |       | 16.9                            | %          | 12.3 | % | 13.3 | % |
| Ireland                 |       | 10.1                            | %          | 12.5 | % | 10.3 | % |
| Other foreign countries |       | 11.1                            | %          | 10.1 | % | 9.8 | % |
| Total net revenues      |       | 100.0                           | %          | 100.0 | % | 100.0 | % |

 

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**Sales and Marketing**

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

We have over 70 sales and marketing personnelworldwide. In addition to our internal sales efforts, we also sell standardcases through distributors. Our sales personnel are trained in all of ourproducts and services in order to cross-sell and identify opportunities outsidetheir immediate area of focus. We typically serve several product teams andfacilities within each customer which diminishes our reliance on any onepurchasing decision. Our customer base for cases extends into nearly everysegment of the medical device market. We believe there is a significantopportunity to leverage our existing relationships among this customer base toachieve greater penetration of our customized instrument and implant products.We intend to increase our marketing of implants, instruments and our TotalSolutions® concept to these customers.

Our sales personnel aretechnically trained and are based in close proximity to or located at ourlargest customers’ sites. This physical proximity allows sales personnel toengage quickly with the marketing, design, engineering and purchasing staffs ofthese orthopedic device manufacturers. Our sales people are empowered to bringin design and engineering product development teams to facilitate a customer’sefforts. Our goal is to collaborate with customers early in the developmentcycle and to continue through production, packaging, delivery and logistics.

**Manufacturing**

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

•     *Forging.*   Our forging process usespresses to force heated metal between two dies (called tooling) that contain aprecut profile of the desired implant. The forging process enhances thestrength of an implant, which is important for hip stems and other implants thatmust withstand significant stress. Many customers prefer forging because itprovides greater mechanical properties. We forge gross shaped, near-net shapedand net shaped implants. Our know-how enables us to produce precision netshaped 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 havedeveloped a technologically advanced, highly automated, casting facility inSheffield, United Kingdom.

•     *Plastic and Metal Forming.*   Ourknow-how and technology facilitates our extensive plastic and metal formingcapabilities. We use thermo form processes to draw uniform plastic cases andspecialized equipment to form metal. Our laser controlled metal workingmachines allow us to punch and shape metal in intricate and complex detail.

•     *Machining/Finishing.*   Machining isused extensively to enhance our forged, cast and formed products. We usecomputer numerically controlled, multi-axis and wire electric dischargeequipment to cut, bend, punch, polish and otherwise shape or detail metal orplastic. Our finishing processes include polishing, laser etch marking,graphics and other customer specific processes.

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The majority of productsthat we produce are customized to the unique specifications of our customers.Our ability to maintain flexible operations is an important factor inmaintaining 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 minimizeswork-in-process inventory and manufacturing cycles. Manufacturing cells areclusters of individual manufacturing operations and work stations grouped in acircular configuration, with the operators placed centrally within theconfiguration. Cell manufacturing provides flexibility by allowing efficientchanges to the number of operations each operator performs, which enhances ourability 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, andvarious other components in the manufacture of our products. Although wegenerally 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 ona single source vendor. For example, we obtain patented plastic, which isdesigned 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 acomprehensive quality assurance and quality control program, which includes thecontrol and documentation of all material specifications, operating procedures,equipment maintenance and quality control methods. Our quality systems arebased upon FDA requirements and the ISO standards for medical devicemanufacturers. We believe that all of our facilities are currently insubstantial compliance with regulations applicable to them. For example, in theUnited States and United Kingdom these regulations include the current goodmanufacturing practice regulations and other quality system regulations imposedby the FDA. Our Sheffield, United Kingdom facility and our United States basedfacilities are registered with and audited by the FDA. Our line of PolyVacstandard cases received FDA 510(k) clearance, which can reduce ourcustomers’ burden in obtaining FDA approval. Our facilities have obtainednumerous industry-specific quality and regulatory assurance certifications.

**Competition**

Our customers, to varyingdegrees, are capable of internally developing and producing the products weprovide. While we believe that our comprehensive services and core productioncompetencies allow medical device companies to reduce costs and shorten time tomarket, one or more of our customers may seek to expand their development andmanufacturing operations which may reduce their reliance on independentsuppliers such as ours.

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

**Intellectual Property**

We believe our patents arevaluable, however, our knowledge, experience, proprietary and trade secretinformation, manufacturing processes, product design and development staff andsales staff have 

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beenequally or more important in maintaining our competitive position. We seek toprotect our non-patented know-how, trade secrets, processes and otherproprietary confidential information principally through confidentiality,non-compete and invention assignment agreements.

We currently own 66 US and15 foreign patents related to our cases and instruments. These patents expireat various times beginning in 2006 and ending in 2021. We also have 36 US and 6foreign patent applications at various stages of approval. Our policy is toaggressively protect technology, inventions and improvements that we considerimportant through the use of patents, trademarks, copyrights and trade secretsin the United States and significant foreign markets. The acquisition of RileyMedical in May 2006 expanded our portfolio of patented case and trayproducts. While we do not believe that any of our products infringe any validclaims of patents or other proprietary rights held by third parties, we cannotprovide complete assurance that we do not infringe any patents or otherproprietary rights held by third parties. If our products were found toinfringe any proprietary right of a third party, we could be required to paysignificant damages or license fees to the third party or cease production,marketing and distribution of those products. Litigation may be necessary toenforce our intellectual property rights, to protect our trade secrets or otherproprietary information we own and to determine the validity and scope of ourproprietary rights.

We cannot provide completeassurance that our existing or future patents, if any, will afford adequateprotection, that any existing patent applications will result in issuedpatents, that our patents will not be circumvented, invalidated, or heldunenforceable, that our proprietary information will not become known to, or beindependently developed by, our competitors, or that the validity orenforceability of any patents or other intellectual property owned by or licensedto us will be upheld if challenged by others in litigation. Due to these andother risks, we do not rely solely on our patents and other intellectualproperty to maintain our competitive position. Although intellectual propertyis important to our business operations and in the aggregate constitutes avaluable asset, we do not believe that any single patent, trade secret,trademark or copyright, or group of patents, trade secrets, trademarks orcopyrights is critical to the success of our business.

**Employees**

As of February 24,2007, we had 1,795 employees. Our employees are not represented by any unions.From time to time in the past, however, some of our employees have attempted tounionize at two of our facilities. We believe that we have a good relationshipwith our employees.

**Executive Officers of the Registrant**

Setforth below are the name, age, position and a brief account of the businessexperience of each of the Corporation’s executive officers, and key employees,as of December 30, 2006.

| **Name**              | ** ** | ** ** | ** ** | **Age**                                                                                       | ** ** | **Position** |
|-----------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------|
| *Executive Officers:* | * *   | * *   | * *   | * *                                                                                      |
| Brian Moore           |       | 60         |       | President and Chief Executive Officer                                                         |
| Fred Hite             |       | 38         |       | Senior Vice President and Chief Financial Officer                                             |
| Andrew Miclot         |       | 51         |       | Senior Vice President, Marketing, Sales, Business  Development and Investor Relations Officer |
| D. Darin Martin       |       | 55         |       | Senior Vice President, Quality Assurance/Regulatory  Affairs and Compliance Officer           |
| Richard J. Senior     |       | 43         |       | Senior Vice  President and General Manager, Europe                                            |
| Michael W. Curtis     |       | 52         |       | Senior Vice President  and General Manager, Medical Products Division—USA/Asia           |

 

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**BRIAN MOORE,**hasserved as the Corporation’s President and Chief Executive Officer and adirector of the Corporation since the Corporation’s acquisition of Mettis in June 2003.From April 1999 to June 2003, Mr. Moore served as the ChiefExecutive Officer of Mettis Group Limited, the parent company of Mettis. From April 1994to March 1999, Mr. Moore held various positions with EIS Group plc,including Chairman of the Aircraft and Precision Engineering Division, and from1987 to 1999, Mr. Moore served as Chief Executive Officer of AB Precision(Poole) Limited. Prior thereto, Mr. Moore served in various managementpositions at Vanderhoff plc, Land Rover Vehicles, Bass Brewing and PrudentialInsurance, and as the Financial Director for a subsidiary of GEC Ltd. (UK). Mr. Moorehas qualified as a Graduate Mechanical Engineer by the Institution ofMechanical Engineers (the qualifying body for mechanical engineers in theUnited Kingdom) and as an Accountant with the UK Chartered Institute ofManagement Accountants.

**FRED HITE**hasserved as the Corporation’s Chief Financial Officer since March 2004. From1997 to 2004, Mr. Hite served in various capacities at General ElectricIndustrial Systems, including Finance Manager of General Electric Motors andControls from 2001 to 2004, Manufacturing Finance Manager from 2000 to 2001 andFinance Manager of Engineering Services from 1997 to 2000. From 1995 to 1997, Mr. Hiteserved as Sourcing Finance Manager and Commercial Finance Analyst at GeneralElectric Industrial Control Systems. From 1990 to 1995, Mr. Hite served invarious finance positions at General Electric Appliances. Mr. Hitereceived a B.S. in Finance at Indiana University.

**ANDREW MICLOT**hasserved as the Corporation’s Senior Vice President of Sales, Marketing andBusiness Development since June 2003 and as the Corporation’s VicePresident of Marketing, Sales & Business Development since 1994. From1992 to 1994, Mr. Miclot served as the Director of the Medical ProductsGroup of DePuy Inc. From 1987 to 1992, Mr. Miclot served as MarketingManager for Zimmer, Inc. and from 1986 to 1987, Mr. Miclot served asDirector of Marketing for Ulti-Med, Inc. Mr. Miclot received a B.A.and M.A. in Speech and Hearing Sciences and Audiology from Indiana Universityand a M.B.A. from Lake Forest Graduate School of Management.

**D. DARIN MARTIN**hasserved as the Corporation’s Senior Vice President of Quality Assurance andRegulatory Affairs since June 2003. From 1994 to 2003, Mr. Martinserved as the Corporation’s Vice President of Quality Assurance and RegulatoryAffairs. Mr. Martin joined the Corporation in 1990 as Director of QualityAssurance. From 1984 to 1990, Mr. Martin served as Quality AssuranceSupervisor for Owens-Illinois Inc.’s Kimble HealthCare Division. Mr. Martinhas been a member in various medical device industry associations, including a20 year membership with the American Society of Quality, Biomedical Devices-NEIndiana Division. Mr. Martin received a B.S. in Business Management fromBall State University, a S.P.C. Instructor Certification from Baldwin-WallaceCollege and a M.B.A. from Kennedy-Western University.

**RICHARD J. SENIOR**hasserved as Senior Vice President and General Manager of the Corporation’s EuropeanOperations since the Corporation’s acquisition of Mettis in June 2003. Hepreviously served in various capacities at Mettis in the Thornton PrecisionComponents operating unit, including Managing Director from 1999 to 2003,Director and General Manager from 1997 to 1998, Operations Director from 1995to 1996, Production Manager during 1995, CMR Operations Manager from 1993******to 1994 andOrthopedic Sales Manager (UK) from 1990 to 1995. Mr. Senior attended MyersGrove Comprehensive School in the United Kingdom.

**MICHAEL W. CURTIS**was appointed by the Board of Directors as the Corporation’s Senior VicePresident and General Manager, Medical Products Division—USA/Asia onMarch 12, 2007. Mr. Curtis joined the Company in November 2002. Priorto joining the Corporation, Mr. Curtis served as Vice President ofOperations for Lightchip, Inc. from May 2000 to 2002, and from 1998 to2000, Mr. Curtis served as Vice President/General Manager ofCommunications Products at Thomas & Betts Corporation. From 1994 to 1997, Mr. Curtiswas employed at Amphenol Aerospace—Amphenol Corporation, initially 

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as a Business UnitManager and subsequently as Director of Filter Products. From 1976 through1994, Mr. Curtis served in various capacities at Hamilton StandardDivision of United Technologies Corporation, the last of which was Product LineManager. Mr. Curtis received his B.S., M.B.A. and M.S. in EngineeringManagement from Western New England College.

**Family Relationships**

There are no familyrelationships between any of the executive officers or directors of theCorporation.

**Available Information**

*Symmetry Medical Website.*   OurAnnual reports on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K and amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 are available through our website www.symmetrymedical.com(from the “Investors” link on the home page, and “SEC Filings” within the “Investors”box located in the text) free of charge as soon as reasonably practicable afterwe electronically file such material with, or furnish it to, the Securities andExchange Commission (SEC). If you wish to receive a hard copy of any exhibit toour reports filed with or furnished to the SEC, such exhibit may be obtained,upon payment of reasonable expenses, by writing to: Fred Hite, Senior VicePresident, Chief Financial Officer and Secretary, Symmetry Medical Inc.,220 W. Market Street, Warsaw, IN 46580. You may read and copy anymaterials we file with the SEC at the SEC’s Public Reference Room at450 Fifth Street, N.W., Washington, D.C. 20549. You may obtaininformation on the operation of the Public Reference Room by calling theSEC at 1-800-SEC-0330.

Information relating tocorporate governance at Symmetry, including our Principles of CorporateGovernance, Code of Conduct (including our Code of Ethics for Senior FinancialOfficers), Code of Business Conduct and Ethics for Board Members andinformation concerning our executive officers, directors and Board committees(including committee charters), and transactions in Symmetry securities bydirectors and officers, is available on or through our website at *www.symmetrymedical.com* under the “Corporate Governance” and“Investor Relations” captions.

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

**ITEM 1A.**   RISKFACTORS

Our profitability issubject to risks described under this section on “Risk Factors” describedbelow. Although the following are not necessarily the only ones facing ourcompany, our business, financial condition or results of operations they couldbe maternally adversely affected by many of the following risks.

**Risks Related to Our Business**

***We depend heavily on sales to our significantcustomers, and our business could be adversely affected if any of them reducedor terminated purchases from us.***

A limited number of largeorthopedic device manufacturers, all of whom are our customers, control thepredominate share of the orthopedic device market. We depend heavily on revenuefrom these large companies. Revenue from our ten largest customers representedapproximately 70.8% of our revenue in fiscal year 2006 and 78.8% of our revenuein fiscal year 2005. Our two largest customers accounted for approximately22.8% and 12.2% of our revenue in the fiscal year 2006 and our two largestcustomers accounted for 33.2% and 13.6% of our revenue in fiscal 2005.

We expect that we willcontinue to depend on a limited number of large customers for a significantportion of our revenue. In addition, our customer base could become moreconcentrated if, among other things, there is further consolidation amongorthopedic device manufacturers. If a significant customer 

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reducesor delays orders from us, terminates its relationship with us or fails to payits obligations to us, our revenues could decrease significantly.

***If we are unable to continue to improve our currentproducts and develop new products, we may experience a decrease in demand forour products or our products could become obsolete, and our business would beadversely affected.***

We sell our products tocustomers in markets that are characterized by technological change, productinnovation and evolving industry standards. We are continually engaged inproduct development and improvement programs, both in collaboration with ourcustomers and independently. Our customers may engage in additional in-housedevelopment and manufacturing, and we may be unable to compete effectively withour independent competitors, unless we can continue to develop and assist ourcustomers in developing innovative products. Our competitors’ productdevelopment capabilities could become more effective than ours, and their newproducts may get to market before our products, may be more effective or lessexpensive than our products or render our products obsolete. If one or more ofthese events were to occur, our business, financial condition and results ofoperation could be adversely affected.

***We face competitionfrom our customers’ in-house capabilities, established independent suppliersand potential new market entrants, and if we lose customers it could have anadverse effect on our revenue and operating results.***

Our customers have varyingdegrees of development and manufacturing capabilities, and one or more of themmay seek to expand their in-house capabilities in the future, including addingcapacity 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 resourcesthan we do and can commit significant resources to product development andmanufacturing. Most of our independent competitors are smaller companies, manyof which have close customer relationships and either a low cost structure orhighly specialized design or production capabilities. Our independentcompetitors 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 marketingand manufacturing capabilities or brand recognition that are greater than ours.In addition, the innovative nature of our markets may attract new entrants tothe field. Our products may not be able to compete successfully with theproducts of other companies, which could result in the loss of customers and,as a result, decreased revenue and operating results.

***If productliability lawsuits are brought against us or our customers our business may beharmed.***

The manufacture and saleof our healthcare and other products, including our aerospace products, exposeus to potential product liability claims and product recalls, including thosewhich may arise from misuse or malfunction of, or design or manufacturing flawsin, our products, or use of our products with components or systems notmanufactured by us. Product liability claims or product recalls, regardless oftheir ultimate outcome, could require us to spend significant time and money inlitigation or otherwise require us to pay significant damages, which couldadversely affect our earnings and financial condition.

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

***Our operatingresults are subject to significant potential fluctuation and you should notrely on historical results as an indication of our future results.***

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

•     thetiming of significant orders and shipments, including the effects of changes ininventory management practices by our customers;

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

•     changesin pricing policies by us and our competitors;

•     changesin medical treatment or regulatory practices;

•     restrictionsand delays caused by regulatory review of our customers’ products;

•     recallsof our customers’ products;

•     availabilityand cost of raw materials; and

•     generaleconomic factors.

Our quarterly revenue andoperating results may vary significantly in the future and period-to-periodcomparisons of our results of operations are not necessarily meaningful andshould not be relied upon as indications of our future performance. We cannotassure you that our revenue will increase or be sustained in future periods orthat we will be profitable in any future period. Any shortfalls in revenue orearnings from levels expected by securities or industry analysts could have animmediate and significant adverse effect on the trading price of our commonstock in any given period.

***If we do not retainkey individuals and retain and attract skilled manufacturing workers, we maynot be able to operate successfully, and we may not be able to meet ourstrategic objectives.***

Our success depends inpart upon the retention of key managerial, sales and technical personnel,particularly skilled manufacturing workers. We compete for such personnel withother companies and other organizations, many of which are larger and havegreater name recognition and financial and other resources than we do. Therecan be no assurance that we will be successful in retaining our currentpersonnel or in hiring or retaining qualified personnel in the future. The lossof key personnel or the inability to hire or retain qualified personnel in thefuture could have a material adverse effect on our ability to operatesuccessfully.

We compete with numerousprecision manufacturing companies to attract and retain qualified and highlyskilled manufacturing employees. Our Warsaw, IN facilities, in particular,faces significant competition, including from certain of our customers andother companies located in or near Warsaw that are larger and have greaterfinancial and other resources than we do, for skilled production employees. Ifwe are not able to retain and attract skilled manufacturing employees, we maybe unable to support our anticipated growth, which could adversely affect ourprofitability.

***A significant shiftin technologies or methods used in the treatment of damaged or diseased boneand tissue could make our products obsolete or less attractive.***

The development of newtechnologies could reduce demand for our products. For example, pharmaceuticaladvances could result in non-surgical treatments gaining more widespreadacceptance as a viable alternative to orthopedic implants. The emergence ofsuccessful new biological tissue-based or synthetic materials to regeneratedamaged or diseased bone and to repair damaged tissue could increasinglyminimize or delay the need for implant surgery and provide other biologicalalternatives to orthopedic implants. New surgical procedures could diminishdemand for our instruments. A significant shift in technologies or methods usedin the treatment of damaged or diseased bone and tissue could adversely affectdemand for our products.

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***We depend on thirdparty suppliers, and in some cases a single third party supplier, for keycomponents and raw materials used in our manufacturing processes and the lossof these sources could harm our business.***

We use titanium, cobaltchrome, stainless steel and nickel alloys, and various other raw materials inour products. Although we generally believe these materials are readilyavailable from multiple sources, from time to time we rely on a limited numberof suppliers and in some cases on a single source vendor. For example, weobtain patented Radel® Rplastic, which is designed to withstand intense heat produced during frequentsterilizations, for use in our instrument handles and plastic cases from asingle supplier. Any supply interruption in a limited or sole-sourced componentor raw material could materially harm our ability to manufacture our productsuntil a new source of supply, if any, could be found. We may be unable to finda sufficient alternative supply channel in a reasonable time period or oncommercially reasonable terms if at all. This could interrupt our business orreduce the quality of our products.

***If we are unable tomanage changes in our business, our business could be harmed.***

Since the end of 2005, wehave made three acquisitions. Riley Medical in May 2006, Everest Metal inAugust 2006 and most recently Clamonta Ltd in January 2007. Theseacquisitions increase the size and scope of our operations. In recent years,our business expanded through organic growth and acquisitions, and we believewe will continue to expand. This continued expansion may place a strain on ourmanagerial, operational and financial resources and systems. To execute ouranticipated expansion successfully, we must attract and retain qualifiedpersonnel and manage and train them effectively. Any failure by us to expandand train our work force or increase production capacity or otherwise manageour expansion effectively could have an adverse effect on our ability toachieve our business strategy. There is no assurance that we will be able tosuccessfully integrate these acquisitions.

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

As of December 30,2006, our total indebtedness, including short-term debt, long-term debt andcapital lease obligations, was $77.8 million. As of December 30,2006, we had an additional $35.0 million of borrowings available under ourrevolving credit facility and an additional $75.0 million of borrowingsavailable under our term loan credit facility. Although covenants under oursenior credit facility limit our ability to incur additional indebtedness, inthe future we may incur additional debt to finance acquisitions, businessopportunities, capital expenditures or other capital requirements.

Ourindebtedness could:

•     makeus more vulnerable to unfavorable economic conditions;

•     makeit more difficult to obtain additional financing in the future for workingcapital, capital expenditures or other general corporate purposes;

•     requireus to dedicate or reserve a large portion of our cash flow from operations formaking payments on our indebtedness, which would prevent us from using it forother purposes;

•     makeus susceptible to fluctuations in market interest rates that affect the cost ofour borrowings to the extent that our variable rate debt is not covered byinterest rate derivative agreements; and

•     makeit more difficult to pursue strategic acquisitions, alliances andcollaborations.

Ourability 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 ourcontrol. We believe that, based upon current levels of operations, we will beable to meet our debt service obligations when due. Significant assumptionsunderlie this belief, including, among others, that we will continue to besuccessful in implementing our business strategy and that there will be nomaterial adverse developments in our business, liquidity or capitalrequirements. If we cannot generate sufficient cash flow from operations toservice our indebtedness and to meet our other obligations and 

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commitments, we may be required to refinance our debtor to dispose of assets to obtain funds for such purpose. We cannot assure youthat refinancing or asset dispositions could be effected on a timely basis oron satisfactory terms, if at all, or would be permitted by the terms of ourdebt instruments. To the extent we incur additional indebtedness or otherobligations in the future, the risks associated with our indebtedness describedabove, including our possible inability to service our debt, would increase.

***Our senior creditfacility contains restrictions that limit our ability to pay dividends, incuradditional debt, make acquisitions and make other investments.***

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

Our senior credit facilityalso contains covenants that limit our ability to incur indebtedness, acquireother businesses and make capital expenditures, and impose various otherrestrictions. These covenants could affect our ability to operate our businessand may limit our ability to take advantage of potential business opportunitiesas they arise. We may be unable to comply with the foregoing financial ratiosor covenants and, if we fail to do so, we may be unable to obtain waivers fromour lenders.

***Our future capitalneeds are uncertain and we may need to raise additional funds in the future.***

Ourfuture capital needs are uncertain and we may need to raise additional funds inthe future through debt or equity offerings. Our future capital requirementswill depend on many factors, including:

•     revenuegenerated by sales of our products;

•     expensesincurred in manufacturing and selling our products;

•     costsof developing new products or technologies;

•     costsassociated with capital expenditures;

•     costsassociated with our expansion;

•     costsassociated with regulatory compliance, including maintaining compliance withthe quality system regulations imposed by the FDA; and

•     thenumber and timing of acquisitions and other strategic transactions.

As a result of thesefactors, we may need to raise additional funds, and these funds may not beavailable on favorable terms, or at all. Furthermore, if we issue equity orconvertible debt securities to raise additional funds, our existingstockholders may experience dilution, and the new equity or convertible debt securitiesmay have rights, preferences and privileges senior to those of our existingstockholders. If we cannot raise funds on acceptable terms, we may not be ableto develop or enhance our products, execute our business strategy, takeadvantage of future opportunities, or respond to competitive pressures orunanticipated customer requirements.

***We may not realizeall of the sales expected from new product development programs.***

We incur substantialexpenses in developing and testing new products and related devices. Therealization of additional revenue from new product development efforts isinherently subject to a number of important risks and uncertainties, including,directly or indirectly, end-user acceptance of the product, reimbursementapproval of third-party payers such as Medicaid, Medicare and private insurersand, in some cases, FDA or comparable foreign regulatory approval of theproduct. In addition, our customers typically have no contractual requirementto purchase from us the products that we develop for their 

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medicaldevices, and they could seek to have another supplier or in-house facilitiesmanufacture products that we have developed for their medical devices. We alsoincur costs and make capital expenditures for new product development and productionbased upon certain estimates of production volumes for our existing andanticipated products. If the actual demand for our products is less thanplanned, our revenue and net income may decline.

***Our earnings coulddecline if we write off goodwill or intangible assets created as a result ofour various acquisitions.***

As a result ofacquisitions we have accumulated a substantial amount of goodwill, amounting to$156.2 million as of December 30, 2006, or approximately 38.1% of ourtotal assets as of such date. Goodwill and certain intangible assets are notamortized but rather are tested for impairment by us annually or morefrequently if an event occurs or circumstances develop that would likely resultin impairment. Examples of such events or circumstances include, but are notlimited to, a significant adverse change in legal or business climate, anadverse regulatory action or unanticipated competition. We completed annualimpairment tests as of October 2006 and 2005 and concluded at those datesthat no impairment of goodwill or intangible assets existed. In the future, wecould recognize impairment of our goodwill or other intangible assets, and thatimpairment could result in a charge to our results of operation and have anadverse effect on our financial condition.

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

We rely on a combinationof patents, trade secrets, copyrights, know-how, trademarks, license agreementsand contractual provisions to establish and protect our proprietary rights toour technologies and products. We cannot guarantee that the steps we have takenor will take to protect our intellectual property rights will be adequate orthat they will deter infringement, misappropriation or violation of ourintellectual property. Litigation may be necessary to enforce our intellectualproperty rights and to determine the validity and scope of our proprietaryrights. Any litigation could result in substantial expenses and may notadequately protect our intellectual property rights. In addition, the laws ofsome of the countries in which our products are or may be sold may not protectour products and intellectual property to the same extent as US laws, or atall. We may be unable to protect our rights in trade secrets and unpatentedproprietary technology in these countries. If our trade secrets become known,we may lose our competitive advantages.

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

•     theseagreements will not be breached;

•     wewill have adequate remedies for any breach; or

•     tradesecrets, know-how and other unpatented proprietary technology will nototherwise become known to or independently developed by our competitors.

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

In addition, third partiesmay claim that we are infringing, misappropriating or violating theirintellectual property rights. We could be found to infringe those intellectualproperty rights, which could affect our ability to manufacture any affectedproduct. In addition, any protracted litigation to defend or prosecute ourintellectual property rights could drain our financial resources, divert thetime and effort of our management and cause customers to delay or limit theirpurchases of the affected product until resolution of the litigation.

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Anylitigation or claims against us, whether or not successful, could result insubstantial costs and could harm our reputation. In addition, intellectualproperty litigation or claims could force us to do one or more of thefollowing:

•     ceaseselling or using any of our products that incorporate the challengedintellectual property, which could adversely affect our revenue;

•     obtaina license from the holder of the intellectual property right alleged to havebeen infringed, which license may not be available on reasonable terms, if atall; and

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

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

In thelast twelve months, we completed three acquisitons. Going forward, we may seekto acquire additional businesses or product lines for various reasons,including providing new product manufacturing and service capabilities, add newcustomers, increase penetration with existing customers or expand into newgeographic markets. Our ability to successfully grow through additionalacquisitions depends upon our ability to identify, negotiate, complete andintegrate suitable acquisitions and to obtain any necessary financings. Theseadditional efforts could divert the attention of our management and keypersonnel from our business operations and integration of our recentlycompleted acquisitions. If we complete additional acquisitions, we may alsoexperience:

•     difficultiesin integrating any acquired companies, personnel and products into our existingbusiness;

•     delaysin realizing the benefits of the acquired company or products;

•     diversionof our management’s time and attention from other business concerns;

•     limitedor no direct prior experience in new markets or countries we may enter;

•     highercosts of integration than we anticipated;

•     difficultiesin retaining key employees of the acquired business who are necessary to managethese businesses;

•     difficultiesin maintaining uniform standards, controls, procedures and policies throughoutour acquired companies; or

•     adversecustomer reaction to the business combination.

Addition acquisitionscould also materially impair our operating results by causing us to incur debtor requiring us to amortize acquisition expenses and acquired assets. In thepast twelve months, we have made three acquisitions. Riley Medical in May 2006,Everest Metal in August 2006 and most recently Clamonta Ltd in January 2007.These acquisitions increase the size and scope of our operations and we feelstrengthen our business model.

***We are subject torisks associated with our foreign operations.***

Wehave significant international operations. We have operations in the UnitedKingdom, France, Switzerland, Ireland and Malaysia. Certain risks are inherentin international operations, including:

•     difficultiesin enforcing agreements and collecting receivables through certain foreignlegal systems;

•     foreigncustomers who may have longer payment cycles than customers in the UnitedStates;

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•     taxrates in certain foreign countries that may exceed those in the United Statesand foreign earnings that may be subject to withholding requirements or theimposition of tariffs, exchange controls or other restrictions includingtransfer pricing restrictions when products produced in one country are sold toan affiliated entity in another country;

•     generaleconomic and political conditions in countries where we operate or where endusers of orthopedic devices reside may have an adverse effect on ouroperations;

•     difficultiesassociated with managing a large organization spread throughout variouscountries;

•     difficultiesin enforcing intellectual property rights; and

•     requiredcompliance with a variety of foreign laws and regulations.

As we continue to expandour business globally, our success will depend, in part, on our ability toanticipate and effectively manage these and other risks. We cannot assure youthat these and other factors will not have a material adverse effect on ourinternational operations or our business as a whole.

***Currency exchangerate fluctuations could have an adverse effect on our revenue and financialresults.***

We generate a significantportion of our revenue and incur a significant portion of our expenses incurrencies other than US dollars. Currency exchange rates are subject tofluctuation due to, among other things, changes in local, regional or globaleconomic conditions, the imposition of currency exchange restrictions andunexpected changes in regulatory or taxation environments. To the extent thatwe are unable to match revenue received in foreign currencies with costsincurred in the same currency, exchange rate fluctuations in any such currencycould have an adverse effect on our financial results.

During fiscal 2004, webenefited from foreign exchange rates, in particular because of the weakeningUS dollar versus both the pound sterling and the euro, the primarycurrencies to which we are exposed. In fiscal 2005, the US dollar strengthenedagainst these currencies and caused an unfavorable impact to operations. Wecannot assure you that exchange rates will not impact us favorably orunfavorably in the future. In addition, as of December 31, 2005, we didnot hold or issue foreign exchange options or forward contracts to mitigatethis risk. Any change in the exchange rates of currencies of jurisdictions intowhich we sell products or incur expenses could result in a decrease in ourrevenue or operating income.

During 2006, we enteredinto foreign currency forward contracts for the sale of $15.0 million ofBritish pounds to mitigate fluctuations in foreign currency on the statement ofoperations. The loss of the foreign currency valuation of $1.2 million forfiscal 2006 offset net gains on foreign currency within the Other expense of$2.2 million.

***We may be adverselyaffected as a result of the long lead times required for sales of certain newproducts.***

We often compete forbusiness at the beginning of the development of new medical devices or uponcustomer redesign of existing medical devices. Our customers generally mustobtain clearance or approval from the FDA before commercially distributingtheir products. Unless exempt, a new medical device must be approved forcommercial distribution in the United States by the FDA through the 510(k) pre-marketNotification Process or, in some cases, through the more burdensome pre-marketapproval, or PMA, process. It generally takes three to six months from the dateof submission to the FDA to obtain 510(k) clearance and one to three yearsfrom the date of submission to the FDA to obtain approval through the PMAprocess, but in each case may take significantly longer. This results in longlead times for some of our customers’ new products, which may make it difficultin the short term for us to obtain sales of new products to replace anyunexpected decline in sales of existing products.

***We may be adversely impacted by work stoppages andother labor matters.***

Currently,none of our facilities are unionized. However, from time to time some of ouremployees have attempted to unionize at two of our facilities. In addition,some of our orthopedic device customers 

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have unionized work forces. While we have notexperienced any adverse effects from work stoppages or low-downs at ourcustomers’ facilities, work stoppages or slow-downs experienced by us, oursuppliers or our customers or their suppliers could result in slow-downs orclosures of facilities where our products are made or used. We cannot assureyou that we will not encounter strikes, further unionization efforts or othertypes of conflicts with labor unions or our employees, which could have anadverse effect on our financial results.

***If a natural or man-made disaster strikes one or moreof our manufacturing facilities, we may be unable to manufacture certainproducts for a substantial amount of time and our revenue could decline.***

We have nineteenmanufacturing facilities, which are located in the United States, UnitedKingdom France, Switzerland, Ireland and Malaysia. These facilities and themanufacturing equipment and personnel know-how that we use to produce ourproducts would be difficult to replace and could require substantial lead-timeto repair or replace. Our facilities may be affected by natural or man-madedisasters. 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 manufacturingfacilities or rely on third-party manufacturers, and our other facilities or athird-party manufacturer may not have the capability to effectively supply theaffected products. Although we have insurance for damage to our property andthe interruption of our business, this insurance may not be sufficient in scopeor amount to cover all of our potential losses and may not continue to beavailable to us on acceptable terms, or at all.

**Risks Related to Our Industry**

***Orthopedic devicemanufacturers have significant leverage over their independent suppliers andconsolidation could increase their leverage, which could result in the loss ofcustomers or force us to reduce our prices.***

We compete with manydistributors and manufacturers to develop and supply implants, surgicalinstruments and cases to a limited number of large orthopedic devicemanufacturers. As a result, orthopedic device manufacturers have historicallyhad significant leverage over their independent suppliers. For example,independent suppliers like us are subject to continuing pressure from the majororthopedic device manufacturers to reduce the cost of products and serviceswhile maintaining quality levels. In recent years, the medical device industryhas experienced substantial consolidation. If the medical device industry, andthe orthopedic device industry in particular, continue to consolidate,competition to provide products and services to orthopedic device manufacturersmay become more intense. Orthopedic device manufacturers may seek to use theirmarket power to negotiate price or other concessions for our products. If weare forced to reduce prices or if we lose customers because of competition, ourrevenue and results of operations would suffer.

***Our business isindirectly subject to healthcare industry cost containment measures and otherindustry trends affecting pricing that could result in reduced sales of orprices for our products.***

Acceptance of ourcustomers’ products by hospitals, outpatient centers and physicians depend on,among other things, reimbursement approval of third-party payers such asMedicaid, Medicare and private insurers. The continuing efforts of government,insurance companies and other payers of healthcare costs to contain or reducethose costs could lead to lower reimbursement rates or non-reimbursement formedical procedures that use our products. If that were to occur, medical devicemanufacturers might insist that we lower prices on products related to theaffected medical device or they might significantly reduce or eliminate theirpurchases from us of these related products, which could affect ourprofitability.

We are aware of one legaldevelopment that could negatively impact prices of orthopedic devices. We are awareof a governmental investigations of some of the largest orthopedic devicecompanies reportedly focusing on consulting and service agreements betweenthese companies and orthopedic surgeons. If these 

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investigationsresults in a judgment against one of our large customers our results of operationscould be negatively impacted.

***We and ourcustomers are subject to substantial government regulation that is subject tochange and could force us to make modifications to how we develop, manufactureand price our products.***

The medical deviceindustry is regulated extensively by governmental authorities, principally theFDA and corresponding state and foreign regulatory agencies. Some of ourmanufacturing processes are required to comply with quality systemsregulations, including current good manufacturing practice requirements thatcover 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 subjectto periodic unscheduled inspections by the FDA or other agencies. Failure tocomply 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 orpartial suspensions of production, refusal of the FDA or other regulatoryagencies to grant future pre-market clearances or approvals, withdrawals orsuspensions of current clearances or approvals and criminal prosecution.

In addition, orthopedicimplants and other medical devices produced by our customers are subject tointensive regulation and potential pre-approval requirements by the FDA andsimilar international agencies that govern a wide variety of product activitiesfrom design and development to labeling, manufacturing, promotion, sales anddistribution. Compliance with these regulations may be time consuming,burdensome and expensive for our customers and, indirectly, for us to theextent that our customers’ compliance depends on our operations. Theseregulations could negatively affect our customers’ abilities to sell theirproducts, which in turn would adversely affect our ability to sell ourproducts. This may result in higher than anticipated costs or lower thananticipated revenue.

The regulations that weand our customers are subject to are complex, change frequently and have tendedto become more stringent over time. Federal and state legislatures haveperiodically considered programs to reform or amend the US healthcare system atboth the federal and state levels. In addition, these regulations may containproposals to increase governmental involvement in healthcare, lowerreimbursement rates or otherwise change the environment in which healthcareindustry participants operate. Foreign governmental authorities that regulatethe manufacture and sale of medical devices have become increasingly stringentand, to the extent we sell our products in foreign countries, we may be subjectto rigorous regulation in the future. Regulatory changes could result inrestrictions on our ability to carry on or expand our operations, higher thananticipated costs or lower than anticipated revenue.

***If our customersfail to obtain, or experience significant delays in obtaining, FDA clearancesor approvals to commercially distribute our future products our ability to sellour products could suffer.***

Some of our medicaldevices are subject to rigorous regulatory pre-approval by the FDA and otherfederal, state and foreign governmental authorities. Our customers aretypically responsible for obtaining the applicable regulatory approval for thecommercial distribution of our products. The process of obtaining thisapproval, particularly from the FDA, can be costly and time consuming, andthere can be no assurance that our customers will obtain the required approvalson a timely basis, if at all. The FDA, for example, assigns medical devices toone of three classes which determine, among other things, the type and degreeof FDA approval required to commercially distribute the device in the UnitedStates. We produce Class I, II and III devices. Class I devicesare deemed to present little risk to patients and are generally exempt from FDAapproval requirements. Class II devices can generally be commerciallydistributed only after the device has received “510(k) clearance”. The FDAwill clear marketing of a medical device through the 510(k) process ifcertain design, testing and validation requirements are met and it is demonstratedthat the device is “substantially equivalent” to a device that was legallymarketed prior to May 28, 1976, or to another commercially availabledevice subsequently cleared through the 510(k) Pre-Market Notificationprocess. This process generally takes three to six months, but may takesubstantially 

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longer.Before a Class III device can be commercially distributed in the UnitedStates, a pre-market approval, or PMA, must be obtained from the FDA. The PMAprocess can be expensive and uncertain, requires detailed and comprehensivescientific and other data and generally takes between one and three years, butmay take significantly longer. The commercial distribution of any products wedevelop that require regulatory clearance may be delayed. In addition, becausewe cannot assure you that any new products or any product enhancements wedevelop for commercial distribution in the United States will be exempt fromthe FDA market clearance requirements or subject to the shorter 510(k) clearanceprocess, the regulatory approval process for our products or productenhancements may take significantly longer than anticipated by us or ourcustomers.

***We may be adverselyaffected by the impact of environmental and safety regulations.***

We are subject to foreign,federal, state, local and foreign laws and regulations governing the protectionof the environment and occupational health and safety, including lawsregulating air emissions, wastewater discharges, and the management anddisposal of hazardous materials and wastes; and the health and safety of ouremployees. We are also required to obtain permits from governmental authoritiesfor 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 tobecome more stringent over time, and we could incur material expenses in thefuture relating to compliance with future environmental laws. In addition, wecould be held responsible for costs and damages arising from any contaminationat our past or present facilities or at third-party waste disposal sites. Suchcosts could be material. We cannot completely eliminate the risk ofcontamination or injury resulting from hazardous materials and we may incurmaterial liability as a result of any contamination or injury.

**Risks Relating to Our Common Stock**

***Our common stockmay be volatile and could decline substantially.***

Therehas been significant volatility in the market price and trading volume ofsecurities of companies operating in the medical device industry, including ourcompany, which has often been unrelated to the operating performance ofparticular companies. These broad market fluctuations may adversely affect thetrading price of our common stock. Price declines in our common stock couldresult from general market and economic conditions and a variety of otherfactors, including:

•     actualor anticipated fluctuations in our operating results;

•     ourannouncements or our competitors’ announcements regarding new products,significant contracts, acquisitions or strategic investments;

•     lossof any of our key management or technical personnel;

•     conditionsaffecting orthopedic device manufacturers or the medical device industrygenerally;

•     productliability lawsuits against us or our customers;

•     clinicaltrial results with respect or our customers’ medical devices;

•     changesin our growth rates or our competitors’ growth rates;

•     developmentsregarding our patents or proprietary rights, or those of our competitors;

•     FDAand international actions with respect to the government regulation of medicaldevices and third-party reimbursement practices;

•     publicconcern as to the safety of our products;

•     changesin health care policy in the United States and internationally;

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•     conditionsin the financial markets in general or changes in general economic conditions;

•     ourinability to raise additional capital;

•     changesin stock market analyst recommendations regarding our common stock, othercomparable companies or the medical device industry generally, or lack ofanalyst coverage of our common stock;

•     salesof our common stock by our executive officers, directors and five percentstockholders or sales of substantial amounts of common stock; and

•     changesin accounting principles.

In the past, followingperiods of volatility in the market price of a particular company’s securities,litigation has often been brought against that company. If litigation of thistype is brought against us, it could be extremely expensive and divertmanagement’s attention and the company’s resources.

***Our certificate ofincorporation, our bylaws and Delaware law contain provisions that coulddiscourage another company from acquiring us and may prevent attempts by ourstockholders to replace or remove our current management.***

Provisionsof the Delaware General Corporation Law, our certificate of incorporation andour by-laws may discourage, delay or prevent a merger or acquisition thatstockholders may consider favorable, including transactions in which you mightotherwise receive a premium for your shares. In addition, these provisions mayfrustrate or prevent any attempts by our stockholders to replace or remove ourcurrent management by making it more difficult for stockholders to replace orremove our board of directors. These provisions include:

•     providingfor a classified board of directors with staggered terms;

•     requiringsupermajority stockholder voting to effect certain amendments to ourcertificate of incorporation and by-laws;

•     eliminatingthe ability of stockholders to call special meetings of stockholders;

•     prohibitingstockholder action by written consent;

•     establishingadvance notice requirements for nominations for election to the board ofdirectors or for proposing matters that can be acted on by stockholders atstockholder meetings.

•     limitingthe ability of stockholders to amend, alter or repeal the by-laws; and

•     authorizingof the board of directors to issue, without stockholder approval, shares ofpreferred stock with such terms as the board of directors may determine andshares of our common stock.

We are also protected by Section 203of the Delaware General Corporation Law, which prevents us from engaging in abusiness combination with a person who becomes a 15.0% or greater stockholderfor a period of three years from the date such person acquired such statusunless certain board or stockholder approvals were obtained.

**ITEM 1B.**   UNRESOLVEDSTAFF COMMENTS

None.

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**ITEM 2.**   PROPERTIES

Our corporate office islocated in Warsaw, IN. We have operations facilities, including warehouse,administrative and manufacturing facilities, located at nineteen locationsthroughout the world. We believe that these facilities are adequate for ourcurrent and foreseeable purposes and that additional space will be available ifneeded.

The lease on ourapproximately 122,000 square foot Manchester, NH facility is a capital leasethat runs through October 1, 2016. The initial annual base rent under thelease, as amended, was $0.6 million, payable in equal monthlyinstallments. On October 31, 2001, and every five years thereafter,including extensions, the annual base rent will change based on the percentageincrease, if any, in the Consumer Price Index for the Northeast US region. Thecurrent annual base rent under the lease is $0.8 million. We have an option toextend the lease for an additional five-year period and have a right of firstopportunity to purchase the leased property.

The table belowprovides selected information regarding our facilities.

| **Location**                   | ** ** | ** **                                                                             | ** ** | **Use** | ** ** | **Approximate  Square  Footage(1)** | ** ** | **Own/  Lease** |
|--------------------------------|------------|----------------------------------------------------------------------------------------|------------|---------|------------|-------------------------------------|------------|-----------------|
| Warsaw, Indiana                |       | Instrument design  and manufacturing                                                   |       |    | 63,000     |                                |       | Own             |
| Warsaw, Indiana                |       | Design and  Development Center; instrument design and manufacturing                    |       |    | 30,000     |                                |       | Own             |
| Memphis, Tennessee             |       | Design and  Development Center                                                         |       |    | 6,400      |                                |       | Lease           |
| Warsaw, Indiana                |       | Corporate  headquarters                                                                |       |    | 10,000     |                                |       | Own             |
| Claypool, Indiana              |       | Instrument design  and manufacturing                                                   |       |    | 33,000     |                                |       | Own             |
| Cheltenham, United  Kingdom    |       | Instrument design  and manufacturing                                                   |       |    | 25,000     |                                |       | Lease           |
| Manchester, New Hampshire      |       | Plastic and metal  case design and manufacturing                                       |       |    | 122,000    |                                |       | Lease           |
| Villeneuve d’Ascq, France |       | Case design and  assembly                                                              |       |    | 25,000     |                                |       | Lease           |
| Lansing, Michigan              |       | Implant design,  forging and machining                                                 |       |    | 65,000     |                                |       | Own             |
| Lansing Michigan               |       | Implant Finishing  and Design and Development Center                                   |       |    | 15,000     |                                |       | Lease           |
| Sheffield, United Kingdom      |       | Implant and  specialized non-healthcare product design, forging, casting and machining |       |    | 134,600    |                                |       | Own             |
| Sheffield, United Kingdom      |       | Implant machining                                                                      |       |    | 43,400     |                                |       | Own             |
| Warwickshire, United Kingdom   |       | Specialized  non-healthcare machining                                                  |       |    | 20,300     |                                |       | Own             |
| Avilla, Indiana                |       | Instrument and  implant design and manufacturing                                       |       |    | 41,000     |                                |       | Lease           |
| Auburn, Maine                  |       | Case design and  manufacturing                                                         |       |    | 33,500     |                                |       | Own             |
| Corgemont, Switzerland         |       | Case design and  assembly                                                              |       |    | 10,000     |                                |       | Lease           |
| Monsey, New York               |       | Implant finishing                                                                      |       |    | 9,000      |                                |       | Lease           |
| Cork, Ireland                  |       | Implant finishing                                                                      |       |    | 10,000     |                                |       | Lease           |
| Penang, Malaysia               |       | Case assembly                                                                          |       |    | 9,000      |                                |       | Lease           |

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(1)          Weown approximately 21 acres of land in Warsaw, IN, and approximately 9 acres inLansing, MI. These sites are available for future expansion.

**ITEM 3.**   LEGALPROCEEDINGS

None.

**ITEM 4.**   SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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**PART II**

**ITEM 5.**                MARKETFOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

Our common stock trades on the New York Stock Exchange(“NYSE”) under the trading symbol SMA. As of March 2, 2007, there were approximately41 registered holders of record of our common stock. The transfer agentand 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 paiddividends on our common stock and do not expect to pay dividends for theforeseeable future, to pay dividends on our common stock. Instead, weanticipate that our earnings in the foreseeable future will be used in theoperation and growth of our business. The payment of dividends by us to holdersof our common stock is restricted by our senior credit facility. Any futuredetermination to pay dividends will be at the discretion of our board ofdirectors 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 orprogram**.**

See Part III, Item 12, Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters, forinformation regarding common stock authorized for issuance under equitycompensation plans.

Ourcommon stock has been listed on the New York Stock Exchange since our initialpublic offering on December 9, 2004. The following table sets forth, forthe period indicated, the highest and lowest closing sale price for our commonstock by quarter for 2006 and 2005, as reported by the New York Stock Exchange:

| ** **     | ** ** | **2006** | ** ** |
|----------------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
| Fourth Quarter |       | $        | 16.60      |   | $ | 13.26 |   |
| Third Quarter  |       | $        | 15.81      |   | $ | 12.00 |   |
| Second Quarter |       | $        | 21.01      |   | $ | 14.99 |   |
| First Quarter  |       | $        | 22.90      |   | $ | 19.39 |   |

 

| ** **     | ** ** | **2005** | ** ** |
|----------------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
| Fourth Quarter |       | $        | 23.65      |   | $ | 17.18 |   |
| Third Quarter  |       | $        | 25.75      |   | $ | 22.42 |   |
| Second Quarter |       | $        | 24.31      |   | $ | 17.15 |   |
| First Quarter  |       | $        | 22.26      |   | $ | 18.00 |   |

 

| ** **                                         | ** ** | **2004** | ** ** |
|----------------------------------------------------|------------|----------|------------|
| ** **                                         | ** ** | **High** | ** ** | **Low** | ** ** |
| Fourth Quarter  (Commencing December 9, 2004) | ** ** | $        | 21.05      |   | $ | 15.00 |   |
|                                                    |            |          |            |  |  |  |  |

 

The closing sale price forour common stock on March 2, 2007 was $15.01.

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**Comparison ofCumulative Total Return***

| ** **                 | ** ** | **December 9, 2004** | ** ** | **December 31, 2004** | ** ** | **December 30, 2005** | ** ** | **December 29, 2006** | ** ** |
|----------------------------|------------|--------------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Symmetry Medical  Inc.     |       |                           | $          | 100                             |       |                            |       | $                               | 140        |   |   |   | $ | 129 |   |   |   | $ | 92 |   |   |
| S&P 500 Stock  Index   |       |                           | $          | 100                             |       |                            |       | $                               | 102        |   |   |   | $ | 105 |   |   |   | $ | 119 |   |   |
| S&P Health Care  Index |       |                           | $          | 100                             |       |                            |       | $                               | 102        |   |   |   | $ | 107 |   |   |   | $ | 114 |   |   |

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*                    Assuming $100was invested on December 9, 2004 (the first date the company common stockwas traded on the New York Stock Exchange) in company common stock and eachindex. Values as of year end assuming dividends are reinvested. No dividendshave been declared or paid on company common stock. Returns over the indicatedperiod should not be considered indicative of future returns.

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**ITEM 6.**                SELECTEDFINANCIAL DATA

Thefollowing table sets forth our selected financial data for the year indicatedand should be read in conjunction with the disclosures to Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operationsand Item 8. Financial Statements of this Form 10-K.

| ** **                                                                                          | ** ** | **Fiscal Year Ended**                                                                     | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                          | ** ** | **2006(6)**                                                                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003(1)** | ** ** | **2002** | ** ** |
| ** **                                                                                          | ** ** | **(dollars in thousands, except share and per share data)** | ** ** |
| **Consolidated Statements of  Operations Data:**                                                    | ** ** | ** **                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                                             |       | $                                                                                                   | 253,569    |   | $ | 263,766 |   | $ | 205,391 |   | $ | 122,029 |   | $ | 65,395 |   |
| Cost of Revenue                                                                                     |       | 188,467                                                                                             |       | 185,227 |   | 145,081 |   | 86,124 |   | 47,859 |   |
| Gross Profit                                                                                        |       | 65,102                                                                                              |       | 78,539 |   | 60,310 |   | 35,905 |   | 17,536 |   |
| Selling, general,  and administrative expenses                                                      |       | 28,440                                                                                              |       | 27,570 |   | 22,569 |   | 17,115 |   | 9,440 |   |
| Operating Income                                                                                    |       | 36,662                                                                                              |       | 50,969 |   | 37,741 |   | 18,790 |   | 8,096 |   |
| Interest expense,  net                                                                              |       | 4,448                                                                                               |       | 2,954 |   | 13,757 |   | 10,172 |   | 4,968 |   |
| Loss on debt  extinguishment                                                                        |       | —                                                                                              |       | — |   | 8,956 | (5) | 1,436 | (2) | — |   |
| Derivative  valuation(gain)/loss(3)                                                                 |       | 2,317                                                                                               |       | (98 | ) | (1,451 | ) | (1,358 | ) | 979 |   |
| Other (income)  expense                                                                             |       | (3,201                                                                                              | )          | 1,872 |   | (740 | ) | (374 | ) | (42 | ) |
| Income before income taxes and cumulative effect of  accounting change                              |       | 33,098                                                                                              |       | 46,241 |   | 17,219 |   | 8,914 |   | 2,191 |   |
| Income tax expense                                                                                  |       | 8,949                                                                                               |       | 14,441 |   | 5,524 |   | 3,009 |   | 841 |   |
| Net income before  cumulative effect of accounting change                                           |       | 24,149                                                                                              |       | 31,800 |   | 11,695 |   | 5,905 |   | 1,350 |   |
| Cumulative effect  of accounting change(4)                                                          |       | —                                                                                              |       | — |   | — |   | — |   | (1,146 | ) |
| Net income                                                                                          |       | 24,149                                                                                              |       | 31,800 |   | 11,695 |   | 5,905 |   | 204 |   |
| Preferred stock  dividends                                                                          |       | —                                                                                              |       | — |   | (8,977 | ) | (7,028 | ) | (4,410 | ) |
| Net income (loss)  applicable to common shareholders                                                |       | $                                                                                                   | 24,149     |   | $ | 31,800 |   | $ | 2,718 |   | $ | (1,123 | ) | $ | (4,206 | ) |
| Basic per share:                                                                                    |       |                                                                                                |       |   |   |   |   |   |   |   |   |
| Net income (loss)  applicable to common shareholders before cumulative effect of accounting  change |       | $                                                                                                   | 0.69       |   | $ | 0.94 |   | $ | 0.16 |   | $ | (0.10 | ) | $ | (0.44 | ) |
| Cumulative effect  of accounting change, net of tax                                                 |       | —                                                                                              |       | — |   | — |   | — |   | (0.17 | ) |
| Net income (loss)                                                                                   |       | $                                                                                                   | 0.69       |   | $ | 0.94 |   | $ | 0.16 |   | $ | (0.10 | ) | $ | (0.61 | ) |
| Diluted per share:                                                                                  |       |                                                                                                |       |   |   |   |   |   |   |   |   |
| Net income (loss)  applicable to common shareholders before cumulative effect of accounting  change |       | $                                                                                                   | 0.69       |   | $ | 0.92 |   | $ | 0.15 |   | $ | (0.10 | ) | $ | (0.44 | ) |
| Cumulative effect  of accounting change, net of tax                                                 |       | —                                                                                              |       | — |   | — |   | — |   | (0.17 | ) |
| Net income (loss)                                                                                   |       | $                                                                                                   | 0.69       |   | $ | 0.92 |   | $ | 0.15 |   | $ | (0.10 | ) | $ | (0.61 | ) |
| Weighted average common  shares and equivalent shares outstanding:                                  |       |                                                                                                |       |   |   |   |   |   |   |   |   |
| Basic                                                                                               |       | 34,829                                                                                              |       | 33,841 |   | 16,905 |   | 11,798 |   | 6,906 |   |
| Diluted                                                                                             |       | 35,156                                                                                              |       | 34,670 |   | 17,767 |   | 11,798 |   | 6,906 |   |
| **Consolidated  Balance Sheet Data:**                                                               | ** ** | ** **                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                                                                          |       | $                                                                                                   | 11,721     |   | $ | 12,471 |   | $ | 4,849 |   | $ | 2,348 |   | $ | 781 |   |
| Working capital                                                                                     |       | 75,408                                                                                              |       | 64,191 |   | 50,854 |   | 36,064 |   | 9,587 |   |
| Total Assets                                                                                        |       | 410,147                                                                                             |       | 337,645 |   | 306,868 |   | 267,217 |   | 63,554 |   |
| Long-term debt and  capital lease obligations, less current  portion                                |       | 68,792                                                                                              |       | 34,782 |   | 43,209 |   | 129,696 |   | 47,234 |   |
| Redeemable  preferred stock                                                                         |       | —                                                                                              |       | — |   | — |   | — |   | 3,530 |   |
| Total  shareholders’ equity (deficit)                                                          |       | 290,861                                                                                             |       | 253,255 |   | 216,145 |   | 100,390 |   | (1,121 | ) |
| **Other Financial Data:**                                                                           | ** ** | ** **                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Depreciation and  amortization                                                                      |       | $                                                                                                   | 17,099     |   | $ | 13,674 |   | $ | 11,198 |   | $ | 6,662 |   | $ | 2,744 |   |

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(1)             Includes the results of Mettis since its acquisition onJune 11, 2003.

(2)             In fiscal 2003, we refinanced substantially all of ourexisting indebtedness as part of the financing of the acquisition of Mettis,resulting in a loss on debt extinguishment of $1,436.

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(3)             We entered into interest rate swap agreements to offsetagainst changes in interest rates on our variable rate long-term debt. We alsoentered into foreign exchange forward contract to mitigate fluctuations inforeign currency on the statement of operations. In accordance with SFAS No. 133,as amended, Accounting For Derivative Instruments and Hedging Activities, theseagreements do not qualify for hedge accounting and accordingly, changes in thefair market value of such agreements are recorded each period in earnings.

(4)             For fiscal 2002, reflects a write-off of goodwill inconnection with the adoption of SFAS No. 142,*Goodwill and Other Intangible Assets*. Upon completion ofthe adoption of SFAS No. 142, we determined that the fair market value ofthe goodwill was lower than book value for one reporting unit, which resultedin an impairment charge.

(5)             In fiscal 2004, we refinanced substantially all of ourexisting indebtedness as part of the proceeds from our December 9, 2004initial public offering, resulting in a loss on debt extinguishment of $8,956.This charge includes $5.1 million of unamortized discount recorded upon theissuance of the subordinated notes and $3.9 million of deferred debt issuancecosts as a result of the Mettis acquisition on June 11, 2003.

(6)             Includes the results of Riley Medical since itsacquisition on May 2, 2006 and Everest Metal since its acquisition on August 31,2006.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

**Overview**

We are a leading independent provider of implants andrelated instruments and cases to orthopedic device manufacturers. We alsodesign, develop and produce these products for companies in other segments ofthe medical device market, including dental, osteobiologic and endoscopysectors, and provides limited specialized products and services tonon-healthcare markets.

The global medicaldevice market was estimated to be over $220 billion in 2005, according to ourmost recent research reports available. The orthopedic device segment of themedical device market was estimated to be approximately $22 billion in 2005,and is expected to grow approximately 11% annually to greater than $33 billionby 2009. Orthopedic devices principally consist of reconstructive implants usedto replace or repair knees, hips, shoulders and other joints, as well as otherorthopedic devices to repair bone fractures and the spine. There wereapproximately 2.0 million reconstructive orthopedic implant proceduresperformed globally in 2005. We estimate that global orthopedic deviceprocedures grew approximately 5% to 7% in 2006 and expect similar industryprocedure growth in the near future. We expect continued growth in theorthopedic device market to be driven by a number of trends including:

·       growingelderly population;

·       aging,affluent and active “baby boomers”;

·       improvingtechnologies that expand the market, including minimally invasive surgery;

·       successfulclinical outcomes increasing patient confidence;

·       increasingpatient awareness through orthopedic device companies’ direct marketingprograms;

·       increasingvolume of procedures to replace older implants (or revision procedures); and

·       developinginternational markets.

Asignificant part of our business strategy has been growth through acquisitionswhich have enhanced our product offerings and our business model. We acquiredMettis on June 11, 2003 for an aggregate consideration of approximately$164 million. Mettis is a leading manufacturer of forged, cast and machinedimplants for global orthopedic device manufacturers. This acquisition addedimplants to our product offerings and increased our European presence. We alsoacquired Riley Medical on May 2, 2006 for $45.8 million. Riley Medical isa leading design and manufacturer of specialty cases and trays for the globalmedical market. We also acquired Everest Metal on August 31, 2006 for anaggregate consideration of approximately $9.2 million. Everest Metalspecializes in implant finishing and has two locations near our major customer’slocations. On January 9, 2007, we acquired Clamonta Ltd, a leadingsupplier of precision products to the global aerospace industry based in Warwickshire,UK for an aggregate consideration of approximately $10.0 million. Thetransaction expands our aerospace offering and product expertise, providing amore complete Total Solutions® offering to majoraerospace customers.

We offer a comprehensive line of implants, surgicalinstruments and cases for orthopedic device manufacturers on a global basis,instruments and cases into other medical markets and specialized parts into theaerospace industry. In fiscal 2006, we had revenue of $253.6 million, operatingincome of $36.7 million and net income applicable to common shareholdersof $24.1 million.

Ouracquisition of Mettis enabled us to offer our customers Total Solutions® forcomplete implant systems—implants, instruments and cases. While our revenue to datehas been derived primarily from the sale of implants, instruments and casesseparately, or instruments and cases together, our ability to provide TotalSolutions® for complete implant systems has alreadyproven to be attractive to our customers and we 

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expect this capability will provide us with growthopportunities. In addition, we expect that our Total Solutions® capability will increase the relativepercentage of value added products that we supply to our customers.

Our recent acquisitions continue to expand our productoffering and strengthen our position in the global marketplace. With theaddition of Riley Medical, we obtained case and tray design and productioncapacity both in the US and in Switzerland, and increased our local presence incentral Europe. The Everest Metal acquisition provides implant finishingcapability and includes a facility in the US and a facility in Ireland. We alsoadded a Malaysian facility in December 2006 to manufacture cases. Theseadditional locations expand our local customer support and we believe,strengthen our business model.

Our focus remains on being well positioned for aresurgence of growth in our core orthopaedics business while capitalizing onour market leadership to diversify into additional medical device markets. Ouracquisition of Riley Medical is a key example of this strategy. Riley providedus with increased presence in the spine and endoscopy markets, as well asinternationally, and we see additional opportunities for growth.

During fiscal 2006, we sold our products and servicesto approximately 850 customers, including over 100 new customers. Our twolargest customers accounted for approximately 22.8% and 12.2% of our revenue infiscal 2006 and our two largest customers accounted for 33.2% and 13.6% of ourrevenue in fiscal 2005. Our ten largest customers collectively accounted forapproximately 70.8% and 78.8% of our revenue in fiscal 2006 and fiscal 2005,respectively. Within each of our largest customers, we typically serve severalproduct teams and facilities, which reduce our reliance on any singlepurchasing decision. Approximately 61.9%, 16.9%, 10.1% and 11.1% of our revenuein fiscal 2006 and approximately 65.1%, 12.3%, 12.5% and 10.1% of our revenuein fiscal 2005 was from sales to the United States, United Kingdom, Ireland andother foreign countries, respectively.

We believe that we have well-established relationshipswith our major customers and these relationships to a significant extentinvolve the sale of products that we have developed or modified specificallyfor our customers’ particular product lines. In connection with the launch of anew implant system, our customers typically provide a customizedimplant-specific instrument set in cases to end users (hospitals, outpatientcenters and physicians) for use with the new implant system. As a result, oursales of instruments and cases in any particular period are significantlyimpacted by the amount of new product launch activity by our customers.

Our revenue from the sale of implants, instruments,cases and other products and services represented 38.1%, 26.4%, 24.5%, and11.0% respectively, of our revenue in fiscal 2006, compared with 39.2%, 32.9%,21.0% and 6.9% respectively, of our revenue in fiscal 2005.

Our management reviews and analyzes trends and keyperformance indicators in order to manage our business. To assist us inevaluating our capacity, we monitor long-term trends in the orthopedicindustry, which currently include the growing elderly population, general agingof the population, affluent and active “baby boomers”, improving technologiesthat expand the market, including minimally invasive surgeries, and otherfactors. Further, we consider the information obtained from discussions withour customers on the upcoming demand for our products, including new productlaunches. We use this information to determine an appropriate level of capitalexpenditures to meet the anticipated demand for our products. In 2006, we addeda new 30,000 square foot Design and Development facility in Warsaw, IN, and webuilt a new 21,000 square foot forging facility and expanded press capacity inSheffield, UK. In addition, we moved our existing Villeneuve d’Ascq, Francecase facility to a newly-constructed, larger facility in Villeneuve d’Ascq,France and moved our Cheltenham, UK facility to a newer and larger leasedfacility.

On an ongoing basis, our management considers severalvariables associated with the ongoing operations of the business, includingscheduled production, utilization of machinery and equipment, 

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monitoring purchasingactivity and inventory levels and associated costs, headcount, overhead costs,and selling, general and administrative expenses.

Our revenues are affectedby 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 theeffects of changes in inventory management practices and new productintroductions by our customers.

**Results ofOperations**

Thetable below sets forth certain operating data expressed as a percentage ofrevenue for the periods indicated. Our historical results are not necessarilyindicative of the operating results that may be expected in the future.

| ** **                                     | ** ** | **Fiscal Year Ended** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Statement  of Operations Data:**             | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                        |       | 100.0                           | %          | 100.0 | % | 100.0 | % |
| Cost of Revenue                                |       | 74.3                            | %          | 70.2 | % | 70.6 | % |
| Gross Profit                                   |       | 25.7                            | %          | 29.8 | % | 29.4 | % |
| Selling, general,  and administrative expenses |       | 11.2                            | %          | 10.5 | % | 11.0 | % |
| Operating Income                               |       | 14.5                            | %          | 19.3 | % | 18.4 | % |
| Other (income)  expense:                       |       |                            |       |   |   |   |   |
| Interest expense                               |       | 1.8                             | %          | 1.1 | % | 6.7 | % |
| Loss on debt  extinguishment                   |       | —                          |       | — |   | 4.4 | % |
| Derivatives  valuation (gain)/loss             |       | 0.9                             | %          | (0.0 | )% | (0.7 | )% |
| Other                                          |       | (1.3                            | )%         | 0.7 | % | (0.4 | )% |
| Income before  income taxes                    |       | 13.1                            | %          | 17.5 | % | 8.4 | % |
| Income tax  expense                            |       | 3.5                             | %          | 5.5 | % | 2.7 | % |
| Net income                                     |       | 9.5                             | %          | 12.1 | % | 5.7 | % |

 

***Fiscal Year 2006 Compared to Fiscal Year 2005***

*Revenue.*   Revenuefor fiscal 2006 decreased $10.2 million, or 3.9%, to $253.6 million from $263.8 millionin fiscal 2005. Revenue for each of our principal product categories in theseperiods was as follows:

| ** **                | ** ** | **Fiscal Years Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| **Product Category** | ** ** | ** **                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                | ** ** | **(in millions)**           | ** ** |
| Implants                  |       | $                           | 96.5       |   | $ | 103.5 |   |
| Instruments               |       | 66.9                             |       | 86.7 |   |
| Cases                     |       | 62.2                             |       | 55.5 |   |
| Other                     |       | 28.0                             |       | 18.1 |   |
| Total                     |       | $                                | 253.6      |   | $ | 263.8 |   |
|                           |            |                                  |            |  |  |  |  |  |  |

 

The $10.2 million decrease in revenue resulted fromdecreased implant and instrument sales of $7.0 million and $19.8 million,respectively, offset by increased case and non-healthcare/other sales of $6.7 millionand $9.9 million, respectively. The decrease in implant revenue for fiscal2006 was primarily driven by overall reduced sales to our top five customersrelated to their efforts to reduce levels of implant inventory during 2006 anda reduction in demand from them for new product launches. These factors werepartially offset by the inclusion of approximately $2.5 million of implantrevenue from Everest Metal since the date of acquisition. The decrease ininstrument revenues for fiscal 2006 was primarily driven by overall 

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reduced sales to our topfive customers related to significant reductions in demand from them for newproduct launches coupled with their efforts to reduce levels of instrumentinventory during 2006. Case revenues increased $6.7 million for fiscal 2006primarily due to the inclusion of $14.5 million from Riley Medical since thedate of acquisition partially offset by a significant reduction in overallsales to our top five customers related to a significant reduction in demandfrom them for new product launches. Other revenue increased from growth inexisting operations driven by sales to the strong aerospace industry.

We estimate that global orthopedic device proceduresgrew at approximately 5% to 7% in 2006 and expect similar industry proceduregrowth in the near future. In 2006, our customers growth slowed from a robust2004 and 2005 time period. Our customers adjusted to this slower growth rate byusing inventory and reducing the purchases of instrument and case sets. Theoverall fundamentals continue to be positive in the global orthopedic industrywhich will continue to provide growth for our customers and us into the future.

*GrossProfit.*   Gross profit for fiscal2006 decreased $13.4 million, or 17.1%, to $65.1 million from $78.5 million infiscal 2005. This decrease in gross profit was primarily the result of the 3.9%decrease in sales combined with an increase from depreciation expense as aresult of capital expenditures for expansion during 2005 and an unfavorableshift in product mix resulting in lower sales of higher margin products. Thesefactors were partially offset by gross margins generated by Riley Medical andEverest Metal since their respective dates of acquisition. As a percentage ofrevenue, gross margin was 25.7% for the fiscal 2006 compared to 29.8% in fiscal2005. This decrease in gross margin was primarily driven by lower volumeresulting in the spreading of fixed costs such as depreciation over reducedsales. A significant component of our fixed costs relates to depreciationexpense, which due to our significant capital expenditures in 2006, 2005 and2004, increased $2.8 million for fiscal 2006 compared to fiscal 2005. Further,we experienced an unfavorable shift in product mix resulting in lower sales ofhigher margin products.

Due to the decreases in sales and margins, we executedsteps in the third and fourth quarters of fiscal 2006 to reduce costs whilemaintaining our ability to rapidly respond and benefit from improvements in themarket for our products. We believe these actions reduced annualized expensesby approximately $9.0 million and have appropriately addressed ourmanufacturing cost structure as we head into 2007.

*Selling,General and Administrative Expenses.*   Selling,general and administrative expenses in fiscal 2006 increased $0.9 million, or3.2%, to $28.4 million from $27.6 million in fiscal 2005. This increase wasprimarily driven by the inclusion $3.3 million of expenses related to RileyMedical and Everest Metal since their respective dates of acquisition. Theseexpenses include $0.7 million of amortization related to intangibles acquiredin these acquisitions. The increase in expenses from the acquisitions waspartially offset by cost control efforts including general insurance savingsand reductions in employee incentive compensation costs. As a percentage ofrevenue, selling, general and administrative expenses increased to 11.2% ofrevenue in fiscal 2006 from 10.5% in fiscal 2005. This 0.7% increase as apercentage of revenue was driven by the 3.9% decrease in sales.

*Other(Income) Expense.*   Interest expense for fiscal2006 increased $1.5 million, or 50.6%, to $4.4 million from $3.0 millionin fiscal 2005. This increase primarily reflects expense from the increase indebt incurred for the Riley Medical and Everest Metal acquisitions. Thederivatives loss in fiscal 2006 consisted of a $1.1 million loss on interestrate SWAP valuation and a $1.2 million loss on foreign currency forwardvaluations. The interest rate SWAPs are used to fix our variable rate long-termdebt. The foreign currency forwards are used to mitigate fluctuations inforeign currency on the statement of operations. The loss of the foreigncurrency valuation for fiscal 2006 offset unrealized gains on foreign currencywithin the Other expense of $2.2 million. Approximately $0.9 million of Otherexpense for fiscal 2005 was due to costs paid in connection with the secondarypublic offering completed in the third quarter of 2005.

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*Provision for IncomeTaxes.*   Our effective tax rate was 27.0% infiscal 2006 as compared to 31.2% in fiscal 2005. The decrease in rate wasmainly due to increased income from lower foreign taxing jurisdictions and newstate income tax credits realized in fiscal 2006. Reconciliation to the Federalstatutory rate of 35% is more fully described in Note 7 to our consolidatedfinancial statements that appear elsewhere in this Form 10-K. Wewould expect our effective tax rate to rise in 2007 due to reduced levels ofstate tax credits of approximately $0.3 million and our expectation of a higherpercentage of net income before tax being generated in jurisdictions withhigher tax rates.

***Fiscal Year 2005 Compared to Fiscal Year 2004***

*Revenue.*   Revenuefor fiscal 2005 increased $58.4 million, or 28.4%, to $263.8 million from$205.4 million in fiscal 2004. Revenue for each of our principal productcategories in these periods was as follows:

| ** **                | ** ** | **Fiscal Years Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| **Product Category** | ** ** | ** **                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                | ** ** | **(in millions)**           | ** ** |
| Implants                  |       | $                           | 103.5      |   | $ | 75.1 |   |
| Instruments               |       | 86.7                             |       | 67.7 |   |
| Cases                     |       | 55.5                             |       | 47.3 |   |
| Other                     |       | 18.1                             |       | 15.3 |   |
| Total                     |       | $                                | 263.8      |   | $ | 205.4 |   |
|                           |            |                                  |            |  |  |  |  |  |  |

 

The$58.4 million increase in revenue resulted from increased implant, instrument,case, and non-healthcare/other sales of $28.4 million, $19.0 million, $8.2million, and $2.8 million, respectively, as a result of increased demand fromcustomers due primarily to continued industry growth and their launches of newsystems. We estimate that global orthopedic device procedures grew atapproximately 7% to 9% in 2005 and expect similar industry procedure growth inthe near future. In addition to industry growth, our Total Solutions® model, new product offerings and increasedimplant finishing operations contributed to the increase in revenue.

*GrossProfit.*   Gross profit for fiscal 2005 increased$18.2 million, or 30.2%, to $78.5 million from $60.3 million in fiscal 2004.This increase in gross profit resulted from a slightly higher gross margin rateon significantly higher revenues. As a percentage of revenue, gross margin was29.8% for the fiscal 2005 compared to 29.4% in fiscal 2004. This slightincrease in gross margin was primarily driven by controlled fixed costs, whichgenerated volume leverage.

*Selling,General and Administrative Expenses.*   Selling,general and administrative expenses in fiscal 2005 increased $5.0 million, or22.2%, to $27.6 million from $22.6 million in fiscal 2004. However, as apercentage of revenue, selling, general and administrative expenses declined to10.5% of revenue in fiscal 2005 from 11.0% in fiscal 2004 despite increasesrelated to Sarbanes-Oxley compliance and income tax consulting services. This0.5% decrease as a percentage of revenue was driven by the 28.4% increase inrevenue, which outpaced the rise in expenses of 22.2%. We expect an approximate$0.5 million reduction in total Sarbanes-Oxley compliance expenses in fiscal2006 compared to fiscal 2005 as the initial implementation is now complete;however, we expect an increase related to stock-based compensation expense, whichincludes the impact of implementing FASB Statement No. 123(R).

*Other(Income) Expense.*   Interest expense for fiscal2005 decreased $10.8 million, or 78.5%, to $3.0 million from $13.8 millionin fiscal 2004. This decrease primarily reflects the decrease in senior andsubordinated debt that resulted from the proceeds of our initial public offeringof our common stock in the fourth quarter of fiscal 2004. The $9.0 million losson debt extinguishment incurred in the fourth quarter of fiscal 2004 was alsodue to the debt reduction as part of this initial public offering.Approximately 

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$0.9 million of Otherexpense for fiscal 2005 was due to costs paid in connection with the secondarypublic offering completed in the third quarter of 2005.

*Provision for IncomeTaxes.*   Our effective tax rate was 31.2% infiscal 2005 as compared to 32.1% in fiscal 2004. The decrease in rate wasmainly due to research and development credits and the new qualified productionactivities deduction. Reconciliation to the Federal statutory rate of 35% ismore fully described in Note 7 to our consolidated financial statements thatappear elsewhere in this Form 10-K. We would expect the rate to risein 2006 because $1.3 million of the research and development credits taken in2005 relate to amendments of prior year returns.

**Liquidity andCapital Resources**

Our principal sources ofcash in fiscal 2006 were cash generated from operations and borrowings underour revolving credit and term debt facility. Principal uses of cash in fiscal2006 included the financing of working capital, capital expenditures,acquisitions of Riley Medical and Everest Metal and debt service. We expectthat our principal uses of cash in the future will be for the financing ofworking capital, acquisitions and capital expenditures as well as to servicedebt.

***Cash Flows***

Thefollowing table summarizes our primary sources of cash in the periodspresented:

| ** **                                            | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                            | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                            | ** ** | **(in millions)**          | ** ** |
| Cash Flow  Provided by (used in):                     |       |                            |       |   |   |   |   |
| Operating  activities                                 |       | $                               | 32.2       |   | 42.7 |   | $ | 25.3 |   |
| Investing  activities                                 |       | (73.2                           | )          | (37.5 | ) | (19.9 | ) |
| Financing  activities                                 |       | 39.0                            |       | 2.7 |   | (3.1 | ) |
| Effect of  exchange rates on changes in cash          |       | 1.2                             |       | (0.3 | ) | 0.2 |   |
| Net increase (decrease)  in cash and cash equivalents |       | $                               | (0.8       | ) | $ | 7.6 |   | $ | 2.5 |   |
|                                                       |            |                                 |            |  |  |  |  |  |  |  |

 

*OperatingActivities.*   We generated cash from operations of$32.2 million in fiscal 2006 compared to $42.7 million in fiscal 2005. Thisdecrease is primarily the result of a $10.4 million decrease in net incomeadjusted for non-cash items and increases in net working capital in fiscal 2006that exceeded fiscal 2005. Net income adjusted for non-cash items decreasedprimarily due the decrease in net income. Working capital utilized $0.3 millionof additional cash in 2006 compared to 2005 primarily due to accounts payableand accrued liabilities utilizing $9.8 million of cash in 2006 compared toproviding $6.0 million of cash in 2005. This change was driven by reducedexpenditures in line with decreased production levels and reduced accruals relatedto employee incentive compensation. The additional use of cash for liabilitieswas partially offset by a reduction in cash used by accounts receivable andinventory. The 2006 increase in inventory was mainly due to higher titaniumprices and increased material levels due to long lead times in the titaniumindustry and an increase in our finished goods inventory.

*InvestingActivities.*   Net cash used in investingactivities was $73.2 million for fiscal 2006 compared to $37.5 million infiscal 2005. Our investing activities in fiscal 2006 consist of capitalexpenditures of $20.6 million and acquisitions of Riley Medical andEverest Metal. These expenditures were partially offset by the sale of excessland in the United Kingdom of $2.4 million. Investing activities in fiscal 2005consist entirely of capital expenditures.

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*FinancingActivities.*   Financing activities provided $39.0million of cash in fiscal 2006. This increase in cash is primarily due to thelong term debt proceeds of $40.0 million used to finance the Riley Medicalacquisition. In July 2005, we completed a secondary offering, whichincluded 11.0 million shares. 0.5 million were sold as primary shares and10.5 million shares were sold by certain selling shareholders. These shareswere sold at a net price of $22.25 and generated gross proceeds ofapproximately $11.1 million, which were used to reduce revolving debt inthe United Kingdom and for general corporate purposes. Financing activitiesused $3.1 million of cash in fiscal 2004. The fiscal 2004 amount was dueprimarily to cash generated by the initial public offering of our common stock,which included the issuance of 9.2 million shares of our common stockresulting in gross proceeds to us of $138.0 million. The per share price of ourcommon stock sold in our initial public offering, before underwriting discountsand commissions, was $15.00. The proceeds were used to (i) fund therepurchase of 18,361 shares of Class A Convertible Preferred Stock andwarrants to purchase 639 shares of Class A Convertible Preferred Stock foran aggregate price of approximately $23.3 million, (ii) repay all of ourexisting subordinated indebtedness in an amount of $36.0 million and(iii) repay $58.0 million, net of additional borrowings, of our existingsenior indebtedness.

***Capital Expenditures******  ******Capital expenditures totaled $20.6million in fiscal 2006, compared to $37.5 million in fiscal 2005 and $19.9million in fiscal 2004, and were primarily used to expand and enhanceproduction capacity in several of our facilities. In 2006, we added a new30,000 square foot Design and Development facility in Warsaw, IN, and we builta new 21,000 square foot forging facility and expanded press capacity inSheffield, UK. In addition, we moved our existing Villeneuve d’Ascq, Francecase facility to a newly-constructed, larger facility in Villeneuve d’Ascq,France and moved our Cheltenham, UK facility to a newer and larger leasedfacility. We expect capital expenditures for fiscal 2007 to total approximately$20.0 million.***

***Debt and Credit Facilities***

In connection withour initial public offering in the fourth quarter of fiscal 2004, we enteredinto a $75.0 million senior secured credit facility, consisting of a $35.0million five-year term loan and a $40.0 million five-year revolving creditfacility. Soon after our acquisition of Riley Medical in the second quarter of2006, we amended and restated this credit facility to increase our term loansby $40 million and extended the revolving credit facility to June 2011. Asof December 30, 2006, we had an aggregate of approximately $77.8 millionof outstanding indebtedness, which consisted of the following:

·       Anaggregate of $69.2 million of borrowings under our senior credit facility; and

·       $8.6million of capital lease obligations.

Borrowings under this senior credit facility bearinterest at a floating rate, which is either a base rate, or at our option, aLIBOR rate, plus an applicable margin. As of December 30, 2006, anaggregate of $64.2 million was outstanding under the term loans at aweighted average interest rate of 6.625%. As of December 30, 2006, we had$5.0 million borrowings outstanding under the revolving credit facility. We hadno outstanding letters of credit as of December 30, 2006.

Historically, we have had a significant amount ofvariable rate long-term indebtedness. We have managed our exposure to changesin interest rates by entering into interest rate swap agreements. Theseagreements do not qualify for hedge accounting under the applicable accountingguidelines and, as a result, we are required to record changes to the fairmarket value of these agreements in our statement of operations for eachperiod. We recorded interest rate swap valuation expense (income) of $1.1million, $(0.1) million and $(1.5) million for fiscal 2006, fiscal 2005 andfiscal 2004, respectively. For additional information regarding our interestrate swap agreements, see “Quantitative and Qualitative Disclosures aboutMarket Risks—Interest Rate Risk.”

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The term loans require quarterly payments of scheduledprincipal and interest, with annual scheduled principal payments increasingeach year. Term loan A matures in December 2009. The new term loan A1 andborrowings under the revolving credit facility mature in June 2011. Thesenior credit agreement contains various financial covenants, includingcovenants requiring a maximum total debt to EBITDA ratio, minimum EBITDA tointerest ratio and a minimum EBITDA to fixed charges ratio. The senior creditagreement also contains covenants restricting certain corporate actions,including asset dispositions, acquisitions, paying dividends and certain otherrestricted payments, changes of control, incurring indebtedness, incurringliens, making loans and investments and transactions with affiliates. Thesenior credit facility is secured by substantially all of our assets. Oursenior credit agreement also contains customary events of default. We were incompliance with our financial and restrictive covenants under the senior creditfacility at the end of fiscal 2006.

We hold certain property and equipment pursuant tocapital leases. As of December 30, 2006, these leases have future minimumlease payments of $3.7 million, $2.7 million, $1.4 million, $0.8 million and$0.8 million in each of the next 5 fiscal years and $3.8 millionthereafter.

We believe that cash flow from operating activitiesand borrowings under our senior credit facility will be sufficient to fundcurrently anticipated working capital, planned capital spending and debtservice requirements for the foreseeable future, including at least the nexttwelve months. We regularly review acquisitions and other strategicopportunities, which may require additional debt or equity financing. On January 9,2007, Symmetry acquired Clamonta Ltd, a leading supplier of precision productsto the global aerospace industry based in Warwickshire, United Kingdom. Thetransaction expands Symmetry’s aerospace offering and product expertise,providing a more complete Total Solutions® offering to major aerospace customers.

**ContractualObligations and Commercial Commitments**

Thefollowing table reflects our contractual obligations as of December 30,2006:

| ** **                     | ** ** | **Payments due by period** | ** ** |
|--------------------------------|------------|-------------------------------------------|------------|
| ** **                     | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                     | ** ** | **(in million)**                     | ** ** |
| Long-term debt  obligations(1) |       | $                                         | 69.2       |   |   | $ | 5.6 |   |   |   | $ | 20.0 |   |   |   | $ | 43.6 |   |   |   | $ | — |   |   |
| Capital lease  obligations     |       | 13.1                                      |       |   | 3.6 |   |   |   | 4.1 |   |   |   | 1.6 |   |   |   | 3.8 |   |   |
| Operating lease  obligations   |       | 4.7                                       |       |   | 1.4 |   |   |   | 2.0 |   |   |   | 1.3 |   |   |   | — |   |   |
| Purchase  obligations(2)       |       | 34.0                                      |       |   | 13.0 |   |   |   | 10.5 |   |   |   | 10.5 |   |   |   | — |   |   |
| Total                          |       | $                                         | 121.0      |   |   | $ | 23.6 |   |   |   | $ | 36.6 |   |   |   | $ | 57.0 |   |   |   | $ | 3.8 |   |   |

----

(1)          Represents principalmaturities only and, therefore, excludes the effects of interest and interestrate swaps. We have prepaid $2.1 million in term debt as of December 30,2006.

(2)          Represents purchaseagreements to buy minimum quantities of titanium and cobalt chrome through December 2007.Also represents a purchase agreement to buy Radel® R,a specialized plastic used in cases, through December 2011.

**Off-Balance SheetArrangements**

Our off-balance sheetarrangements include our operating leases and letters of credit, which areavailable under the senior credit facility. We had no letters of creditoutstanding as of December 30, 2006.

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**Environmental**

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

We incurred approximately $0.2 million and $0.6million in capital expenditures for environmental, health and safety in 2006and 2005, respectively. During 2005 we replaced a furnace at our Sheffield, UKfacility and replaced dust collectors at our Lansing, MI facility.Environmental laws tend to become more stringent over time, and we could incur materialexpenses in the future relating to compliance with future environmental laws.Our Sheffield, UK facility is now required to obtain an Integrated PollutionPrevention Control (IPPC) permit. An application for this permit has beensubmitted and we do not expect to make material capital expenditures to obtainor comply with the IPPC permit.

In connection with our acquisitions of Riley Medicaland Everest Metal, we completed Phase I assessments and did not find anysignificant issues that need to be remediated. We cannot be certain thanenvironmental issues may be discovered or arise in the future related to theseacquisitions.

In 2000, we purchased pollution legal liabilityinsurance that covers certain environmental liabilities that may arise at our Warsaw,IN facility, at a former facility located in Peru, IN, and at certain non-ownedlocations that we use for the disposal of wastes. The insurance has a $5.0million aggregate limit and is subject to a deductible and certain exclusions.The policy period expires in 2010. While the insurance may mitigate the risk ofcertain environmental liabilities, we cannot guarantee that a particularliability will be covered by this insurance.

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

**Critical AccountingPolicies and Estimates**

Our discussion andanalysis of results of operations and financial condition are based upon ouraudited consolidated financial statements. These audited financial statementshave been prepared in accordance with US generally accepted accountingprinciples. The preparation of these financial statements requires us to makeestimates and judgments that affect the amounts reported in those financialstatements. On an ongoing basis, we evaluate estimates. We base our estimateson historical experiences and assumptions believed to be reasonable under thecircumstances. Those estimates form the basis for our judgments that affect theamounts reported in the financial statements. Actual results could differ fromour estimates under different assumptions or conditions. Our significantaccounting policies, which may be affected by our estimates and assumptions,are more fully described in Note 2 to our consolidated financial statements thatappear elsewhere in this Form 10-K.

***Revenue Recognition***

We recognize revenue inaccordance with Staff Accounting Bulletin No. 101, as amended by StaffAccounting Bulletin No. 104, on orders received from customers when thereis persuasive evidence of an 

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arrangementwith the customer that is supportive of revenue recognition, the customer hasmade a fixed commitment to purchase the product for a fixed or determinablesales price, collection is reasonably assured under our normal billing andcredit terms, and ownership and all risks of loss have been transferred to thebuyer, which is normally upon shipment.

***Inventory***

Inventories are stated atthe lower of cost (first-in, first-out) or market (net realizable value). Costsinclude material, labor and manufacturing overhead costs. We review ourinventory balances monthly for excess products or obsolete inventory levels andwrite down, if necessary, the inventory to net realizable value.

***Business Combinations, Goodwill and Intangible Assets***

In July 2001, the Financial Accounting StandardsBoard, or “FASB,” issued SFAS No. 141,*Business Combinations*, and SFAS No. 142,*Goodwill and Intangible Assets*. SFAS No. 141requires all business combinations initiated after June 30, 2001 to beaccounted for using the purchase method of accounting. 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 willcontinue to be amortized over their useful lives. The amortization provisionsof SFAS No. 142 apply to goodwill and intangible assets acquired after June 30,2001.

We perform impairmenttests annually and whenever events or circumstances occur indicating thatgoodwill or other intangible assets might be impaired. Examples of such eventsor circumstances include, but are not limited to, a significant adverse changein legal or business climate or an adverse regulatory action. We recorded noimpairments as a result of SFAS 142 during 2006, 2005 or 2004.

***Environmental Liability***

Governmental regulations relating to the discharge ofmaterials into the environment, or otherwise relating to the protection of theenvironment, have had, and will continue to have, an effect on our operationsand us. We have made and continue to make expenditures for projects relating tothe protection of the environment.

Any loss contingencieswith respect to environmental matters are recorded as liabilities in the consolidatedfinancial statements when it is both (1) probable or known that aliability has been incurred and (2) the amount of the loss is reasonablyestimable, in accordance with Financial Accounting Standards Statement No. 5,“*Accounting for Contingencies.*”If the reasonable estimate of the loss is a range and no amount within therange is a better estimate, the minimum amount of the range is recorded as aliability. If a loss contingency is not probable or not reasonably estimable, aliability is not recorded in the consolidated financial statements. In theopinion of our management, there are no known environmental matters that areexpected to have a material impact on our consolidated balance sheet or resultsof operations; however, the outcome of such matters are not within our controland are subject to inherent uncertainty.

**New AccountingPronouncements**

In November 2004, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting (SFAS) No. 151,Inventory Costs—an amendment of Accounting Research Bulletin (ARB) No. 43,Chapter 4. The Statement clarifies that abnormal amounts of idle facilityexpense, freight, handling costs and wasted materials should be recognized ascurrent-period expenses regardless of how abnormal the circumstances. Inaddition, this Statement requires that the allocation of fixed overheads to thecosts of conversion be based upon normal production capacity levels. TheStatement is effective for inventory costs 

42

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incurred during fiscalyears beginning after June 15, 2005. This Statement did not have amaterial effect on the Corporation’s financial position, results of operationsor cash flows.

In July 2006, the FASB issued FASB InterpretationNo. (FIN) 48,*Accounting forUncertainty in Income Taxes—an interpretation of FASB Statement No. 109*,which clarifies the accounting for uncertainty in tax positions. ThisInterpretation requires the recognition of a tax position when it is morelikely than not that the tax position will be sustained upon examination byrelevant taxing authorities, based on the technical merits of the position. Theprovisions of FIN 48 are effective for the Company on January 1, 2007,with the cumulative effect of the change in accounting principle recorded as anadjustment to opening retained earnings. This Statement will not have amaterial effect on the Corporation’s financial position, results of operationsor cash flows.

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

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

***Interest Rate Risk***

We are exposed to market risk from fluctuations ininterest rates. We manage our interest rate risk by balancing the amount of ourfixed 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 andinterest rate risk. For fixed rate debt, interest rate changes affect the fairmarket value of such debt but do not impact earnings or cash flows. Converselyfor variable rate debt, interest rate changes generally do not affect the fairmarket value of such debt, but do impact future earnings and cash flows,assuming other factors are held constant. At December 30, 2006, we hadapproximately $73.4 million of variable rate debt. The weighted averageinterest rate for this debt in 2006 was 6.97%. Holding other variables constant(such as foreign exchange rates and debt levels), a one percentage point changein interest rates would be expected to have an impact on pre-tax earnings andcash flows for the next year of approximately $0.7 million, before givingeffect to the interest rate swap agreements described below.

In 2000, we entered into an interest rate swapagreement that effectively converted $19.0 million of a portion of our variablerate term loans into a fixed rate obligation for the five-year periodcommencing October 24, 2000. We receive payments at variable rates, whilethe swap agreement counterparty makes payments at a fixed rate (6.25% at October 2,2004). This agreement was terminated effective December 13, 2004 inconjunction with our initial public offering and reduced debt levels. In 2003,we entered into a second interest rate swap agreement that effectivelyconverted $71.0 million of a portion of our variable rate term loans into afixed rate obligation for an approximately three-year period ending June 30,2006. We receive payments at variable rates, while we make payments at a fixedrate (2.285% at December 31, 2005). Effective December 13, 2004, thisagreement was reduced in size from $71.0 million to $35.0 million inconjunction with our initial public offering and reduced debt levels. The netcost to change these agreements was $0.3 million.

Effective December 2004,we entered into an interest rate swap agreement to hedge $15.0 million ofoutstanding long-term debt at a fixed payment obligation of 3.98% per annum forthe period commencing on June 30, 2006 and ending on December 31,2007. When we borrowed $40.0 million to acquire Riley Medical May 2006, wesubsequently entered into an interest rate swap agreement to economically hedgethe $40.0 million of debt at a fixed payment obligation of 5.45% per annum forthe period commencing on July 3, 2006 and ending on June 10, 2011.

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***Foreign Currency Risk***

As a global company with operations in the UnitedKingdom, France, Switzerland, Ireland and Malaysia, we experienced a positiveimpact from foreign exchange in fiscal 2006. As a result of the fluctuation inrates, our revenue increased for the fourth quarter 2006 by $2.0 millionand for the total year 2006 by $1.1 million. The impact of rates alsoincreased net income by $0.3 million in the fourth quarter and for thetotal year 2006 by $0.2 million.

Foreign currency risk is the risk that we will incureconomic losses due to adverse changes in foreign currency exchange rates. As aresult of the acquisitions, we have significant operations in the UnitedKingdom. Consequently, a significant portion of our operating results aregenerated in currencies other than the US dollar, principally the poundsterling and euro. Our operating results are therefore impacted by exchangerate fluctuations to the extent we are unable to match revenue received in suchcurrencies with costs incurred in such currencies. We entered into foreigncurrency forward contracts to mitigate fluctuations in foreign currency on thestatement of operations. The loss of the foreign currency valuation of $1.2million for 2006 offset net gains on foreign currency within the Other expenseof $2.2 million. As of December 30, 2006, we had entered into threecontracts for the sale of $5.0 million of British pounds each with settlementdates no later than January 17, 2007, May 2, 2007 and May 11,2007, for each of the three contracts, respectively. One contract for $5.0million expired in January 2007; however, we entered into two newcontracts for the sale of $5.0 million of British pounds each with settlementdates no later than January 18, 2008.

Our primary exposures toforeign currency exchange fluctuations are pound sterling/US dollar and euro/USdollar. At December 30, 2006, the potential reduction in earnings from ahypothetical instantaneous 10.0% increase or decrease in quoted foreigncurrency spot rates applied to foreign currency sensitive instruments would beapproximately $0.3 million, net of tax. This foreign currency sensitivity modelis limited by the assumption that all of the foreign currencies to which we areexposed would simultaneously decrease by 10.0% because such synchronized changesare unlikely to occur.

***Commodity Price Risk***

We are exposed tofluctuations in commodity prices through the purchase of raw materials that areprocessed from commodities, such as titanium, stainless steel, cobalt chromeand aluminum. Given the historical volatility of certain commodity prices, thisexposure can impact product costs. Because we typically do not set prices forour products in advance of our commodity purchases, we can take into accountthe cost of the commodity in setting our prices for each order. However, to theextent that we are unable to offset the increased commodity costs in ourproduct prices, our results would be affected. A hypothetical instantaneous10.0% change in commodity prices would have an immaterial impact on our resultsof operations in fiscal 2006. In addition, we have entered into a longer termpurchase contracts for titanium and cobalt chrome that will aid in guaranteeingour supply of that particular commodity.

***Effects of Inflation***

Inflation potentially affects us in two principalways. First, a significant portion of our debt is tied to prevailing short-terminterest rates that may change as a result of inflation rates, translating intochanges in interest expense. We have historically reduced our exposure tointerest rate risk through interest rate swap agreements. Second, generalinflation can impact material purchases, labor and other costs. In many cases,we have limited ability to pass through inflation-related cost increases due tothe competitive nature of the markets that we serve. In the past few years,however, inflation has not been a significant factor.

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**ITEM 8.   FINANCIALSTATEMENTS**
|                                                                        | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------|
| CONSOLIDATED FINANCIAL STATEMENTS:                                     |       |       |
| Consolidated  Balance Sheets                                           |       | 46         |
| Consolidated  Statements of Operations                                 |       | 47         |
| Consolidated  Statements of Shareholders’ Equity                  |       | 48         |
| Consolidated  Statements of Cash Flows                                 |       | 49         |
| Notes to  Consolidated Financial Statements                            |       | 50         |
| Report of  Independent Registered Public Accounting Firm               |       | 70         |
| REPORTS ON  INTERNAL CONTROL OVER FINANCIAL REPORTING:                 |       |       |
| Management’s Report  on Internal Control Over Financial Reporting |       | 71         |
| Report of  Independent Registered Public Accounting Firm               |       | 72         |

 

All schedules have been omitted because they are notrequired or applicable or the information is included in the consolidatedfinancial statements or notes thereto.

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**Symmetry MedicalInc.Consolidated Balance Sheets**

| ** **                                                                                                                                        | ** ** | **December 30,**                                              | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                        | ** ** | **2006**                                                           | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                        | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| **Assets:**                                                                                                                                       | ** ** |                                                               | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Current Assets:                                                                                                                                   |       |                                                               |       | ** **            |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                        |       |                                                               | $          | 11,721                | ** ** |   |   | $ | 12,471 |   |   |
| Accounts  receivables, net                                                                                                                        |       |                                                               | 47,506     | ** **            |       |   | 44,908 |   |   |
| Inventories                                                                                                                                       |       |                                                               | 47,392     | ** **            |       |   | 38,783 |   |   |
| Refundable income  taxes                                                                                                                          |       |                                                               | 111        | ** **            |       |   | 185 |   |   |
| Deferred income  taxes                                                                                                                            |       |                                                               | 2,826      | ** **            |       |   | 1,867 |   |   |
| Derivative  valuation asset                                                                                                                       |       |                                                               | —     | ** **            |       |   | 414 |   |   |
| Other current  assets                                                                                                                             |       |                                                               | 3,965      | ** **            |       |   | 4,032 |   |   |
| Total current  assets                                                                                                                             |       |                                                               | 113,521    | ** **            |       |   | 102,660 |   |   |
| Property and  equipment, net                                                                                                                      |       |                                                               | 106,147    | ** **            |       |   | 93,106 |   |   |
| Derivative  valuation asset                                                                                                                       |       |                                                               | —     | ** **            |       |   | 170 |   |   |
| Goodwill                                                                                                                                          |       |                                                               | 156,241    | ** **            |       |   | 124,518 |   |   |
| Intangible  assets, net of accumulated amortization                                                                                               |       |                                                               | 33,257     | ** **            |       |   | 16,327 |   |   |
| Other assets                                                                                                                                      |       |                                                               | 981        | ** **            |       |   | 864 |   |   |
| Total Assets                                                                                                                                      |       |                                                               | $          | 410,147               | ** ** |   |   | $ | 337,645 |   |   |
| **Liabilities  and Shareholders’ Equity:**                                                                                                   | ** ** |                                                               | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Current Liabilities:                                                                                                                              |       |                                                               |       | ** **            |       |   |   |   |   |
| Accounts payable                                                                                                                                  |       |                                                               | $          | 14,860                | ** ** |   |   | $ | 18,983 |   |   |
| Accrued wages and  benefits                                                                                                                       |       |                                                               | 7,816      | ** **            |       |   | 10,997 |   |   |
| Other accrued  expenses                                                                                                                           |       |                                                               | 4,104      | ** **            |       |   | 2,696 |   |   |
| Income tax  payable                                                                                                                               |       |                                                               | 850        | ** **            |       |   | 1,241 |   |   |
| Derivative  valuation liability                                                                                                                   |       |                                                               | 1,184      | ** **            |       |   | — |   |   |
| Deferred income  taxes                                                                                                                            |       |                                                               | 249        | ** **            |       |   | — |   |   |
| Current portion  of capital lease obligations                                                                                                     |       |                                                               | 3,500      | ** **            |       |   | 3,239 |   |   |
| Current portion  of long-term debt                                                                                                                |       |                                                               | 5,550      | ** **            |       |   | 1,313 |   |   |
| Total current  liabilities                                                                                                                        |       |                                                               | 38,113     | ** **            |       |   | 38,469 |   |   |
| Deferred income  taxes                                                                                                                            |       |                                                               | 11,832     | ** **            |       |   | 11,139 |   |   |
| Derivative  valuation liability                                                                                                                   |       |                                                               | 549        | ** **            |       |   | — |   |   |
| Capital lease  obligations, less current portion                                                                                                  |       |                                                               | 5,142      | ** **            |       |   | 8,532 |   |   |
| Long-term debt,  less current portion                                                                                                             |       |                                                               | 63,650     | ** **            |       |   | 26,250 |   |   |
| Total Liabilities                                                                                                                                 |       |                                                               | 119,286    | ** **            |       |   | 84,390 |   |   |
| Commitments and  contingencies (Note 15)                                                                                                          |       |                                                               | —     | ** **            |       |   | — |   |   |
| Shareholders’ Equity:                                                                                                                        |       |                                                               |       | ** **            |       |   |   |   |   |
| Common Stock,  $.0001 par value; 72,410 shares authorized; shares issued December 30,  2006—35,107; December 31, 2005—34,704) |       |                                                               | 4          | ** **            |       |   | 3 |   |   |
| Additional  paid-in capital                                                                                                                       |       |                                                               | 271,388    | ** **            |       |   | 268,973 |   |   |
| Retained earnings  (deficit)                                                                                                                      |       |                                                               | 6,771      | ** **            |       |   | (17,378 | ) |   |
| Accumulated other  comprehensive income                                                                                                           |       |                                                               | 12,698     | ** **            |       |   | 1,657 |   |   |
| Total  Shareholders’ Equity                                                                                                                  |       |                                                               | 290,861    | ** **            |       |   | 253,255 |   |   |
| Total Liabilities and  Shareholders’ Equity                                                                                                  |       |                                                               | $          | 410,147               | ** ** |   |   | $ | 337,645 |   |   |

 

See accompanying notes to consolidated financial statements.

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**Symmetry MedicalInc.Consolidated Statements of Operations**

| ** **                                                         | ** ** | **Years Ended**                           | ** ** |                        |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------|
| ** **                                                         | ** ** | **December 30,   2006**         | ** ** | **December 31,  2005** | ** ** | **January 1,   2005** | ** ** |   |
| ** **                                                         | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |                        |
| Revenue                                                            |       |                                      | $          | 253,569                     |   |   |   | $ | 263,766 |   |   |   | $ | 205,391 |   |   |   |
| Cost of Revenue                                                    |       |                                      | 188,467    |                        |   |   | 185,227 |   |   |   | 145,081 |   |   |   |
| Gross Profit                                                       |       |                                      | 65,102     |                        |   |   | 78,539 |   |   |   | 60,310 |   |   |   |
| Selling, general,  and administrative expenses                     |       |                                      | 28,440     |                        |   |   | 27,570 |   |   |   | 22,569 |   |   |   |
| Operating Income                                                   |       |                                      | 36,662     |                        |   |   | 50,969 |   |   |   | 37,741 |   |   |   |
| Other (income) expense:                                            |       |                                      |       |                        |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                   |       |                                      | 4,448      |                        |   |   | 2,954 |   |   |   | 13,757 |   |   |   |
| Loss on debt  extinguishment                                       |       |                                      | —     |                        |   |   | — |   |   |   | 8,956 |   |   |   |
| Derivatives  valuation (gain)/loss                                 |       |                                      | 2,317      |                        |   |   | (98 | ) |   |   | (1,451 | ) |   |   |
| Other                                                              |       |                                      | (3,201     | )                           |   |   | 1,872 |   |   |   | (740 | ) |   |   |
| Income before  income taxes                                        |       |                                      | 33,098     |                        |   |   | 46,241 |   |   |   | 17,219 |   |   |   |
| Income tax  expense                                                |       |                                      | 8,949      |                        |   |   | 14,441 |   |   |   | 5,524 |   |   |   |
| Net income (loss)                                                  |       |                                      | 24,149     |                        |   |   | 31,800 |   |   |   | 11,695 |   |   |   |
| Preferred stock  dividends                                         |       |                                      | —     |                        |   |   | — |   |   |   | (8,977 | ) |   |   |
| Net income  applicable to common shareholders                      |       |                                      | $          | 24,149                      |   |   |   | $ | 31,800 |   |   |   | $ | 2,718 |   |   |   |
| Net income applicable to  common shareholders per share:           |       |                                      |       |                        |   |   |   |   |   |   |   |   |   |   |
| Basic                                                              |       |                                      | $          | 0.69                        |   |   |   | $ | 0.94 |   |   |   | $ | 0.16 |   |   |   |
| Diluted                                                            |       |                                      | $          | 0.69                        |   |   |   | $ | 0.92 |   |   |   | $ | 0.15 |   |   |   |
| Weighted average common  shares and equivalent shares outstanding: |       |                                      |       |                        |   |   |   |   |   |   |   |   |   |   |
| Basic                                                              |       |                                      | 34,829     |                        |   |   | 33,841 |   |   |   | 16,905 |   |   |   |
| Diluted                                                            |       |                                      | 35,156     |                        |   |   | 34,670 |   |   |   | 17,767 |   |   |   |

 

See accompanying notes to consolidated financial statements.

47

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**Symmetry MedicalInc.Consolidated Statements of Shareholders’ Equity**

| ** **                                                               | ** ** | **Ckass A  Convertible  Preferred  Stock** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings  (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Income  (Loss)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------|------------|-----------|------------|
| Balance at  January 3, 2004                                         |       |                                            | $          | 115,831           |       |                             |       | $                                 | 2          |                                                  |       |      | $          | 31,594 |   |   |   | $ | (51,896 | ) |   |   | $ | 4,859 |   |   | $ | 100,390 |   |
| Comprehensive  income:                                                   |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                               |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   | 11,695 |   |   |   |   |   |   | 11,695 |   |
| Other  comprehensive income—foreign currency translation adjustment |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   | 4,952 |   |   | 4,952 |   |
| Comprehensive  income                                                    |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   |   |   |   | 16,647 |   |
| Amortization of  unearned compensation cost                              |       |                                            |       |              |       |                             |       |                              |       |                                                  | 57         |      |       |   |   |   |   |   |   |   |   | 57 |   |
| Redemption of  Preferred Stock—Class A warrants                |       |                                            | 720        |              |       |                             | —     |                              |       |                                                  | (720       | )         |       |   |   |   |   |   |   |   |   | — |   |
| Repurchase of  stock                                                     |       |                                            | (23,332    | )                 |       |                             | —     |                              |       |                                                  |       |      |       |   |   |   |   |   |   |   |   | (23,332 | ) |
| Sale of stock, net  of expenses                                          |       |                                            |       |              |       |                             | 1          |                              |       |                                                  | 122,382    |      |       |   |   |   |   |   |   |   |   | 122,383 |   |
| Preferred Stock  dividends                                               |       |                                            | 8,977      |              |       |                             |       |                              |       |                                                  |       |      |       |   | (8,977 | ) |   |   |   |   |   | — |   |
| Conversion of  Preferred Stock—Class A to Common Stock         |       |                                            | (102,196   | )                 |       |                             | —     |                              |       |                                                  | 102,196    |      |       |   |   |   |   |   |   |   |   | — |   |
| Balance at  January 1, 2005                                         |       |                                            | —     |              |       |                             | 3          |                              |       |                                                  | 255,509    |      |       |   | (49,178 | ) |   |   | 9,811 |   |   | 216,145 |   |
| Comprehensive  income:                                                   |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                               |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   | 31,800 |   |   |   |   |   |   | 31,800 |   |
| Other  comprehensive income—foreign currency translation adjustment |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   | (8,154 | ) |   | (8,154 | ) |
| Comprehensive  income                                                    |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   |   |   |   | 23,646 |   |
| Sale of stock, net  of expenses                                          |       |                                            |       |              |       |                             | —     |                              |       |                                                  | 10,500     |      |       |   |   |   |   |   |   |   |   | 10,500 |   |
| Exercise of Common  Stock warrants                                       |       |                                            |       |              |       |                             | —     |                              |       |                                                  | —     |      |       |   |   |   |   |   |   |   |   | — |   |
| Exercise of Common  Stock options                                        |       |                                            |       |              |       |                             | —     |                              |       |                                                  | 1,978      |      |       |   |   |   |   |   |   |   |   | 1,978 |   |
| Issuance of Common  Stock—Restricted Stock                          |       |                                            |       |              |       |                             | —     |                              |       |                                                  | —     |      |       |   |   |   |   |   |   |   |   | — |   |
| Issuance of Common  Stock—Equity Incentive Plan                     |       |                                            |       |              |       |                             | —     |                              |       |                                                  | —     |      |       |   |   |   |   |   |   |   |   | — |   |
| Amortization of  unearned compensation cost                              |       |                                            |       |              |       |                             |       |                              |       |                                                  | 152        |      |       |   |   |   |   |   |   |   |   | 152 |   |
| Issuance of Common  Stock—Employee Stock Purchase Plan              |       |                                            |       |              |       |                             | —     |                              |       |                                                  | 834        |      |       |   |   |   |   |   |   |   |   | 834 |   |
| Balance at  December 31, 2005                                       |       |                                            | —     |              |       |                             | 3          |                              |       |                                                  | 268,973    |      |       |   | (17,378 | ) |   |   | 1,657 |   |   | 253,255 |   |
| Comprehensive  income:                                                   |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                               |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   | 24,149 |   |   |   |   |   |   | 24,149 |   |
| Other  comprehensive income—foreign currency translation adjustment |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   | 11,041 |   |   | 11,041 |   |
| Comprehensive  income                                                    |       |                                            |       |              |       |                             |       |                              |       |                                                  |       |      |       |   |   |   |   |   |   |   |   | 35,190 |   |
| Exercise of Common  Stock warrants                                       |       |                                            |       |              |       |                             | —     |                              |       |                                                  | —     |      |       |   |   |   |   |   |   |   |   | — |   |
| Exercise of Common  Stock options                                        |       |                                            |       |              |       |                             | 1          |                              |       |                                                  | 1,463      |      |       |   |   |   |   |   |   |   |   | 1,464 |   |
| Issuance of Common  Stock—Restricted Stock                          |       |                                            |       |              |       |                             | —     |                              |       |                                                  | —     |      |       |   |   |   |   |   |   |   |   | — |   |
| Issuance of Common  Stock—Equity Incentive Plan                     |       |                                            |       |              |       |                             | —     |                              |       |                                                  | —     |      |       |   |   |   |   |   |   |   |   | — |   |
| Amortization of  unearned compensation cost                              |       |                                            |       |              |       |                             |       |                              |       |                                                  | 683        |      |       |   |   |   |   |   |   |   |   | 683 |   |
| Issuance of Common  Stock—Empoyee Stock Purchase Plan               |       |                                            |       |              |       |                             | —     |                              |       |                                                  | 269        |      |       |   |   |   |   |   |   |   |   | 269 |   |
| Balance at  December 30, 2006                                       |       |                                            | $          | —            |       |                             |       | $                                 | 4          |                                                  |       |      | $          | 271,388 |   |   |   | $ | 6,771 |   |   |   | $ | 12,698 |   |   | $ | 290,861 |   |

 

See accompanying notes to consolidated financial statements.

48

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**Symmetry MedicalInc.Consolidated Statements of Cash Flow**

| ** **                                                                                   | ** ** | **Years Ended**        | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                   | ** ** | **December 30,  2006** | ** ** | **December 31,  2005** | ** ** | **January 1,   2005** | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**     | ** ** |
| **Operating activities**                                                                     | ** ** |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net Income                                                                                   |       |                        | $          | 24,149 |   |   |   | $ | 31,800 |   |   |   | $ | 11,695 |   |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                                 |       |                        | 15,837     |   |   |   | 13,067 |   |   |   | 10,589 |   |   |
| Amortization                                                                                 |       |                        | 1,262      |   |   |   | 607 |   |   |   | 609 |   |   |
| Net (gain) loss on  sale of assets                                                           |       |                        | (1,211     | ) |   |   | 75 |   |   |   | 35 |   |   |
| Deferred income  tax provision                                                               |       |                        | (312       | ) |   |   | 1,858 |   |   |   | 2,751 |   |   |
| Loss on debt  extinguishment                                                                 |       |                        | —     |   |   |   | — |   |   |   | 8,346 |   |   |
| Excess tax benefit  from stock-based compensation                                            |       |                        | (1,062     | ) |   |   | — |   |   |   | — |   |   |
| Income tax  benefits from exercise of stock options                                          |       |                        | —     |   |   |   | 1,432 |   |   |   | — |   |   |
| Stock-based  compensation                                                                    |       |                        | 683        |   |   |   | — |   |   |   | — |   |   |
| Derivative  valuation change                                                                 |       |                        | 2,317      |   |   |   | (98 | ) |   |   | (1,451 | ) |   |
| Foreign currency  transaction (gains) losses                                                 |       |                        | (2,159     | ) |   |   | 1,205 |   |   |   | (823 | ) |   |
| Change in operating assets and liabilities:                                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts  receivable                                                                         |       |                        | 4,581      |   |   |   | (7,743 | ) |   |   | (8,844 | ) |   |
| Other assets                                                                                 |       |                        | 1,207      |   |   |   | 1,165 |   |   |   | (549 | ) |   |
| Inventories                                                                                  |       |                        | (3,285     | ) |   |   | (6,366 | ) |   |   | (6,773 | ) |   |
| Accounts payable                                                                             |       |                        | (6,614     | ) |   |   | 2,541 |   |   |   | 7,959 |   |   |
| Accrued expenses  and other                                                                  |       |                        | (3,147     | ) |   |   | 3,192 |   |   |   | 1,784 |   |   |
| Net cash provided by operating activities                                                    |       |                        | 32,246     |   |   |   | 42,735 |   |   |   | 25,328 |   |   |
| **Investing activities**                                                                     | ** ** |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Purchases of  property and equipment                                                         |       |                        | (20,625    | ) |   |   | (37,546 | ) |   |   | (19,891 | ) |   |
| Proceeds from the  sale of fixed assets                                                      |       |                        | 2,444      |   |   |   | — |   |   |   | — |   |   |
| Acquisition, net  of cash received                                                           |       |                        | (55,011    | ) |   |   | — |   |   |   | — |   |   |
| Net cash used in investing activities                                                        |       |                        | (73,192    | ) |   |   | (37,546 | ) |   |   | (19,891 | ) |   |
| **Financing activities**                                                                     | ** ** |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Proceeds from bank  revolver                                                                 |       |                        | 77,993     |   |   |   | 37,065 |   |   |   | 36,079 |   |   |
| Payments on bank  revolver                                                                   |       |                        | (73,479    | ) |   |   | (37,896 | ) |   |   | (34,864 | ) |   |
| Issuance of  long-term debt                                                                  |       |                        | 40,000     |   |   |   | — |   |   |   | 35,000 |   |   |
| Payments on  long-term debt and capital lease obligations                                    |       |                        | (6,922     | ) |   |   | (8,321 | ) |   |   | (137,275 | ) |   |
| Proceeds from the  issuance of common and preferred stock, net of expenses                   |       |                        | 673        |   |   |   | 11,880 |   |   |   | 122,383 |   |   |
| Excess tax benefit  from stock-based compensation                                            |       |                        | 1,062      |   |   |   | — |   |   |   | — |   |   |
| Payments for  redemption of common and preferred stock                                       |       |                        | —     |   |   |   | — |   |   |   | (23,332 | ) |   |
| Debt issuance  costs paid                                                                    |       |                        | (355       | ) |   |   | — |   |   |   | (1,073 | ) |   |
| Net cash provided  by financing activities                                                   |       |                        | 38,972     |   |   |   | 2,728 |   |   |   | (3,082 | ) |   |
| Effect of exchange  rate changes on cash                                                     |       |                        | 1,224      |   |   |   | (295 | ) |   |   | 146 |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       |                        | (750       | ) |   |   | 7,622 |   |   |   | 2,501 |   |   |
| Cash and cash  equivalents at beginning of period                                            |       |                        | 12,471     |   |   |   | 4,849 |   |   |   | 2,348 |   |   |
| Cash and cash  equivalents at end of period                                                  |       |                        | $          | 11,721 |   |   |   | $ | 12,471 |   |   |   | $ | 4,849 |   |   |
| Supplemental disclosures:                                                                    |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Cash paid for  interest                                                                      |       |                        | $          | 3,547 |   |   |   | $ | 2,534 |   |   |   | $ | 13,377 |   |   |
| Cash paid for  income taxes                                                                  |       |                        | $          | 9,074 |   |   |   | $ | 8,919 |   |   |   | $ | 2,976 |   |   |
| Assets acquired  under capital leases                                                        |       |                        | $          | 213 |   |   |   | $ | 283 |   |   |   | $ | 7,357 |   |   |

 

See accompanying notes to consolidated financial statements.

49

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**Notes to Consolidated Financial Statements(in thousands, except share and per share data)**

**1.**   Descriptionof the Business

The consolidated financial statements include theaccounts of Symmetry Medical, Inc. and its wholly-owned subsidiaries(collectively referred to as the Corporation), Symmetry Medical USA Inc., JetEngineering, Inc., Ultrexx, Inc., Riley Medical Inc., SymmetryMedical Everest LLC, Everest Metal International Limited, Symmetry MedicalSwitzerland SA (previously named Riley Medical Europe S.A.), Symmetry MedicalCheltenham Limited, Symmetry Medical PolyVac, SAS and Thornton PrecisionComponents Limited.

The Corporation is a global supplier of integratedproducts and services consisting of surgical implants, instruments and cases toorthopedic and other medical device companies.

On May 2, 2006, the Corporation acquired all ofthe stock of Riley Medical, Inc., a privately owned company based inAuburn, Maine, and Riley Medical Europe S.A., its Swiss subsidiary(collectively “Riley Medical”). Refer to note 3 for further discussion.

On August 31, 2006, the Corporationacquired certain assets of Everest Metal Finishing, LLC. The Corporationalso acquired all of the stock of Everest Metal International, Limited. CollectivelySymmetry Medical Everest, LLC and Everest Metal International, Limited arereferred to as “Everest Metal.”  Refer to note 3 for further discussion.

In July 2005, theCorporation completed a secondary offering which included 11.0 million shares.0.5 million were sold as primary shares and 10.5 million shares were soldby certain selling shareholders. These shares were sold at a net price of$22.25. The Corporation received gross proceeds of $11.1 million, whichwere used to reduce revolving debt in the United Kingdom and for generalcorporate purposes.

**2.**   Summaryof Significant Accounting Policies

**Principles ofConsolidation**

The consolidated financialstatements include the accounts of the Corporation and its wholly-ownedsubsidiaries. Significant intercompany accounts and transactions have beeneliminated in consolidation. Certain prior period amounts have beenreclassified to conform to the current year presentation. Suchreclassifications had no impact on net income previously reported.

**Year End**

The Corporation’s year endis the 52 or 53 week period ending the Saturday closest to December 31,resulting in fiscal 2006 (ending December 30, 2006) being 52 weeks, fiscal2005 (ending December 31, 2005) being 52 weeks, and fiscal 2004 (ending January 1,2005) being 52 weeks. References in these consolidated financial statements to2006, 2005 and 2004 refer to these financial years, respectively.

**Use of Estimates**

Preparation of theseconsolidated financial statements requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates, butmanagement does not believe such differences will materially affect theCorporation’s financial position or results of operations.

50

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**Cash and CashEquivalents**

Cash and cash equivalentsinclude all highly liquid investments with a maturity of three months or lessat the time of purchase.

**Inventories**

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

Inventories consist of the following:

 

| ** **                 | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Raw material and  supplies |       |                  | $          | 10,661                |       |   |   | $ | 7,325 |   |   |
| Work-in-process            |       |                  | 25,076     |                  |       |   | 23,418 |   |   |
| Finished goods             |       |                  | 11,655     |                  |       |   | 8,040 |   |   |
|                       |       |                  | $          | 47,392                |       |   |   | $ | 38,783 |   |   |

 

**Property andEquipment**

Property and equipment are stated on the basis ofcost. Depreciation is calculated on the straight-line method over the estimateduseful lives of the respective assets or lease terms. Repair and maintenancecosts are charged to expense as incurred.

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

 

| ** **                                   | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Land                                         |       |                  | $          | 1,531                 |       |   |   | $ | 1,283 |   |   |
| Buildings and  improvements (20 to 40 years) |       |                  | 29,957     |                  |       |   | 24,128 |   |   |
| Machinery and  equipment (5 to 15 years)     |       |                  | 121,457    |                  |       |   | 101,437 |   |   |
| Office equipment  (3 to 5 years)             |       |                  | 6,832      |                  |       |   | 5,421 |   |   |
| Construction-in-progress                     |       |                  | 4,800      |                  |       |   | 5,695 |   |   |
|                                         |       |                  | 164,577    |                  |       |   | 137,964 |   |   |
| Less accumulated  depreciation               |       |                  | (58,430    | )                     |       |   | (44,858 | ) |   |
|                                         |       |                  | $          | 106,147               |       |   |   | $ | 93,106 |   |   |

 

51

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**Goodwill**

Thechanges in the carrying amounts of goodwill for the years ended December 30,2006, December 31, 2005 and January 1, 2005 are as follows:

| Balance as of  January 3, 2004   |   | $       | 125,413 |   |
|---------------------------------------|--------|---------|---------|--------|
| Effects of foreign currency           |   | 1,956   |    |
| Balance as of  January 1, 2005   |   | 127,369 |    |
| Effects of foreign currency           |   | (2,851  | )       |
| Balance as of  December 31, 2005 |   | 124,518 |    |
| Goodwill acquired                     |   | 28,120  |    |
| Effects of foreign currency           |   | 3,603   |    |
| Balance as of  December 30, 2006 |   | $       | 156,241 |   |

 

In accordance withStatement of Financial Accounting Standards (SFAS) No. 142, Goodwill andOther Intangible Assets, goodwill is no longer amortized but is subject to anannual impairment test in accordance with this statement. Goodwill is definedby the Corporation as the excess of purchase cost over the fair value of thenet tangible and identifiable intangible assets acquired. Statement No. 142requires the Corporation to test goodwill for impairment using a two-stepprocess. The first step is a screen for potential impairment, while the secondstep measures the amount of impairment. Potential impairment is determined bycomparing estimated fair value to the net book value of the reporting unit.Fair value is calculated as the present value of estimated future cash flowsusing a risk-adjusted discount rate commensurate with the Corporation’sweighted-average cost of capital. The Corporation has multiple operatingsegments as defined by SFAS 131. The Corporation has defined its reportingunits at the operating segment level as this is the lowest level for whichdiscrete financial information is available and the operating results of thatcomponent are regularly reviewed by management. The Corporation completed itsannual impairment tests and concluded that no impairment of goodwill existedfor fiscal 2006, 2005 or 2004.

**Other Intangible Assets**

Intangible assets subject to amortization consist oftechnology, non-compete and customer related intangible assets acquired inconnection with our acquisitions of Mettis (UK) Limited on June 11, 2003,Riley Medical on May 1, 2006 and Everest Metal on August 31, 2006. Theseassets are being amortized using the straight-line method, and amortizationexpense for the next 5 fiscal years approximates $1,791 per year. TheCorporation is required to reassess the expected useful lives of existingintangible assets. The Corporation also evaluates the recoverability ofintangible assets subject to amortization based on undiscounted operating cashflows 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 AccountingStandards (SFAS) No. 142, Goodwill and Other Intangible Assets, intangibleassets with an indefinite life are no longer amortized but are subject toreview each reporting period to determine whether events and circumstancescontinue to support an indefinite useful life as well as an annual impairmenttest in accordance with this statement. The Corporation reviewed its intangibleassets in accordance with SFAS No. 142 and has not recorded any impairmentrelated to these assets for fiscal 2006, 2005 or 2004.

52

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

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

| ** **                                               | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **Assets**     | ** ** |
| Acquired  technology and patents                         |       |                 | 12 years   |           |       |             | $          | 1,573          |       |   |   | $ | (363 | ) |   |   | $ | 1,210 |   |   |
| Acquired  customers                                      |       |                 | 20 years   |           |       |             | 29,049     |           |       |   | (2,448 | ) |   |   | 26,601 |   |   |
| Non-compete  agreements                                  |       |                 | 5 years    |           |       |             | 290        |           |       |   | (27 | ) |   |   | 263 |   |   |
| Intangible assets subject to amortization                |       |                 |       |           |       |             | 30,912     |           |       |   | (2,838 | ) |   |   | 28,074 |   |   |
| Proprietary processes                                    |       |                 | Indefinite |           |       |             |       |           |       |   |   |   |   |   | 3,883 |   |   |
| Trademarks                                               |       |                 | Indefinite |           |       |             |       |           |       |   |   |   |   |   | 1,300 |   |   |
| Indefinite-lived intangible assets, other than  goodwill |       |                 |       |           |       |             |       |           |       |   |   |   |   |   | 5,183 |   |   |
| Total                                                    |       |                 |       |           |       |             |       |           |       |   |   |   |   |   | $ | 33,257 |   |   |

 

**Foreign CurrencyAccounting**

The financial statementsof the Corporation’s foreign subsidiaries are accounted for and have beentranslated into US dollars in accordance with Financial Accounting Standards Board(FASB) Statement No. 52, Foreign Currency Translation. Foreign currencytransaction gains and losses resulting from a subsidiary’s foreign currencydenominated assets and liabilities included in other income were a $2,181 gain,$1,265 loss, and $761 gain in 2006, 2005 and 2004, respectively. Assets andliabilities have been translated using the exchange rate in effect at thebalance sheet date. Revenues and expenses have been translated using aweighted-average exchange rate for the period. Currency translation adjustmentshave been recorded as a separate component of shareholders’ equity.

**Revenue Recognition**

The Corporation recognizesrevenue on orders received from its customers when there is persuasive evidenceof 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 ordeterminable price, collection is reasonably assured under the Corporation’snormal billing and credit terms and ownership and all risks of loss have beentransferred to the buyer, which is normally upon shipment.

**Shipping andHandling Costs**

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

**Advertising Costs**

Advertising costs areexpensed as incurred. Advertising costs were $302, $237 and $265 for the yearsending December 30, 2006, December 31, 2005 and January 1, 2005,respectively.

53

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**Allowance forDoubtful Accounts**

The Corporation performs periodic credit evaluationsof customers’ financial condition and generally does not require collateral.Receivables are generally due within 30 to 90 days. The Corporation maintainsan allowance for doubtful accounts for estimated losses in the collection ofaccounts receivable. The Corporation makes estimates regarding the futureability of its customers to make required payments based on historical creditexperience and expected future trends.

The activity in the allowance for doubtful accountswas as follows:

 

| ** **        | ** ** | **December 30,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
|-------------------|------------|-----------------------|------------|-----------------------|------------|---------------------|------------|
| ** **        | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2005**            | ** ** |
| Beginning balance |       |                  | $          | 188                   |       |                |       | $ | 535 |   |   |   | $ | 238 |   |   |
| Provision         |       |                  | 189        |                  |       |                | 123        |   |   |   | 426 |   |   |
| Write-offs, net   |       |                  | (148       | )                     |       |                | (470       | ) |   |   | (129 | ) |   |
| Ending balance    |       |                  | $          | 229                   |       |                |       | $ | 188 |   |   |   | $ | 535 |   |   |

 

**New AccountingPronouncements**

In November 2004, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting (SFAS) No. 151,Inventory Costs—an amendment of Accounting Research Bulletin (ARB) No. 43,Chapter 4. The Statement clarifies that abnormal amounts of idle facilityexpense, freight, handling costs and wasted materials should be recognized ascurrent-period expenses regardless of how abnormal the circumstances. In addition,this Statement requires that the allocation of fixed overheads to the costs ofconversion be based upon normal production capacity levels. The Statement iseffective for inventory costs incurred during fiscal years beginning after June 15,2005. This Statement did not have a material effect on the Corporation’sfinancial position, results of operations or cash flows.

In July 2006, the FASB issued FASB InterpretationNo. (FIN) 48,*Accounting forUncertainty in Income Taxes—an interpretation of FASB Statement No. 109*,which clarifies the accounting for uncertainty in tax positions. ThisInterpretation requires the recognition of a tax position when it is morelikely than not that the tax position will be sustained upon examination byrelevant taxing authorities, based on the technical merits of the position. Theprovisions of FIN 48 are effective for the Company on January 1, 2007,with the cumulative effect of the change in accounting principle recorded as anadjustment to opening retained earnings. This Statement will not have amaterial effect on the Corporation’s financial position, results of operationsor cash flows.

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

54

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**DerivativeFinancial Instruments**

SFAS No. 133, as amended, requires recognition ofevery derivative instrument in the balance sheet as either an asset orliability measured at its fair value. Changes in the fair value of derivativesare to be recorded each period in earnings or comprehensive income, dependingon whether the derivative is designated and effective as part of a hedgeaccounting transaction. The Corporation’s derivatives discussed below do notqualify for hedge accounting and accordingly, adjustments to fair value arerecorded in earnings.

The Corporation enters into interest rate swapagreements (SWAP) to offset against changes in interest rates on theCorporation’s variable rate long-term debt. The SWAP agreements are contractsto exchange variable rate obligations for fixed interest payments to be madeperiodically over the life of the SWAP agreement. Effective October 2000,the Corporation entered into a SWAP agreement to economically hedge $19,000 ofoutstanding long-term debt at a fixed rate payment obligation of 6.25% perannum for the five-year period commencing October 24, 2000; however, thisSWAP was terminated in December 2004.

Effective July 2003, the Corporation entered intoa SWAP agreement to economically hedge an additional $71,000 of outstandinglong-term debt at a fixed payment obligation of 2.285% per annum for the periodcommencing on July 21, 2003 and ending on June 30, 2006. In December 2004,this SWAP was reduced to $35,000. Effective December 2004, the Corporationentered into a SWAP agreement to economically hedge $15,000 of outstandinglong-term debt at a fixed payment obligation of 3.98% per annum for the periodcommencing on June 30, 2006 and ending on December 31, 2007. EffectiveJuly 2006, the Corporation entered into a SWAP agreement to economicallyhedge $40,000 of outstanding long-term debt at a fixed payment obligation of5.45% 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 SWAP in 2006 and 2005of $1,129 and $98, respectively, was included in earnings.

The Corporation entersinto foreign currency forward contracts to mitigate fluctuations in foreigncurrency on the statement of operations. The loss of the foreign currencyvaluation of $1,188 for fiscal 2006 offset net gains on foreign currency withinthe Other expense of $2,181. As of December 30, 2006, the Corporation hadentered into three contracts for the sale of $5,000 of British pounds each withsettlement dates no later than January 17, 2007, May 2, 2007 and May 11,2007 for each of the three contracts, respectively.

**Stock-BasedCompensation**

The Corporation adopted SFAS 123 (revised 2004),Share-Based Payment on January 1, 2006 (SFAS 123R). SFAS 123R,which revised SFAS 123, Accounting for Stock-Based Compensation, superseded APBOpinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS95, Statement of Cash Flows. Statement 123R requires that all share-basedpayments to employees, including grants of employee stock options be recognizedin the financial statements based upon their fair value. The Corporation hadpreviously followed APB No. 25 in accounting for its stock options andaccordingly, no compensation cost had been previously recognized.

The Corporation has adopted SFAS 123R using themodified prospective method. Compensation cost has been recognized for allshare-based payments in the consolidated financial statements in 2006 basedupon the fair value of the stock or option grant. Prior period results have notbeen restated.

55

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

As a result of adopting SFAS 123R, the Corporation’sincome before income taxes and net income for the year ended December 30,2006 are $110 and $66 lower, respectively, than if it had continued to accountfor share-based compensation under Opinion 25. Basic and diluted earnings pershare for year ended December 30, 2006 would not have changed from $0.69and $0.69, respectively, if the Corporation had not adopted SFAS 123R.

Prior to the adoption of SFAS 123R, the Corporationpresented all tax benefits of deductions resulting from the exercise of stockoptions as operating cash flows in the Consolidated Statements of Cash Flows.SFAS 123R requires the cash flows resulting from the tax benefits resultingfrom tax deductions in excess of the compensation cost recognized for thoseoptions (excess tax benefits) to be classified as financing cash flows. The$1,062 excess tax benefit for year ended December 30, 2006 that isclassified as a financing cash inflow would have been classified as an operatingcash inflow if the Corporation had not adopted SFAS 123R.

Statement123, as amended, required pro forma presentation as if compensation costs hadbeen expensed under the fair value method. For purpose of pro forma disclosure,the estimated fair value of stock options at the grant date is amortized toexpense over the vesting period. The following table illustrates the effect onnet income and net income per share as if compensation expense had beenrecognized:

| ** **                                               | ** ** | **Years Ended**               | ** ** |
|----------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                               | ** ** | **December 31,  2005 ,** | ** ** | **January 1,  2005** | ** ** |
| Reported net  income applicable to common shareholders   |       |                               | $          | 31,800 |   |   |   | $ | 2,718 |   |   |
| Pro forma  stock-based compensation expense (net of tax) |       |                               | (219       | ) |   |   | (235 | ) |   |
| Stock-based  employee compensation recorded (net of tax) |       |                               | 90         |   |   |   | — |   |   |
| Adjusted net income                                      |       |                               | $          | 31,671 |   |   |   | $ | 2,483 |   |   |
| Basic net income per share applicable to common:         |       |                               |       |   |   |   |   |   |   |
| Reported net  income per share                           |       |                               | $          | 0.94 |   |   |   | $ | 0.16 |   |   |
| Stock-based  compensation expense (net of tax) per share |       |                               | —     |   |   |   | (0.01 | ) |   |
| Adjusted net  income per share                           |       |                               | $          | 0.94 |   |   |   | $ | 0.15 |   |   |
| Diluted net income per share applicable to common:       |       |                               |       |   |   |   |   |   |   |
| Reported net  income per share                           |       |                               | $          | 0.92 |   |   |   | $ | 0.15 |   |   |
| Stock-based  compensation expense (net of tax) per share |       |                               | (0.01      | ) |   |   | (0.01 | ) |   |
| Adjusted net  income hare                                |       |                               | $          | 0.91 |   |   |   | $ | 0.14 |   |   |

 

**3.**   Acquisitions

**Riley Medical**

On May 2, 2006, the Corporation completed theacquisition of Riley Medical, a privately-owned company based in Auburn, Maine,for approximately $45,797 in net cash, subject to adjustment. Riley Medical isa manufacturer of standard and custom cases, trays and containers for themedical device industry with locations in the United States and Switzerland. Theacquisition expands the Corporation’s geographic footprint in Europe and thecase product line, including several new patents and trademarks. Results ofRiley Medical are included in the statement of operations from the acquisitiondate.

56

----

**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

As of December 30,2006, the aggregate purchase price of $45,797 was allocated to the openingbalance sheet as follows:

| Current assets                                                  |   | $      | 6,551  |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|
| PP&E                                                        |   | 3,577  |   |
| Acquired  technology (amortized over average weighted 13 years) |   | 1,050  |   |
| Acquired  customers (amortized over 15 years)                   |   | 9,810  |   |
| Non-compete  agreements (amortized over 5 years)                |   | 110    |   |
| Trademarks  (indefinite-lived)                                  |   | 1,300  |   |
| Goodwill                                                        |   | 25,417 |   |
| Current  liabilities                                            |   | (2,018 | )      |
| Purchase price, net                                             |   | $      | 45,797 |   |

 

***UnauditedProforma Results***   The following tablerepresents the pro forma results of the Corporation’s operations had theacquisition of Riley Medical been completed as of the beginning of the periodspresented.

| ** **                               | ** ** | **Years Ended**  | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **December 30,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                               | ** ** | **2006**              | ** ** | **2005** | ** ** | **2005** | ** ** |
| Revenue                                  |       |                  | $     | 260,330 |   |   |   | $  | 285,450 |   |   | $  | 223,982 |   |
| Income available  to common shareholders |       |                  | 24,182     |   |   |   | 33,039 |   |   | 3,483 |   |
| Earnings per  share—basic           |       |                  | $     | 0.69 |   |   |   | $ | 0.98 |   |   | $ | 0.21 |   |
| Earnings per  share—diluted         |       |                  | $     | 0.69 |   |   |   | $ | 0.95 |   |   | $ | 0.20 |   |

 

**Everest Metal**

On August 31, 2006, the Corporation completed theacquisition of Everest Metal, a privately-owned company, for approximately$9,214 in net cash, subject to adjustment and an earn-out provision. Theearn-out provision requires payments of approximately $319 for 2006 and up to$1,081 after the end of 2007 if certain sales targets are met. Everest Metal isan implant finishing operation with locations in the United States andIreland. Everest Metal’s core competencies will accelerate the Corporation’sstated plan of growing its implant finishing operations and strengthening itslocal presence near its customers. Results of Everest Metal are included in thestatement of operations from the acquisition date.

Theaggregate purchase price is preliminary, subject to adjustment and an earn-outprovision, and expected to be finalized during 2007. As of December 30,2006, the aggregate purchase price of $9,214 was allocated to the openingbalance sheet as follows:

| Current assets                                   |   | $           | 767    |   |
|--------------------------------------------------|--------|-------------|--------|--------|
| PP&E                                         |   | 530         |   |
| Acquired customers  (amortized over 15 years)    |   | 5,280  |   |
| Non-compete  agreements (amortized over 5 years) |   | 180         |   |
| Goodwill                                         |   | 2,703       |   |
| Current  liabilities                             |   | (246        | )      |
| Purchase price, net                              |   | $9,214      |   |

 

57

----

**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**4.**   DebtArrangements

Long-term debt consists of the following:

 

| ** **                                                                                                                                          | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                          | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (6.625%  at December 30, 2006), through December 2009 |       |                  | $          | 24,500                |       |   |   | $ | 27,563 |   |   |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (6.625%  at December 30, 2006), through June 2011     |       |                  | 39,700     |                  |       |   | — |   |   |
| Revolving line of  credit, due June 2011                                                                                                       |       |                  | 5,000      |                  |       |   | — |   |   |
|                                                                                                                                                |       |                  | 69,200     |                  |       |   | 27,563 |   |   |
| Less current  portion                                                                                                                               |       |                  | (5,550     | )                     |       |   | (1,313 | ) |   |
|                                                                                                                                                |       |                  | $          | 63,650                |       |   |   | $ | 26,250 |   |   |

 

During 2004, the Corporation refinanced substantiallyall of its debt arrangements as part of the initial public offering resultingin a loss on debt extinguishment of $8,956. In conjunction with the RileyMedical acquisition, the Corporation’s lending arrangements were amended in June 2006to provide for a new term loan of $40,000. In addition, the Corporation’s$40,000 revolving credit facility maturity was extended from December 2009to June 2011. The financial loan covenants remained unchanged.

The Corporation’s revolving credit facility has atotal capacity of up to $40 million and the Corporation pays a 0.375% annualcommitment fee for the average unused portion of the revolving line of creditfacility. There is $5,000 of borrowings under this line of credit at December 30,2006.

The bank term loan and revolving line of credit(senior credit agreement) contain various financial covenants, includingcovenants requiring a maximum total debt to EBITDA ratio, minimum EBITDA tointerest ratio and a minimum EBITDA to fixed charges ratio. The senior creditagreement also contains covenants restricting certain corporate actions,including asset dispositions, acquisitions, paying dividends and certain otherrestricted payments, changes of control, incurring indebtedness, incurringliens, making loans and investments and transactions with affiliates. Thesenior credit facility is secured by substantially all of the Corporation’sassets. The Corporation’s senior credit agreement also contains customaryevents of default. The Corporation was in compliance with our financial andrestrictive covenants under the senior credit facility at the end of 2006 and2005.

As of December 30,2006, the Corporation had prepaid the next three scheduled quarterly term loanpayments. Maturities of long-term debt for the five years succeeding December 30,2006 are as follows:

| 2007   |   | $      | 5,550  |   |
|--------|--------|--------|--------|--------|
| 2008   |   | 9,150  |   |
| 2009   |   | 10,900 |   |
| 2010   |   | 11,400 |   |
| 2011   |   | 32,200 |   |
|   |   | $      | 69,200 |   |

 

58

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**5.**   PreferredStock

After the December 2004 IPO, no Preferred Stockremains outstanding. The Class A Convertible Preferred Stock had aliquidation value of $1,000 per share, was nonvoting, and accrued cumulativedividends at 8% per annum on the sum of the liquidation value plus allaccumulated and unpaid dividends. Holders of the Class A ConvertiblePreferred Stock had liquidation preference rights, including the right in theevent of an initial public offering of the Corporation’s common stock toconvert Class A convertible preferred stock into common stock, at aconversion price equal to 85% of the per share price paid by the public for thecommon stock in the initial public offering. In June 2003, the Corporationsold 59,486 shares of Class A convertible preferred stock for $1,000 pershare. Of these shares, 44,499 were sold to related parties including OlympusPartners and employees of the Corporation. In December 2004 uponcompletion of the IPO, the Corporation repurchased $23,332 of its Class AConvertible Preferred Stock and warrants to purchase Class A ConvertiblePreferred Stock. In addition, the remaining outstanding shares of Class AConvertible Preferred Stock and warrants to purchase Class A ConvertiblePreferred Stock converted into 8,015,150 shares of the Corporation’s CommonStock and warrants to purchase 255,334 shares of the Corporation’s Common Stockat an exercise price of $0.01 per share which are exercisable at any time priorto June 2013.

In connection with a debtamendment, on February 22, 2002 the Corporation issued 3,000 shares of Class BRedeemable Convertible Preferred Stock (Class B Preferred Stock) for$1,000 per share. The Class B Preferred Stock was senior to all otheroutstanding equity securities issued by the Corporation and did not have votingrights. The Class B shareholders were entitled to a dividend of 18% perannum which is cumulative. All shares of the Class B Preferred Stock wereconverted into 2,652 shares of the Corporation’s Class A Preferred Stockand 383,773 shares of Common Stock during 2003.

**6.**   Leases

The Corporation has a capital lease arrangementthrough October 1, 2016 for its New Hampshire plant facility. On October 1,2001, and every five years thereafter, including extensions, the annual baserent will change based on the Consumer Price Index. The Corporation has anoption to extend the lease for an additional five-year period and has a rightof first opportunity to purchase the leased property. Any leaseholdimprovements are depreciated over the shorter of the useful asset life or theminimum lease period. Additionally, the Corporation has entered into capitalleases for various machinery and equipment.

Propertyand equipment and related accumulated amortization for building and equipmentcapital leases are as follows:

| ** **                     | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Buildings and  improvements    |       |                  | $          | 4,991                 |       |   |   | $ | 4,991 |   |   |
| Machinery and  equipment       |       |                  | 13,743     |                  |       |   | 13,896 |   |   |
|                           |       |                  | 18,734     |                  |       |   | 18,887 |   |   |
| Less accumulated  amortization |       |                  | (9,382     | )                     |       |   | (7,052 | ) |   |
|                           |       |                  | $          | 9,352                 |       |   |   | $ | 11,835 |   |   |

 

Amortization of leased assets is included indepreciation expense.

59

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

Futureminimum payments for capital leases with initial terms of one year or more areas follows at December 30, 2006:

| 2007                                                                                     |   | $      | 3,657  |   |
|------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| 2008                                                                                     |   | 2,695  |   |
| 2009                                                                                     |   | 1,376  |   |
| 2010                                                                                     |   | 798    |   |
| 2011                                                                                     |   | 797    |   |
| Thereafter                                                                               |   | 3,788  |   |
| Total minimum  payments                                                                  |   | 13,111 |   |
| Amounts representing  interest                                                           |   | (4,469 | )      |
| Present value of net  minimum lease payments (including total current portion of $3,500) |   | $      | 8,642  |   |

 

**7.**   IncomeTaxes

Incomebefore income taxes consisted of:

| ** ** | ** ** | **Fiscal Year Ended** | ** ** |
|------------|------------|---------------------------------|------------|
| ** ** | ** ** | **December 30,**           | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** ** | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2005** | ** ** |
| Domestic   |       |                            | $          | 16,484 |   |   |   | $ | 34,338 |   |   |   | $ | 9,455 |   |   |
| Foreign    |       |                            | 16,614     |   |   |   | 11,903 |   |   |   | 7,764 |   |   |
|       |       |                            | $          | 33,098 |   |   |   | $ | 46,241 |   |   |   | $ | 17,219 |   |   |

 

Significantcomponents of the Corporation’s net deferred tax liabilities are as follows:

| ** **                                                           | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                           | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Compensation                                                         |       |                  | $          | 1,456                 |       |   |   | $ | 741 |   |   |
| Intangibles                                                          |       |                  | (5,565     | )                     |       |   | (5,082 | ) |   |
| Inventory                                                            |       |                  | 1,354      |                  |       |   | 1,151 |   |   |
| PP&E                                                             |       |                  | (7,480     | )                     |       |   | (6,330 | ) |   |
| Net operating  loss carryforwards of states and foreign subsidiaries |       |                  | 62         |                  |       |   | 112 |   |   |
| Derivative  agreements                                               |       |                  | 690        |                  |       |   | (232 | ) |   |
| Other                                                                |       |                  | 290        |                  |       |   | 430 |   |   |
|                                                                 |       |                  | (9,193     | )                     |       |   | (9,210 | ) |   |
| Valuation  allowance for operating loss carryforward                 |       |                  | (62        | )                     |       |   | (62 | ) |   |
|                                                                 |       |                  | $          | (9,255                | )          |   |   | $ | (9,272 | ) |   |

 

60

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

Significantcomponents of the income tax provision are as follows:

| ** ** | ** ** | **Fiscal Year Ended** | ** ** |
|------------|------------|---------------------------------|------------|
| ** ** | ** ** | **December 30,**           | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** ** | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2005** | ** ** |
| Current:   |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Federal    |       |                            | $     | 5,349 |   |   |   | $  | 8,786 |   |   |   | $  | 922 |   |   |
| State      |       |                            | 340        |   |   |   | 565 |   |   |   | 202 |   |   |
| Foreign    |       |                            | 3,592      |   |   |   | 3,312 |   |   |   | 1,649 |   |   |
|       |       |                            | 9,281      |   |   |   | 12,663 |   |   |   | 2,773 |   |   |
| Deferred   |       |                            | (332)      |   |   |   | 1,778 |   |   |   | 2,751 |   |   |
|       |       |                            | $          | 8,949 |   |   |   | $  | 14,441 |   |   |   | $ | 5,524 |   |   |

 

Theprovision for income taxes differs from that computed at the Federal statutoryrate of 35% as follows:

| ** **                                                       | ** ** | **Fiscal Year Ended** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **December 30,**           | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                                       | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2005** | ** ** |
| Tax at Federal  statutory rate                                   |       |                            | $          | 11,584 |   |   |   | $ | 16,184 |   |   |   | $ | 5,854 |   |   |
| State income  taxes                                              |       |                            | 514        |   |   |   | 997 |   |   |   | 244 |   |   |
| State tax credits                                                |       |                            | (312       | ) |   |   | — |   |   |   | — |   |   |
| Foreign income  taxes                                            |       |                            | (1,067     | ) |   |   | (138 | ) |   |   | (260 | ) |   |
| Qualified  production activities deduction                       |       |                            | (156       | ) |   |   | (334 | ) |   |   | — |   |   |
| Research and  development credits—current year              |       |                            | (745       | ) |   |   | (633 | ) |   |   | — |   |   |
| Research and  development and other tax credits—prior years |       |                            | (318       | ) |   |   | (1,341 | ) |   |   | — |   |   |
| Valuation  allowance                                             |       |                            | —     |   |   |   | (224 | ) |   |   | (349 | ) |   |
| Other                                                            |       |                            | (551       | ) |   |   | (70 | ) |   |   | 35 |   |   |
|                                                             |       |                            | $          | 8,949 |   |   |   | $ | 14,441 |   |   |   | $ | 5,524 |   |   |

 

At December 30, 2006,the Corporation had foreign net operating loss carry forwards of approximately$189. The foreign carry forwards have no expiration date. However, due to theuncertainty of the realization of the full benefit of the foreign net operatingloss carry forwards, the Corporation has established a valuation allowance of$62. No provision has been made for United States federal and state or foreigntaxes that may result from future remittances of undistributed earnings offoreign subsidiaries because it is expected that such earnings will bereinvested in these foreign operations indefinitely. At December 30, 2006,we had an aggregate of $24.5 million of unremitted earnings of foreignsubsidiaries that have been or are intended to be permanently reinvested forcontinued use in foreign operations and that if distributed would result in taxesat approximately the US statutory rate.

**8.**   ProfitSharing Plan

During fiscal 2006, theCorporation maintained a qualified profit sharing plan, which qualifies under Section 401(k) ofthe Internal Revenue Code. Contributions by the Corporation are based upon bothdiscretionary and matching nondiscretionary amounts. The matching amountsrepresent a 50% match of 

61

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

employees’contributions, up to a maximum of $1 per participant per year. Expense recordedfor the plans was $961, $1,012 and $857 for 2006, 2005 and 2004, respectively.

**9.**   Stock-BasedCompensation Plans

***2002 Stock OptionPlan***   The 2002 Stock Option Plan provides forthe grant of nonqualified stock options to the Corporation’s directors,officers and employees and other persons who provide services to us. A total of52,135 shares of common stock are reserved for issuance under this plan.Options for 52,135 shares of common stock have been granted. These optionsvest ratably over a four year period as of the end of each of our fiscal yearsduring that period, subject to the Corporation achieving certain minimum EBITDAtargets in each fiscal year, and, if those targets are not met, on the seventhanniversary of the grant date so long as the option holder is still anemployee. Options granted under the 2002 Stock Option Plan are generally nottransferable by the optionee, and such options must be exercised within 30 daysafter the end of an optionee’s status as an employee, director or consultant ofours (other than a termination by us for cause, as defined in the 2002 StockOption Plan), within 180 days after such optionee’s termination by death ordisability, or within 90 days after such optionee’s retirement, but in no eventlater than the expiration of the option term. All options were granted at thefair market value of the Corporation’s common stock, as determined by its boardof directors, on the date of grant. The term of all options granted under the2002 Stock Option Plan may not exceed ten years.

***2003 Stock OptionPlan***   The 2003 Stock Option Plan provides forthe grant of nonqualified stock options to the Corporation’s directors,officers and employees and other persons who provide services to it. A total of907,167 shares of common stock are reserved for issuance under this plan.Options for 813,034 shares of common stock have been granted. Theseoptions vest ratably over a four year period as of the end of each of ourfiscal years during that period. Options granted under the 2003 Stock OptionPlan are generally not transferable by the optionee, and such options must be exercisedwithin 30 days after the end of an optionee’s status as an employee,director or consultant of the Corporation (other than a termination by us forcause, as defined in the 2003 Stock Option Plan), within 180 days aftersuch optionee’s termination by death or disability, or within 90 daysafter such optionee’s retirement, but in no event later than the expiration ofthe option term.

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

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

Asummary of stock option activity and weighted-average exercise prices for theperiods indicated are as follows:

| ** **                             | ** ** | **Number of Options** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Intrinsic Value** | ** ** |
|----------------------------------------|------------|---------------------------------|------------|------------------------------------------------|------------|--------------------------|------------|
| Outstanding at  January 3, 2004   |       |                            | 792,759    |                                           |       |                     | $          | 2.86 |   |   |   |   |   |   |
| Granted                                |       |                            | 72,410     |                                           |       |                     | 4.83       |   |   |   |   |   |   |
| Exercised                              |       |                            | —     |                                           |       |                     | —     |   |   |   |   |   |   |
| Cancelled                              |       |                            | (34,214    | )                                              |       |                     | 3.04       |   |   |   |   |   |   |
| Outstanding at  January 1, 2005   |       |                            | 830,955    |                                           |       |                     | $          | 3.02 |   |   |   |   |   |   |
| Exercised                              |       |                            | (201,111   | )                                              |       |                     | 2.72       |   |   |   | $ | 1,432 |   |   |
| Outstanding at  December 31, 2005 |       |                            | 629,844    |                                           |       |                     | $          | 3.12 |   |   |   |   |   |   |
| Exercised                              |       |                            | (145,119   | )                                              |       |                     | 2.78       |   |   |   | 1,062 |   |   |
| Cancelled                              |       |                            | (1,811     | )                                              |       |                     | 3.04       |   |   |   |   |   |   |
| Outstanding at  December 30, 2006 |       |                            | 482,914    |                                           |       |                     | $          | 3.22 |   |   |   | $ | 5,124 |   |   |

 

Thefollowing table summarizes information about stock options outstanding at December 30,2006:

| ** **       | **Range of Exercise** | ** ** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Remaining  Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable at  December 30,  2006** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|------------------|---------------------------------|------------|------------|-------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------|------------|
| 3.04 - 4.83 |                            |       | 482,914    |                    |       |                                   | 6.6 years  |                                   |       |                                                     | 3.22       |                                   |       |   | 464,811 |   |   |   | 3.16 |   |   |
|                  |                                 |            |            |                         |            |                                        |            |                                        |            |                                                          |            |                                        |            |  |  |  |  |  |  |  |  |  |  |

 

Usingthe minimum value option valuation model, the estimated fair values of optionsgranted during 2004 were $1.62. There were no options granted subsequent to completionof the IPO. Principal assumptions used in applying the minimum value model wereas follows:

| ** **                             | ** ** | **2004**      | ** ** |
|----------------------------------------|------------|---------------|------------|
| ***Minimum  Value Model Assumptions*** |       |          |       |
| Risk-free  interest rate               |       | 4.08          | %          |
| Expected dividend  yield               |       | 0.00          | %          |
| Expected term                          |       | 10 years |       |

 

***2004 Equity IncentivePlan.***   The 2004 Incentive Plan is designed toenable us to attract, retain and motivate our directors, officers, employeesand consultants, and to further align their interests with those of theCorporation’s stockholders, by providing for or increasing their ownershipinterests in our company. The 2004 Incentive Plan provides for the issuance ofstock options, stock appreciation rights (“SARs”), restricted stock, deferredstock, dividend equivalents, other stock-based awards and performance awards.Performance awards will be based on the achievement of one or more business orpersonal criteria or goals, as determined by the compensation committee. Thecompensation committee shall not grant, in any one calendar year, to any oneparticipant awards to purchase or acquire a number of shares of common stock inexcess of 15% of the total number of shares authorized for issuance under the2004 Incentive Plan.

An aggregate of 1,673,333 shares of our commonstock are reserved for issuance under the 2004 Incentive Plan, subject tocertain adjustments reflecting changes in the Corporation’s capitalization. Restrictedstock 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 

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

the compensationcommittee. A participant granted restricted stock generally has all of therights of a shareholder, unless the compensation committee determines otherwise.During 2006, the Corporation granted 121,000 shares of performance basedrestricted stock to employees that generally vest at the end of three years. TheCorporation also granted 6,000 shares of non-performance based restricted stockto directors that generally vest over three years with one-third vesting at theend of each fiscal year. In 2006, 2005 and 2004, the Corporation recordedcompensation expense of $593, $152 and $0 respectively, related to restrictedstock. The Corporation’s policy to recognize expense for awards subject tograded vesting using the straight-line attribution method. As of December 30,2006, the Company had unearned compensation cost of $2,054 which will beexpensed through 2008.

Asummary of all restricted stock activity for the period indicated below is asfollows:

| ** **                             | ** ** | **Number of Shares** | ** ** | **Weighted-Average  Grant Date Fair  Value** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|--------------------------------------------------------|------------|
| Outstanding at  December 31, 2005 |       |                           | 47,670     |                                                   |       |   | $ | 19.44 |   |   |
| Granted                                |       |                           | 127,000    |                                                   |       |   | 14.93 |   |   |
| Vested                                 |       |                           | —     |                                                   |       |   | — |   |   |
| Cancelled                              |       |                           | (4,670     | )                                                      |       |   | 19.41 |   |   |
| Outstanding at  December 30, 2006 |       |                           | 170,000    |                                                   |       |   | $ | 16.07 |   |   |

 

The total fair value ofrestricted stock that vested during 2006, 2005 and 2004 was $0, $32 and $0,respectively.

**10.**   EmployeeStock Purchase Plans

*2004 Employee StockPurchase Plan*

The 2004 Employee Stock Purchase Plan is designed toprovide an incentive for our domestic employees to purchase our common stockand acquire a proprietary interest in us. Each person who was employed eitherby 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 hoursper week for more than ten months per calendar year automatically was enrolledin the plan. Persons who subsequently are employed by us or one of ourdesignated subsidiaries are eligible once they have completed three months ofservice 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 30hours per week for more than ten months per calendar year.

Each participant is granted an option to purchaseshares of the Corporation’s common stock at the beginning of each 6-month“offering period” under the plan, on each “exercise date,” during the offeringperiod. Exercise dates occur on the last date on which the NYSE is open fortrading prior to each June 30 and December 31. Participants purchasethe shares of the Corporation’s common stock through after-tax payrolldeductions, not to exceed 10% of the participant’s total base salary on eachpayroll date. No participant may purchase more than 750 shares of commonstock on any one exercise date or more than $25 of common stock in any onecalendar year. The purchase price for each share is 95% of the fair marketvalue of such share on the exercise date. If a participant’s employment withthe Corporation or one of its designated subsidiaries terminates, anyoutstanding option of that participant also will terminate.

A total of600,000 shares of the Corporation’s common stock are reserved for issuanceover the term of the plan. On June 30, 2006, 9,740 shares of theCorporation’s common stock were purchased by the 

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

participantsin the plan at a price of $14.63 per share. On December 30, 2006,8,083 shares of the Corporation’s common stock were purchased by theparticipants in the plan at a price of $13.139 per share. On June 30,2005, 50,468 shares of the Corporation’s common stock were purchased bythe participants in the plan at a price of $12.75 per share. On December 31,2005, 10,325 shares of the Corporation’s common stock were purchased bythe participants in the plan at a price of $18.42 per share. This plan isnoncompenstory in accordance with SFAS 123(R).

*UK Share IncentivePlan 2006*

The UK Share Incentive Plan 2006 is designed toprovide an incentive for our employees in the United Kingdom to purchase ourcommon stock and acquire a proprietary interest in us. Each person who wasemployed by the Corporation’s designated subsidiaries are eligible if they havecompleted six months of service and remain permanent employees during theentire qualifying period.

Each qualifying employee is eligible to purchaseshares of the Corporation’s common stock through payroll deductions, not toexceed 10% of the participant’s total base salary. No participant may purchasemore 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 eachmonth, and the trustee purchases shares based on the average market price onthe award date. When the participant accumulates 20 shares of common stockunder the plan, one matching share is awarded to the participant. Matchingshares become vested after a three year holding period.

A total of 300,000 sharesof the Corporation’s common stock are reserved for issuance over the term ofthe plan. During fiscal 2006, 1,507 shares of the Corporation’s common stockwere purchased by the participants in the plan, including matching sharesawarded, for a total of $20.

**11.**   RelatedParty Transactions

During the years ended December 30, 2006 and December 31,2005, the Corporation purchased contract manufacturing services totaling $1,456and $1,057, respectively, from ADS Precision Limited (ADS), a companycontrolled by a relative of the general manager of TPC. The Corporationmaintains an ongoing relationship with this vendor and believes alltransactions have been executed on an arms length basis. The Corporation has nooutstanding payables to ADS of December 30, 2006 and $247 as of December 31,2005.

During 2004 theCorporation paid management fees to a related party of $375. These fees areincluded in selling, general and administrative expenses.

**12.**   FairValue of Financial Instruments

Financial instrumentsconsist of cash and cash equivalents, accounts receivable, and long-term debt,including interest-rate swap agreements, and foreign exchange forwardcontracts. The carrying value of these financial instruments approximates fairvalue.

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**13.**   SegmentReporting

The Corporation primarily designs, develops andmanufactures implants and related surgical instruments and cases for orthopedicdevice companies and companies in other medical device markets such as dental,osteobiologic and endoscopy. The Corporation also has a special servicesbusiness serving primarily aerospace customers, which does not meet thequantitative disclosure requirements of SFAS 131. The Corporation managesits business in multiple operating segments. Because of the similar economiccharacteristics of these operations, including the nature of the products,comparable level of FDA regulations, same or similar customers, thoseoperations have been aggregated following the provisions of SFAS 131 forsegment reporting purposes.

The Corporation is a multi-national corporation withoperations in the United States, United Kingdom, France, Switzerland andIreland. As a result, the Corporation’s financial results can be impacted bycurrency exchange rates in the foreign markets in which the Corporation sellsits products. While exposure to variability in foreign currency exists, theCorporation does not believe it is significant to its operations and anyvariability is somewhat offset through the location of its manufacturing facilities.Revenues are attributed to geographic locations based on the location to whichwe ship our products.

*Revenues to External Customers:*

| ** **               | ** ** | **Years Ended**  | ** ** |
|--------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **December 30,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **               | ** ** | **2006**              | ** ** | **2005** | ** ** | **2005** | ** ** |
| United States            |       |                  | $          | 156,970 |   |   |   | $ | 171,618 |   |   | $ | 136,791 |   |
| United Kingdom           |       |                  | 42,800     |   |   |   | 32,508 |   |   | 27,222 |   |
| Ireland                  |       |                  | 25,572     |   |   |   | 32,953 |   |   | 21,097 |   |
| Other foreign  countries |       |                  | 28,227     |   |   |   | 26,687 |   |   | 20,281 |   |
| Total net revenues       |       |                  | $          | 253,569 |   |   |   | $ | 263,766 |   |   | $ | 205,391 |   |

 

*Long-Lived Assets:*

| ** **              | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| United States           |       |                  | $          | 209,527               |       |   |   | $ | 170,289 |   |   |
| United Kingdom          |       |                  | 74,755     |                  |       |   | 60,798 |   |   |
| France                  |       |                  | 4,611      |                  |       |   | 3,898 |   |   |
| Switzerland             |       |                  | 7,279      |                  |       |   | — |   |   |
| Ireland                 |       |                  | 454        |                  |       |   | — |   |   |
| Total long-lived assets |       |                  | $296,626   |                  |       |   | $ | 234,985 |   |   |

 

*Concentration ofCredit Risk:*

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

2006—two customers representing approximately 23% and12% of net revenues, respectively.

2005—two customers representing approximately 33% and14% of net revenues, respectively.

2004—four customers representing approximately 25%,15%, 14% and 10% of net revenues, respectively.

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

The customers listed above, which are orthopedicimplant manufacturers, comprised approximately 25% and 37% of the accountsreceivable balance at December 30, 2006 and December 31, 2005,respectively.

Followingis a summary of the composition by product category of the Corporation’srevenues to external customers. Revenues of the specialty services business areincluded in the “other” category.

| ** **         | ** ** | **Years Ended**        | ** ** |
|--------------------|------------|-----------------------------|------------|
| ** **         | ** ** | **December 30,  2006** | ** ** | **December 31,  2005** | ** ** | **January 1,  2005** | ** ** |
| Implants           |       |                        | $          | 96,526 |   |   |   | $ | 103,481 |   |   | $ | 75,130 |   |
| Instruments        |       |                        | 66,857     |   |   |   | 86,736 |   |   | 67,675 |   |
| Cases              |       |                        | 62,197     |   |   |   | 55,496 |   |   | 47,292 |   |
| Other              |       |                        | 27,989     |   |   |   | 18,053 |   |   | 15,294 |   |
| Total net revenues |       |                        | $          | 253,569 |   |   |   | $ | 263,766 |   |   | $ | 205,391 |   |

 

**14.**   NetIncome (Loss) Per Share

The following tablesets forth the computation of earnings per share.

| ** **                                                          | ** ** | **Years Ended**  | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **December 30,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                                          | ** ** | **2006**              | ** ** | **2005** | ** ** | **2005** | ** ** |
| Net income                                                          |       |                  | $          | 24,149 |   |   |   | $  | 31,800 |   |   |   | $ | 11,695 |   |   |
| Preferred stock  dividends                                          |       |                  | —     |   |   |   | — |   |   |   | $ | (8,977 | ) |   |
| Net income  available to common  shareholders                       |       |                  | 24,149     |   |   |   | $  | 31,800 |   |   |   | $ | 2,718 |   |   |
| Weighted-average common shares outstanding basic                    |       |                  | 34,829     |   |   |   | 33,841 |   |   |   | 16,905 |   |   |
| Effect of stock  options, restricted stock and stock warrants       |       |                  | 327        |   |   |   | 829 |   |   |   | 862 |   |   |
| Weighted-average  common shares outstanding and assumed conversions |       |                  | 35,156     |   |   |   | 34,670 |   |   |   | 17,767 |   |   |
| Net income per share available to common  shareholders:             |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                               |       |                  | $          | 0.69 |   |   |   | $  | 0.94 |   |   |   | $ | 0.16 |   |   |
| Diluted                                                             |       |                  | $          | 0.69 |   |   |   | $  | 0.92 |   |   |   | $ | 0.15 |   |   |

 

**15.**   Commitmentsand Contingencies

*Environmental*

The Corporation has beennotified by the US Environmental Protection Agency or by state governments thatit may be liable under environmental laws with respect to the cleanup ofhazardous substances at sites we previously used for the disposal of wastes.Based on information currently available, the Corporation does not believethese liabilities will be material to its results of operations or financialposition.

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

*Operating Leases*

TheCorporation has various operating leases, primarily for equipment. Total rentalexpense for these operating leases amounted to $1,731, $1,894 and $2,214 in2006, 2005 and 2004, respectively. Future minimum payments for operating leaseswith initial terms of one year or more are as follows at December 30,2006:

| 2007                   |   | $     | 1,412  |   |
|------------------------|--------|-------|--------|--------|
| 2008                   |   | 1,148 |   |
| 2009                   |   | 900   |   |
| 2010                   |   | 618   |   |
| 2011                   |   | 545   |   |
| Thereafter             |   | 48    |   |
| Total minimum payments |   | $     | 4,671  |   |

 

*UnconditionalPurchase Obligations*

The Corporation has acontract to purchase minimum quantities of titanium and cobalt chrome through December 2007.Based on current market pricing at December 30, 2006, the minimum purchaseobligations totaled $7,695. Purchases under the 2006 titanium contract totaledapproximately $13,569 in fiscal year 2006. In August 2006, the Corporationalso has contracted to purchase Radel® R,a specialized plastic used in cases, through December 2011. Based oncurrent market pricing at December 30, 2006, the minimum purchaseobligations totaled $5,258 per year though 2011. These purchases are not inexcess of our forecasted requirements. Purchases under this contract totaledapproximately $1,099 from August to December 2006.

| 2007                   |   | $     | 12,953 |   |
|------------------------|--------|-------|--------|--------|
| 2008                   |   | 5,258 |   |
| 2009                   |   | 5,258 |   |
| 2010                   |   | 5,258 |   |
| 2011                   |   | 5,258 |   |
| Total minimum payments |   | $     | 33,985 |   |

 

*Legal Matters*

The Corporation isinvolved, from time to time, in various contractual, product liability, patent(or intellectual property) and other claims and disputes incidental to itsbusiness. Currently, no material environmental or other material litigation ispending or, to the knowledge of the Corporation, threatened. The Corporationcurrently believes that the disposition of all claims and disputes,individually or in the aggregate, should not have a material adverse effect onthe Corporation’s consolidated and combined financial condition, results ofoperations or liquidity.

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**Notes to Consolidated Financial Statements—Continued (in thousands, except share and per share data)**

**16.**   QuarterlyResults of Operations (Unaudited)

The quarterly results of operations are as follows (inthousands, except per share data):

*2006*

| ** **                    | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | **Fiscal  Year** | ** ** |
|-------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|------------------|------------|
| Revenue                       |       | $    | 69,613     |       | $     | 64,760    |       | $     | 60,740     |             | $     | 58,456 |   | $ | 253,569 |   |
| Gross profit                  |       | 20,341    |       | 16,887     |       | 13,647    |       | 14,228     |       | 65,102           |       |
| Net income                    |       | 8,377     |       | 7,679      |       | 2,991     |       | 5,101      |       | 24,149           |       |
| Basic net income per  share   |       | $         | 0.24       |       | $     | 0.22      |       | $     | 0.09       |             | $     | 0.15 |   | $  | 0.69 |   |
| Diluted net income per  share |       | $         | 0.24       |       | $     | 0.22      |       | $     | 0.09       |             | $     | 0.15 |   | $  | 0.69 |   |

 

*2005*

| ** **                    | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth ** | ** ** | **Fiscal  Year** | ** ** |
|-------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------------|------------|------------------|------------|
| Revenue                       |       | $    | 63,760     |       | $     | 70,177    |       | $           | 67,228     |             | $     | 62,601 |   | $ | 263,766 |   |
| Gross profit                  |       | 19,387    |       | 21,442     |       | 19,742    |       | 17,967           |       | 78,539           |       |
| Net income                    |       | 7,664     |       | 8,619      |       | 8,223     |       | 7,293            |       | 31,800           |       |
| Basic net income per  share   |       | $    | 0.23       |       | $     | 0.26      |       | $           | 0.24       |             | $     | 0.21 |   | $  | 0.94 |   |
| Diluted net income per  share |       | $    | 0.22       |       | $     | 0.25      |       | $           | 0.24       |             | $     | 0.21 |   | $  | 0.92 |   |

 

**17.**   ComprehensiveIncome

Comprehensiveincome is comprised of net income and gains and losses resulting from currencytranslations of foreign operations. Comprehensive income consists of thefollowing:

| ** **                                | ** ** | **Years Ended**        | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|
| ** **                                | ** ** | **December 30,  2006** | ** ** | **December 31,  2005** | ** ** | **January 1,  2005** | ** ** |
| Net Income                                |       |                        | $     | 24,149 | ** ** |   |   | $  | 31,800 | ** ** |   |   | $ | 11,695 | ** ** |   |
| Foreign currency  translation adjustments |       |                        | 11,041     | ** ** |   |   | (8,154) | ** ** |   |   | 4,952 | ** ** |   |
| Comprehensive income                      |       |                        | $     | 35,190 | ** ** |   |   | $  | 23,646 | ** ** |   |   | $ | 16,647 | ** ** |   |

 

**18.**   SubsequentEvent

On January 9, 2007, the Corporation’s subsidiaryThornton Precision Components Limited (Thornton) acquired all of the stock ofWhedon Limited, a privately owned company based in Warwickshire, UK and theholding company of Clamonta Limited (collectively Clamonta Ltd), for $10 millionin cash, subject to certain post closing adjustments. Clamonta Ltd manufacturesaerospace products for the global aerospace industry.

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**Report ofIndependent Registered Public Accounting Firm**

The Board of Directors and Shareholders of SymmetryMedical Inc.:

We have audited the accompanying consolidated balancesheets of Symmetry Medical Inc. as of December 30, 2006 and December 31,2005, and the related consolidated statements of operations, shareholders’equity (deficit) and cash flows for each of the three years in the period endedDecember 30, 2006. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 toabove present fairly, in all material respects, the consolidated financialposition of Symmetry Medical Inc. at December 30, 2006 and December 31,2005, and the consolidated results of its operations and its cash flows foreach of the three years in the period ended December 30, 2006, inconformity with US generally accepted accounting principles.

As discussed in Notes 2 and 9 to the ConsolidatedFinancial Statements, the Company adopted Statement of Financial AccountingStandards No. 123(R), “Share-Based Payment”, in 2006.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Symmetry Medical Inc.’s internal controlover financial reporting as of December 30, 2006, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated March 7,2007, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG, LLP

**Indianapolis, Indiana**

**March 7,2007**

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**Management’s Report on Internal Control Over Financial Reporting**

The management of Symmetry MedicalInc. (the Company), is responsible for establishing and maintaining adequateinternal control over financial reporting. The Company’s internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with US generally accepted accountingprinciples. Internal control over financial reporting includes those policiesand procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the Company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation ofthe financial statements in accordance with US generally accepted accountingprinciples, and that receipts and expenditures of the Company are being madeonly in accordance with authorizations of management and directors of theCompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the Company’sassets that could have a material effect on the financial statements.

Because of its inherent limitations,internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies andprocedures may deteriorate.

Management assessed the effectivenessof the Company’s internal control over financial reporting as of December 30,2006, based on criteria for effective internal control over financial reportingdescribed in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). Based on thisassessment, we have concluded that internal control over financial reporting iseffective as of December 30, 2006.

Management’s assessment of theeffectiveness of the Corporation’s internal control over financial reporting asof December 30, 2006 excluded Riley Medical, Inc. and SymmetryMedical Switzerland S.A., which were acquired by the Company in May 2006,wholly owned subsidiaries of the Company, whose total assets represented 13% ofthe consolidated total assets, and taking into account sales since the date ofacquisition of products by Riley Medical, Inc. and Symmetry MedicalSwitzerland S.A., 6% of consolidated net sales of the Company as of and for theyear ended December 30, 2006. Companies are allowed to excludeacquisitions from their assessment of internal control over financial reportingduring the first year of the acquisition under guidelines established by theSecurities and Exchange Commission.

Additionally, management’seffectiveness of the Corporation’s internal control over financial reporting asof December 30, 2006 excluded Symmetry Medical Everest LLC and EverestMetal International, LTD, which was acquired by the Company in May 2006,wholly owned subsidiaries of the Company, whose total assets represented 3% ofthe consolidated total assets, and taking into account sales since the date ofacquisition of products by Symmetry Medical Everest LLC and Everest MetalInternational, LTD., 1% of consolidated net sales of the Company as of and forthe year ended December 30, 2006. Companies are allowed to exclude acquisitionsfrom their assessment of internal control over financial reporting during thefirst year of the acquisition under guidelines established by the Securitiesand Exchange Commission.

Ernst & Young LLP, an Independent Registered PublicAccounting Firm, has audited the Company’s consolidated financial statementsand has issued an attestation report on management’s assessment of the Company’sinternal control over financial reporting which appears on the following page. 
| /s/ BRIAN  MOORE          |     |
|---------------------------|----------|
| Brian Moore               |     |
| *Chief Executive Officer* | * * |

 
| /s/ FRED  HITE            |     |
|---------------------------|----------|
| Fred Hite                 |     |
| *Chief Financial Officer* | * * |

 

**March 7, 2007**

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**Reportof Independent Registered Public Accounting Firm**

The Board of Directors and Shareholders of SymmetryMedical Inc.

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control over FinancialReporting, that Symmetry Medical Inc. maintained effective internal controlover financial reporting as of December 30, 2006, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (the COSO criteria).Symmetry Medical Inc.’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the company’s internal control over financial reporting basedon our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe 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 Reporton Internal Control over Financial Reporting, management’s assessment of andconclusion on the effectiveness of internal control over financial reportingdid not include the internal controls of Riley Medical, Inc. and RileyMedical Europe S.A., which are included in the 2006 consolidated financialstatements of Symmetry Medical Inc. and constituted $51,985 and $49,563 oftotal and net assets, respectively, as of December 30, 2006 and $14,466 and$1,673 of revenues and net income, respectively, for the year then ended. Ouraudit of internal control over financial reporting of Symmetry Medical Inc.also did not include an evaluation of the internal control over financialreporting of Riley Medical, Inc. and Riley Medical S.A.

Also as indicated in the accompanying Management’sReport on Internal Control over Financial Reporting, management’s assessment ofand conclusion on the effectiveness of internal control over financialreporting did not include the internal controls of Everest Metal Finishing, LLCand Everest Metal International, Limited, which are included in the 2006consolidated financial statements of Symmetry Medical Inc. and constituted$10,666 and $10,196 of total and net assets, respectively, as of 

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December 30, 2006 and$2,456 and $505 of revenues and net income, respectively, for the year thenended. Our audit of internal control over financial reporting of SymmetryMedical Inc. also did not include an evaluation of the internal control overfinancial reporting of Everest Metal Finishing, LLC and Everest MetalInternational, Limited.

In our opinion, management’s assessment that SymmetryMedical Inc. maintained effective internal control over financial reporting asof December 30, 2006, is fairly stated, in all material respects, based onthe COSO criteria. Also, in our opinion, Symmetry Medical Inc. maintained, inall material respects, effective internal control over financial reporting asof December 30, 2006, based on****the COSO criteria**.**

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets of Symmetry Medical Inc. as ofDecember 30, 2006 and December 31, 2005, and the related consolidatedstatements of operations, shareholders’ equity (deficit), and cash flows foreach of the three years in the period ended December 30, 2006 of SymmetryMedical Inc. and our report dated March 7, 2007 expressed an unqualifiedopinion thereon.

/s/ ERNST & YOUNG,LLP

**Indianapolis,IN**

**March 7,2007**

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**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

*Evaluation of disclosurecontrols and procedures.*   As required by Rule 13a-15(b)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), theCompany’s management carried out an evaluation, with the participation of theChief Executive Officer and Chief Financial Officer, of the effectiveness ofthe design and operation of our disclosure controls and procedures (as definedin Rules 13(a)-15(e) of the Exchange Act, as of the period coveredby this report. Based upon their evaluation, our Chief Executive Officer andChief Financial Officer concluded that, as of the end of the period covered bythis report, our disclosure controls and procedures were effective to providereasonable assurance that (i) information required to be disclosed by theCompany (including its consolidated subsidiaries) in the reports we file orsubmit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms; and (ii) thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is accumulated and communicated to theCompany’s management, including its Chief Executive Officer and Chief FinancialOfficer, to allow for timely decisions regarding required disclosure.

*Changes in InternalControl Over Financial Reporting.**  *Duringour most recent fiscal quarter, there was no change in our internal controlover financial reporting (as that term is defined in Rules 13a-15(f)and 15d-15(f) of the Exchange Act) that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.

*Management’s Report onInternal Control Over Financial Reporting.*   Ourmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting, as such term is defined in Rule 13a-15(f)of the Exchange Act. Our management, including our Chief Executive Officer andour Chief Financial Officer, conducted an evaluation of the effectiveness ofour internal control over financial reporting, as of December 30, 2006,based on the Committee of SponsoringOrganizations of the Treadway Commission (COSO) criteria. Managementconcluded that, as of December 30, 2006, our internal control overfinancial reporting was effective.

Our Management’s Report on Internal Control OverFinancial Reporting, as of December 30, 2006, can be found on page 71of this Form 10-K and is incorporated by reference into thisItem 9A. Our independent registered public accounting firm, Ernst &Young LLP has issued the Attestation Report on Management’s Assessment ofInternal Control Over Financial Reporting. The Attestation Report can be foundon page 72 of this Form 10-K and is incorporated by referenceinto this item 9A.

**ITEM 9B.**       OtherInformation

*None.*

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**PART III**

**ITEM 10.**         DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information requiredto be furnished pursuant to this Item 10 will be set forth under thecaption “Election of Directors” in our 2007 Proxy Statement which we will fileno later than 120 days after the end of our fiscal year with the SecuritiesExchange Commission. We incorporate that information herein by reference.Information regarding our Company’s executive officers has been included in Part Iof this report.

**ITEM 11.**         EXECUTIVECOMPENSATION

The information requiredto be furnished pursuant to this Item 11 will be set forth under thecaption “Executive Compensation” in our 2007 Proxy Statement which we will fileno later than 120 days after the end of our fiscal year with the SecuritiesExchange Commission. We incorporate that information herein by reference.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

The information requiredto be furnished pursuant to this Item 12 will be set forth under thecaption “Information on Directors and Executive Officers” in our 2007 ProxyStatement which we will file no later than 120 days after the end of our fiscalyear with the Securities Exchange Commission. We incorporate that informationherein by reference.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information requiredto be furnished pursuant to this Item 13 will be set forth under thecaptions “Director Independence” and “Related Party Transactions” in our 2007Proxy Statement which we will file no later than 120 days after the end of ourfiscal year with the Securities Exchange Commission. We incorporate thatinformation herein by reference.

**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

The information required to be furnished pursuant tothis Item 14 will be set forth under the caption “Accounting Fees andServices” in our 2007 Proxy Statement which we will file no later than 120 daysafter the end of our fiscal year with the Securities Exchange Commission. Weincorporate that information herein by reference.

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**PART IV**

**ITEM 15.   EXHIBITS,FINANCIAL STATEMENT SCHEDULES**

(a)           1.and 2. See Part II, Item 8. Financial Statements for an index of theCorporation’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). |
|   |             | 10.3       |                                   |   | Stockholders  Agreement, dated as of October 18, 2000, by and among Symmetry Medical  Inc., Olympus/Symmetry Holdings LLC, each of the management stockholders  named therein and each management employee who at any time acquires  securities of the Company (incorporated by reference to Exhibit 10.6 of  our Registration Statement on Form S-1, filed May 28, 2004). |
|   |             | 10.4       |                                   |   | Amendment to  Stockholders Agreement, dated as of June 11, 2003, by Symmetry Medical Inc.  and Olympus/Symmetry Holdings LLC (incorporated by reference to  Exhibit 10.7 of our Registration Statement on Form S-1, filed  May 28, 2004). |
|   |             | 10.5       |                                   |   | Joinder to  Stockholders Agreement, dated as of June 11, 2003, by and among Mettis  Group Limited, Symmetry Medical Inc. and Olympus/Symmetry Holdings LLC  (incorporated by reference to Exhibit 10.8 of our Registration Statement  on Form S-1, filed May 28, 2004). |
|   |             | 10.6       |                                   |   | Form of  Joinder and Amendment to Stockholders Agreement, dated as of June 11,  2003, by and among Symmetry Medical Inc. and each of the stockholders party  thereto (incorporated by reference to Exhibit 10.9 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).* |

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|        |   | 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 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 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).*                                                                                                                                                       |
|   |   | 10.17 |   |   | Employment  Agreement, dated as of June 5, 2003, by and between Thornton Precision  Components Ltd. and Richard J. Senior (incorporated by reference to  Exhibit 10.18 of Amendment No. 6 to our Registration Statement, on  Form S-1/A, filed December 6, 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, 2004).*                                                                                                                                                                                                                                        |
|   |   | 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).*                                                                                                                                                                                                     |
|   |   | 10.21 |   |   | Amendment to  Stockholders Agreement, dated as of June 6, 2005, by and among Symmetry  Medical Inc., Olympus/Symmetry Holdings LLC, 3i Parallel Ventures LP, 3i UKIP  II LP, Mayflower LP and Windjammer Mezzanine & Equity Fund, L.P.  (incorporated by reference to Exhibit 10.8 to the Corporation’s  Registration Statement on Form S-1, as amended, originally filed  June 27, 2005). |
|   |   | 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 10Q filed March 10, 2006.                                                                                                                                                                                                                   |

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|        |   | 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. |
|--------|--------|-------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | 10.24 |   |   | Asset Purchase  Agreement, dated August 31, 2006, between Symmetry Medical USA Inc. and  Everest Metal Finishing LLC and Christopher W. Huntington, Phillip  Milidantri, and Levi Citarella (incorporated by reference to  Exhibit 10.1 to our Form 8-K filed June 14, 2006).                                                                                                                                                                                          |
|   |   | 10.25 |   |   | Stock Purchase  Agreement, dated August 31, 2006, between Symmetry Medical International  Inc. and Christopher W. Huntington, Phillip Milidantri, and Levi Citarella  (incorporated by reference to Exhibit 10.2 to our Form 8-K  filed September 5, 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).*                                                                                                                                                                                                                                                                                                                    |
|   |   | 21.1  |   |   | Subsidiaries  (incorporated by reference to Exhibit 21.1 from our 2004 Annual Report  on Form 10-K, filed March 25, 2005).                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 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 December 31, 2006 and 2005.**                                                                                                                                                                                                                                                                                                                                               |

----

*                    ManagementContract of compensatory plan or arrangement required to be filed as an exhibitpursuant to Item 15 of Form 10-K.

**             Filed or furnishedherewith.

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized. 
|                     | SYMMETRY MEDICAL INC. |
|---------------------|-----------------------|
| March 13, 2007 | By:                   | /s/  BRIAN MOORE |
|                | * *              | Brian Moore*Chief Executive Officer and President* |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the dateindicated.

|                       | **Name**                         | ** **                                         | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-----------------------|----------------------------------|----------------------------------------------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|
| /s/ BRIAN MOORE       | * *                         | *Chief  Executive Officer, President and Director* |       | March 13,  2007 |
| Brian Moore           | * *                         | *(Principal Executive Officer)*                    |       |                 |
| /s/ FRED HITE         | * *                         | *Senior  Vice President,*                          |       | March 13,  2007 |
| Fred Hite             | * *                         | *Chief Financial Officer and  Secretary*           |       |                 |
|                  | * *                         | *(Principal Financial and  Accounting Officer)*    |       |                 |
| *                     | * *                         | *Director*                                         |       | March 13,  2007 |
| Frank Turner          |                             |                                               |       |                 |
| *                     | * *                         | *Director*                                         |       | March 13,  2007 |
| Stephen B. Oresman    |                             |                                               |       |                 |
| *                     | * *                         | *Director*                                         |       | March 13,  2007 |
| Francis T. Nusspickel |                             |                                               |       |                 |
| *                     | * *                         | *Director*                                         |       | March 13,  2007 |
| James S. Burns        |                             |                                               |       |                 |
| *By:                  | /s/  FRED HITE                   |                                               |       |
|                  | Fred Hite                        |                                               |       |
|                  | *Attorney-in-fact*               | * *                                           |       |
|                  | *Pursuant  to Power of Attorney* | * *                                           |       |
|                  | (Exhibit 24.1  hereto)      |                                               |       |
|                       |                                  |                                                    |            |                      |           |            |            |            |          |            |  |  |  |

 

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