Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended July 4,
2009
or
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ____________________________________
to_____________________________________
Commission
File Number:
001-32374
(Exact
name of registrant as specified in its charter)
Delaware
|
|
35-1996126
|
(State
or other jurisdiction of incorporation or organization)
3724
North State Road 15, Warsaw, Indiana
|
|
(I.R.S.
Employer Identification No.)
46582
|
(Address
of principal executive offices)
(574)
268-2252
|
|
(Zip
Code)
|
(Registrant’s
telephone number, including area code)
|
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days. þ
Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (S232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
¨ Yes ¨
No
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
¨
|
|
Accelerated
filer
þ
|
|
Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
|
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨ Yes þ No
The
number of shares outstanding of the registrant’s common stock as of August 4,
2009 was 35,810,751.
TABLE
OF CONTENTS
PART I
FINANCIAL INFORMATION
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Item 1
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Financial
Statements:
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Condensed
Consolidated Balance Sheets: As of July 4, 2009 and January 3,
2009
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4
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Condensed
Consolidated Statements of Operations: Three and Six Months Ended
July 4, 2009 and June 28, 2008
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5
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Condensed
Consolidated Statements of Cash Flows: Six Months Ended July 4, 2009 and
June 28, 2008
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6
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Notes
to Condensed Consolidated Financial Statements
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7
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Item 2
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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14
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Item 3
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Quantitative
and Qualitative Disclosures about Market Risk
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19
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Item 4
|
Controls
and Procedures
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19
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PART II
OTHER INFORMATION
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Item
1
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Legal
Proceedings
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19
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Item 1A
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Risk
Factors
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20
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Item
4
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Submission
of Matters to a Vote of Security Holders
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20
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Item 6
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Exhibits
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21
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Signatures
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21
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Cautionary
Note Regarding Forward-Looking Statements
Throughout
this Quarterly Report on Form 10-Q or in other reports or registration
statements filed from time to time with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or under the Securities Act of 1933,
as well as in documents we incorporate by reference or in press releases or oral
statements made by our officers or representative, we may make statements that
express our opinions, expectations or projections regarding future events or
future results, in contrast with statements that reflect historical facts. These
predictive statements, which we generally precede or accompany by such typical
conditional words such as “anticipate,” “intend,” “believe,” “estimate,” “plan,”
“seek,” “project,” “potential,” or “expect,” or by the words “may,” “will,”
“could,” or “should,” and similar expressions or terminology are intended to
operate as “forward-looking statements” of the kind permitted by the Private
Securities Litigation Reform Act of 1995. That legislation protects such
predictive statements by creating a “safe harbor” from liability in the event
that a particular prediction does not turn out as anticipated.
Forward-looking
statements convey our current expectations or forecast future events. While we
always intend to express our best judgment when we make statements about what we
believe will occur in the future, and although we base these statements on
assumptions that we believe to be reasonable when made, these forward-looking
statements are not a guarantee of performance, and you should not place undue
reliance on such statements. Forward-looking statements are subject to many
uncertainties and other variable circumstances, many of which are outside of our
control, that could cause our actual results and experience to differ materially
from those we thought would occur.
We also
refer you to and believe that you should carefully read the “Cautionary Note
Regarding Forward-Looking Statements” and “Risk Factors” portions of our Annual
Report for fiscal 2008 on Form 10-K, as well as in other reports which we file
with the Securities and Exchange Commission, to better understand the risks and
uncertainties that are inherent in our business and in owning our
securities. These reports are available publicly on the SEC website,
www.sec.gov,
and on our website, www.symmetrymedical.com.
Any
forward-looking statements which we make in this report or in any of the
documents that are incorporated by reference herein speak only as of the date of
such statement, and we undertake no ongoing obligation to update such
statements. Comparisons of results between current and any prior periods are not
intended to express any future trends or indications of future performance,
unless expressed as such, and should only be viewed as historical
data.
PART
I FINANCIAL INFORMATION
ITEM
I. FINANCIAL STATEMENTS
Symmetry
Medical Inc.
Condensed
Consolidated Balance Sheets
|
|
July 4,
|
|
|
January 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(In
Thousands)
|
|
|
|
(unaudited)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
18,516 |
|
|
$ |
10,191 |
|
Accounts
receivable, net
|
|
|
52,598 |
|
|
|
52,845 |
|
Inventories
|
|
|
68,334 |
|
|
|
61,111 |
|
Refundable
income taxes
|
|
|
830 |
|
|
|
6,610 |
|
Deferred
income taxes
|
|
|
5,256 |
|
|
|
3,993 |
|
Other
current assets
|
|
|
4,913 |
|
|
|
3,154 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
150,447 |
|
|
|
137,904 |
|
Property
and equipment, net
|
|
|
118,507 |
|
|
|
115,045 |
|
Goodwill
|
|
|
153,760 |
|
|
|
153,521 |
|
Intangible
assets, net of accumulated amortization
|
|
|
44,260 |
|
|
|
45,039 |
|
Other
assets
|
|
|
1,402 |
|
|
|
1,728 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
468,376 |
|
|
$ |
453,237 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
24,449 |
|
|
$ |
26,929 |
|
Accrued
wages and benefits
|
|
|
9,865 |
|
|
|
12,784 |
|
Other
accrued expenses
|
|
|
4,864 |
|
|
|
5,186 |
|
Income
tax payable
|
|
|
2,530 |
|
|
|
2,637 |
|
Deferred
income taxes
|
|
|
109 |
|
|
|
- |
|
Revolving
line of credit
|
|
|
7,096 |
|
|
|
2,495 |
|
Current
portion of capital lease obligations
|
|
|
668 |
|
|
|
1,034 |
|
Current
portion of long-term debt
|
|
|
18,650 |
|
|
|
16,900 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
68,231 |
|
|
|
67,965 |
|
Deferred
income taxes
|
|
|
23,332 |
|
|
|
18,131 |
|
Derivative
valuation liability
|
|
|
3,370 |
|
|
|
3,771 |
|
Capital
lease obligations, less current portion
|
|
|
3,129 |
|
|
|
3,356 |
|
Long-term
debt, less current portion
|
|
|
95,400 |
|
|
|
107,600 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
193,462 |
|
|
|
200,823 |
|
|
|
|
|
|
|
|
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|
Shareholders'
Equity:
|
|
|
|
|
|
|
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|
Common
Stock, $.0001 par value; 75,000 shares authorized; shares issued July 4,
2009—35,811; January 3, 2009—35,801
|
|
|
4 |
|
|
|
4 |
|
Additional
paid-in capital
|
|
|
277,716 |
|
|
|
275,890 |
|
Accumulated
deficit
|
|
|
(5,685 |
) |
|
|
(21,507 |
) |
Accumulated
other comprehensive income (loss)
|
|
|
2,879 |
|
|
|
(1,973 |
) |
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
|
274,914 |
|
|
|
252,414 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
468,376 |
|
|
$ |
453,237 |
|
See accompanying notes to
condensed consolidated financial statements.
Symmetry
Medical Inc.
Condensed
Consolidated Statements of Operations
|
|
Three Months Ended
|
|
|
Six Month Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
100,954 |
|
|
$ |
109,787 |
|
|
$ |
202,376 |
|
|
$ |
211,649 |
|
Cost
of Revenue
|
|
|
74,183 |
|
|
|
82,373 |
|
|
|
151,047 |
|
|
|
160,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
26,771 |
|
|
|
27,414 |
|
|
|
51,329 |
|
|
|
51,360 |
|
Selling,
general and administrative expenses
|
|
|
13,230 |
|
|
|
14,926 |
|
|
|
26,582 |
|
|
|
29,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
13,541 |
|
|
|
12,488 |
|
|
|
24,747 |
|
|
|
22,051 |
|
Other
(income)/expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,564 |
|
|
|
2,917 |
|
|
|
3,384 |
|
|
|
5,617 |
|
Derivatives
valuation gain
|
|
|
(175 |
) |
|
|
(1,381 |
) |
|
|
(568 |
) |
|
|
(215 |
) |
Other
|
|
|
(12 |
) |
|
|
(189 |
) |
|
|
(308 |
) |
|
|
(352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
12,164 |
|
|
|
11,141 |
|
|
|
22,239 |
|
|
|
17,001 |
|
Income
tax expense
|
|
|
3,189 |
|
|
|
4,939 |
|
|
|
6,417 |
|
|
|
6,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
8,975 |
|
|
$ |
6,202 |
|
|
$ |
15,822 |
|
|
$ |
10,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.25 |
|
|
$ |
0.18 |
|
|
$ |
0.45 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.25 |
|
|
$ |
0.17 |
|
|
$ |
0.44 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares and equivalent shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,326 |
|
|
|
35,155 |
|
|
|
35,289 |
|
|
|
35,154 |
|
Diluted
|
|
|
35,529 |
|
|
|
35,323 |
|
|
|
35,437 |
|
|
|
35,329 |
|
See
accompanying notes to condensed consolidated financial statements.
Symmetry
Medical Inc.
Condensed
Consolidated Statements of Cash Flows
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In Thousands)
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
15,822 |
|
|
$ |
10,169 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,443 |
|
|
|
9,397 |
|
Amortization
|
|
|
1,461 |
|
|
|
1,474 |
|
Net
loss on sale of assets
|
|
|
106 |
|
|
|
127 |
|
Deferred
income tax provision
|
|
|
4,041 |
|
|
|
(924 |
) |
Excess
tax benefit from stock-based compensation
|
|
|
- |
|
|
|
(92 |
) |
Stock-based
compensation
|
|
|
1,720 |
|
|
|
613 |
|
Derivative
valuation gain
|
|
|
(568 |
) |
|
|
(69 |
) |
Foreign
currency transaction (gains) losses
|
|
|
(353 |
) |
|
|
414 |
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,956 |
|
|
|
(19,890 |
) |
Other
assets
|
|
|
(1,404 |
) |
|
|
(1,449 |
) |
Inventories
|
|
|
(5,896 |
) |
|
|
(7,503 |
) |
Current
income taxes
|
|
|
5,788 |
|
|
|
5,981 |
|
Accounts
payable
|
|
|
(4,267 |
) |
|
|
(1,082 |
) |
Accrued
expenses and other
|
|
|
(4,295 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
23,554 |
|
|
|
(2,896 |
) |
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(9,171 |
) |
|
|
(8,976 |
) |
Proceeds
from the sale of fixed assets
|
|
|
11 |
|
|
|
220 |
|
Acquisitions,
net of cash received
|
|
|
- |
|
|
|
(46,506 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(9,160 |
) |
|
|
(55,262 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from bank revolver
|
|
|
28,659 |
|
|
|
39,887 |
|
Payments
on bank revolver
|
|
|
(26,462 |
) |
|
|
(40,669 |
) |
Issuance
of long-term debt
|
|
|
- |
|
|
|
60,000 |
|
Payments
on long-term debt and capital lease obligations
|
|
|
(9,120 |
) |
|
|
(6,297 |
) |
Proceeds
from the issuance of common stock
|
|
|
106 |
|
|
|
116 |
|
Excess
tax benefit from stock-based compensation
|
|
|
- |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(6,817 |
) |
|
|
53,129 |
|
Effect
of exchange rate changes on cash
|
|
|
748 |
|
|
|
501 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
8,325 |
|
|
|
(4,528 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
10,191 |
|
|
|
12,089 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
18,516 |
|
|
$ |
7,561 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
3,954 |
|
|
$ |
4,487 |
|
|
|
|
|
|
|
|
|
|
Cash
paid (received) for income taxes
|
|
$ |
(3,474 |
) |
|
$ |
1,854 |
|
|
|
|
|
|
|
|
|
|
Assets
acquired under capital leases
|
|
$ |
- |
|
|
$ |
91 |
|
See
accompanying notes to condensed consolidated financial
statements.
Symmetry
Medical Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(In
Thousands, Except Per Share Data)
The
condensed consolidated financial statements include the accounts of Symmetry
Medical Inc. and its wholly-owned subsidiaries (collectively referred to as
the Corporation), Symmetry Medical USA Inc., Jet Engineering, Inc.,
Ultrexx, Inc., Riley Medical Inc., Symmetry Medical Switzerland SA
(formerly known as Riley Medical Europe, SA), Symmetry Medical Everest LLC,
Everest Metal International Limited, Symmetry Medical Cheltenham Limited,
Symmetry Medical PolyVac, SAS, Thornton Precision Components Limited, Symmetry
Medical Malaysia SDN, Clamonta Limited, Specialty Surgical Instrumentation,
Inc., UCA, LLC, TNCO, Inc. and Symmetry Medical New Bedford, LLC. The
Corporation is a global supplier of integrated products consisting primarily of
surgical implants, instruments and cases to orthopedic and other medical device
companies.
The
condensed consolidated financial statements of the Corporation have been
prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the accompanying
condensed consolidated financial statements contain all adjustments of a normal
recurring nature considered necessary to present fairly, the consolidated
financial position of the Corporation, its results of operations and cash flows.
The Corporation’s results are subject to seasonal fluctuations. Interim results
are not necessarily indicative of results for a full year. The condensed
consolidated financial statements included herein should be read in conjunction
with the fiscal year 2008 consolidated financial statements and the notes
thereto included in the Corporation’s Annual Report on Form 10-K for fiscal
year 2008.
The
Corporation’s fiscal year is the 52 or 53 week period ending on the Saturday
closest to December 31. Fiscal year 2009 is a 52 week year ending January
2, 2010. The Corporation’s interim quarters for 2009 are 13 weeks
long and quarter-end dates have been set as April 4, 2009, July 4, 2009 and
October 3, 2009. Fiscal year 2008 was a 53 week year (ending January 3, 2009).
The Corporation’s first two interim quarters for 2008 were 13 weeks long ending
the Saturday closest to March 31 and June 30 and the third quarter was 14 weeks
long, ending Saturday, October 4, 2008. References in these condensed
consolidated financial statements to the three months ended refer to these
financial periods, respectively.
Inventories
consist of the following:
|
|
July 4,
|
|
|
January 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Raw
material and supplies
|
|
$ |
16,390 |
|
|
$ |
12,502 |
|
Work-in-process
|
|
|
31,390 |
|
|
|
31,420 |
|
Finished
goods
|
|
|
20,554 |
|
|
|
17,189 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68,334 |
|
|
$ |
61,111 |
|
3.
Property and Equipment
Property
and equipment, including depreciable lives, consists of the
following:
|
|
July 4,
|
|
|
January 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Land
|
|
$ |
7,004 |
|
|
$ |
6,473 |
|
Buildings
and improvements (20 to 40 years)
|
|
|
42,006 |
|
|
|
40,183 |
|
Machinery
and equipment (5 to 15 years)
|
|
|
135,125 |
|
|
|
127,716 |
|
Office
equipment (3 to 5 years)
|
|
|
11,995 |
|
|
|
10,859 |
|
Construction-in-progress
|
|
|
6,911 |
|
|
|
4,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
203,041 |
|
|
|
189,458 |
|
Less
accumulated depreciation
|
|
|
(84,534 |
) |
|
|
(74,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
118,507 |
|
|
$ |
115,045 |
|
4.
Intangible Assets
Intangible
assets were acquired in connection with our business acquisitions. As of July 4,
2009, the balances of intangible assets, other than goodwill, were as
follows:
|
|
Weighted-average
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Amortization
|
|
Intangible
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
|
Period
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Acquired
technology and patents
|
|
10 years
|
|
$ |
2,347 |
|
|
$ |
(883 |
) |
|
$ |
1,464 |
|
Acquired
customers
|
|
18 years
|
|
|
42,635 |
|
|
|
(7,903 |
) |
|
|
34,732 |
|
Non-compete
agreements
|
|
5 years
|
|
|
668 |
|
|
|
(314 |
) |
|
|
354 |
|
Intangible
assets subject to amortization
|
|
17 years
|
|
|
45,650 |
|
|
|
(9,100 |
) |
|
|
36,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
processes
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
3,598 |
|
Trademarks
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
4,112 |
|
Indefinite-lived
intangible assets, other than goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
7,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,260 |
|
As of
January 3, 2009, the balances of intangible assets, other than goodwill, were as
follows:
|
|
Weighted-average
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Amortization
|
|
Intangible
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
|
Period
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
Acquired
technology and patents
|
|
10 years
|
|
$ |
2,295 |
|
|
$ |
(713 |
) |
|
$ |
1,582 |
|
Acquired
customers
|
|
18 years
|
|
|
42,330 |
|
|
|
(6,596 |
) |
|
|
35,734 |
|
Non-compete
agreements
|
|
5 years
|
|
|
559 |
|
|
|
(243 |
) |
|
|
316 |
|
Intangible
assets subject to amortization
|
|
17 years
|
|
|
45,184 |
|
|
|
(7,552 |
) |
|
|
37,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary
processes
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
3,428 |
|
Trademarks
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
3,979 |
|
Indefinite-lived
intangible assets, other than goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
7,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45,039 |
|
5.
New Accounting Pronouncements
Business
Combinations. The Corporation adopted the provisions of the
FASB Statement of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations, on
January 4, 2009. This Statement amends SFAS 141, Business Combinations, and
provides revised guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any non-controlling interest in the
acquiree. It also provides disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The adoption of SFAS No. 141(R) had an immaterial impact
on the Corporation’s financial position and results of
operations.
Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No.
133. The Corporation adopted the provisions of the FASB
Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No. 133, on
January 4, 2009. The Statement
requires entities that utilize derivative instruments to provide qualitative
disclosures about their objectives and strategies for using such instruments, as
well as any details of credit-risk-related contingent features contained within
derivatives. SFAS 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS 133 have been applied, and
the impact that hedges have on an entity’s financial position, results of
operations, and cash flows. The adoption of SFAS No. 161 had no impact on the
Corporation’s financial position or results of operations.
Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating
Securities. The Corporation
adopted the provisions of the FASB Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating
Securities, on January 4, 2009,
with retrospective application. This FSP was
issued to clarify that unvested share-based payment awards with a right to
receive non-forfeitable dividends are participating securities. This
FSP also provides guidance on how to allocate earnings to participating
securities and compute basic earnings per share (EPS) using the two-class
method. The adoption of EITF 03-6-1 reduced previously reported EPS
by $0.01 for the three and six months ended June 28, 2008.
5.
New Accounting Pronouncements (Continued)
Subsequent
Events. The Corporation adopted the provisions of the FASB
Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent Events, on July
4, 2009. This Statement modifies the definition of subsequent events
and defines the two types of subsequent events as recognized and
non-recognized. It also requires entities to disclose the date
through which subsequent events have been evaluated and the basis for choosing
that date. The
Corporation issued its financial statements by filing with the Securities
Exchange Commission on August 7, 2009, for the quarter ended July 4,
2009. The Corporation evaluated subsequent events up through the time of
the filing.
The
Corporation primarily designs, develops and manufactures implants and related
surgical instruments and cases for orthopedic device companies and companies in
other medical device markets such as dental, osteobiologic and endoscopy. The
Corporation also sells products to the aerospace industry. The Corporation
manages its business in multiple operating segments. Because of the similar
economic characteristics of these operations, including the nature of the
products, comparable level of FDA regulations, same or similar customers, those
operations have been aggregated following the provisions of SFAS 131 for
segment reporting purposes. The results of one segment which sells exclusively
to aerospace customers has not been disclosed separately as it does not meet the
quantitative disclosure requirements.
The
Corporation is a multi-national Corporation with operations in the United
States, United Kingdom, France, Ireland and Malaysia. As a result, the
Corporation's financial results can be impacted by currency exchange rates in
the foreign markets in which the Corporation sells its products. Revenues are
attributed to geographic locations based on the location to which we ship our
products.
Revenue
from External Customers:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
United
States
|
|
$ |
74,427 |
|
|
$ |
77,272 |
|
|
$ |
151,320 |
|
|
$ |
145,179 |
|
United
Kingdom
|
|
|
7,386 |
|
|
|
14,723 |
|
|
|
15,360 |
|
|
|
31,303 |
|
Ireland
|
|
|
9,796 |
|
|
|
8,376 |
|
|
|
19,298 |
|
|
|
16,972 |
|
Other
foreign countries
|
|
|
9,345 |
|
|
|
9,416 |
|
|
|
16,398 |
|
|
|
18,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$ |
100,954 |
|
|
$ |
109,787 |
|
|
$ |
202,376 |
|
|
$ |
211,649 |
|
Concentration
of Credit Risk:
A
substantial portion of the Corporation’s revenue is derived from a limited
number of customers. The Corporation’s revenue includes revenue from customers
of the Corporation which individually account for 10% or more of revenue as
follows:
Three
months ended July 4, 2009— One customer represented approximately 41.4% of
revenue.
Six
months ended July 4, 2009 – One customer represented approximately 41.7% of
revenue.
Three
months ended June 28, 2008— Two customers represented approximately 32.6% and
10.4% of revenue, respectively.
Six
months ended June 28, 2008 – Two customers represented approximately 32.4% and
10.6% of revenue, respectively.
6.
Segment Reporting (Continued)
Revenue
by Product Category:
Following
is a summary of the composition by product category of the Corporation’s revenue
to external customers. Revenues from aerospace products are included in the
“other” category.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Instruments
|
|
$ |
46,847 |
|
|
$ |
45,099 |
|
|
$ |
93,352 |
|
|
$ |
84,388 |
|
Implants
|
|
|
29,935 |
|
|
|
31,139 |
|
|
|
59,018 |
|
|
|
61,434 |
|
Cases
|
|
|
18,873 |
|
|
|
23,427 |
|
|
|
37,372 |
|
|
|
44,945 |
|
Other
|
|
|
5,299 |
|
|
|
10,122 |
|
|
|
12,634 |
|
|
|
20,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$ |
100,954 |
|
|
$ |
109,787 |
|
|
$ |
202,376 |
|
|
$ |
211,649 |
|
The
following table sets forth the computation of earnings per share.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
Net
income
|
|
$ |
8,975 |
|
|
$ |
6,202 |
|
|
$ |
15,822 |
|
|
$ |
10,169 |
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,326 |
|
|
|
35,155 |
|
|
|
35,289 |
|
|
|
35,154 |
|
Effect
of dilutive stock options, restricted stock and stock
warrants
|
|
|
203 |
|
|
|
168 |
|
|
|
148 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
35,529 |
|
|
|
35,323 |
|
|
|
35,437 |
|
|
|
35,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.25 |
|
|
$ |
0.18 |
|
|
$ |
0.45 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.25 |
|
|
$ |
0.17 |
|
|
$ |
0.44 |
|
|
$ |
0.28 |
|
8.
Commitments and Contingencies
Legal &
Environmental. The Corporation is involved, from time to time,
in various contractual, product liability, patent (or intellectual property) and
other claims and disputes incidental to its business. Currently, there is no
environmental or other litigation pending or, to the knowledge of the
Corporation, threatened, that the Corporation expects to have a material adverse
effect on its financial condition, results of operations or liquidity. While
litigation is subject to uncertainties and the outcome of litigated matters is
not predictable with assurance, the Corporation currently believes that the
disposition of all pending or, to the knowledge of the Corporation, threatened
claims and disputes, individually or in the aggregate, should not have a
material adverse effect on the Corporation’s consolidated financial condition,
results of operations or liquidity.
Unconditional Purchase
Obligations. The Corporation has contracts to purchase minimum
quantities of cobalt chrome and titanium through December 2011. Based
on contractual pricing at July 4, 2009, the minimum purchase obligations totaled
$19,626. Purchases under 2009 contracts totaled approximately $8,440
as of July 4, 2009. These purchases are not in excess of our
forecasted requirements.
8.
Commitments and Contingencies (Continued)
Other. Following
the discovery of certain accounting irregularities at our Sheffield, UK
operating unit (as further described in this Form 10-Q at Part II, Item 1), the
Audit Committee self-reported the matter to the staff of the Securities and
Exchange Commission (SEC). Thereafter, the SEC commenced an informal inquiry
into this matter. The Corporation has fully cooperated with the SEC in its
investigation. At this time, the Corporation is unable to predict the timing of
the ultimate resolution of this investigation or the impact
thereof.
Comprehensive
income is comprised of net income, gains (losses) resulting from currency
translations of foreign entities and unrealized losses on our derivative
designated as a hedge under SFAS 133. Comprehensive income consists of the
following:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
8,975 |
|
|
$ |
6,202 |
|
|
$ |
15,822 |
|
|
$ |
10,169 |
|
Foreign
currency translation adjustments
|
|
|
5,408 |
|
|
$ |
(262 |
) |
|
|
5,018 |
|
|
$ |
2,480 |
|
Derivative,
net of tax benefit (1)
|
|
|
(58 |
) |
|
|
- |
|
|
|
(100 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
14,325 |
|
|
$ |
5,940 |
|
|
$ |
20,740 |
|
|
$ |
12,649 |
|
(1)
|
Derivatives
are net of income tax benefits of $38 and $67 for the three and six month
periods ended July 4, 2009,
respectively.
|
Results
of the following acquisition are included in the Statement of Operations from
the date of acquisition.
On
January 25, 2008, the Corporation acquired substantially all the assets and real
property of DePuy Orthopaedics, Inc.’s (“DePuy”) New Bedford, Massachusetts
instrument manufacturing facility (“New Bedford”) for $45,246 in cash. This
facility manufactures orthopedic instruments as well as general surgical
instruments and small implants.
As of
July 4, 2009, the aggregate purchase price was allocated to the opening balance
sheet as follows:
Current
assets
|
|
$ |
7,819 |
|
PP&E
|
|
|
22,101 |
|
Acquired
customers (amortized over 15 years)
|
|
|
5,130 |
|
Goodwill
|
|
|
10,196 |
|
|
|
|
|
|
Purchase
price, net
|
|
$ |
45,246 |
|
Unaudited
Pro-forma
Results The following table represents the pro-forma results of the
Corporation’s operations had the acquisition of New Bedford been completed as of
the beginning of the periods presented:
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$ |
202,376 |
|
|
$ |
214,326 |
|
Net
income
|
|
|
15,822 |
|
|
|
10,235 |
|
Earnings
per share—basic
|
|
$ |
0.45 |
|
|
$ |
0.29 |
|
Earnings
per share—diluted
|
|
$ |
0.44 |
|
|
$ |
0.28 |
|
11.
Derivatives
The Corporation
utilizes derivative instruments to minimize the volatility of cash flows and
income statement impacts associated with interest rate payments on its variable
rate debt. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was amended in June 2000
by SFAS No. 138 and in May 2003 by SFAS No. 149 (collectively
referred to as “SFAS 133”), the Corporation recognizes all derivative
instruments as either assets or liabilities at fair value on the consolidated
balance sheets. The Corporation utilizes third party valuations to determine the
fair value of these derivatives. The Corporation considers its derivative
instrument valuations to be Level 2 fair value measurements under SFAS 157 (see
Note 12).
11.
Derivatives (Continued)
To the
extent a derivative instrument is designated effective as a cash flow hedge of
an exposure to changes in the fair value of a future transaction, the change in
fair value of the derivative is deferred in accumulated other comprehensive
loss, a component of shareholders’ equity in the condensed consolidated balance
sheets, until the underlying transaction hedged is recognized in the
consolidated statements of operations. The Corporation accounts for certain
derivatives hedging the payment of interest as cash flow hedges and the impact
of the hedge being reclassified to interest expense in the consolidated
statements of operations, upon payment of interest.
The
Corporation’s profitability and cash flows are affected by changes in interest
rates, specifically the LIBOR rate. The primary purpose of the
Corporation’s interest rate risk management activities is to hedge its exposure
to changes in interest rates. In 2009, the Corporation entered into a
forward swap contract to manage interest rate risk related to a portion of its
current variable rate senior secured term loan. The Corporation has hedged the
future interest payments related to $64,100 of the total outstanding term loan
indebtedness due in 2011 pursuant to this forward swap contract. This
swap contract, which had a fair value of ($167) at July 4, 2009, is designated
as a cash flow hedge of the future payment of variable rate interest with
three-month LIBOR fixed at 1.34% per annum in 2009, 2010 and 2011,
respectively.
In 2006,
the Corporation entered into a forward swap contract to manage interest rate
risk related to a portion of its then existing variable rate senior secured
first lien term loan. This swap contract, which had a fair value of ($3,203) at
July 4, 2009, was not designated as a cash flow hedge of the future variable
rate payment of interest. The entire change in the fair value of this
interest rate swap is recorded to derivative valuation gain in the consolidated
statements of operations. For the six months ended July 4, 2009 and June 28,
2008, the Corporation recorded a gain of $568 and $77,
respectively.
12.
Fair Value of Financial Instruments
In
September 2006, the FASB issued statement No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the
United States, and expands disclosures about fair value measurements. The
Corporation has adopted the provisions of SFAS 157 as of January 1, 2008 for
financial instruments. Although the adoption of SFAS 157 did not materially
impact its financial condition, results of operations, or cash flow, the
Corporation is now required to provide additional disclosures as part of its
financial statements.
SFAS 157
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. These tiers include: Level 1, defined as observable
inputs such as quoted prices in active markets; Level 2, defined as inputs other
than quoted prices in active markets that are either directly or indirectly
observable, and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own
assumptions.
As of
July 4, 2009 the Corporation held interest rate derivative instruments that are
required to be measured at fair value on a recurring basis. These included the
Corporation’s interest rate derivative instruments.
The
Corporation’s derivative instruments consist of contracts that are not traded on
a public exchange. The fair values of interest rate derivative instruments are
determined based on inputs that are readily available in public markets or can
be derived from information available in publicly quoted markets. Therefore, the
Corporation has categorized these swap contracts as Level 2.
The
Corporation’s assets measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS 157 at July 4, 2009 were as
follows:
|
|
July 4, 2009
|
|
|
January 3, 2009
|
|
|
|
Fair Value Measurements
|
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
|
$ |
(3,370 |
) |
|
|
$ |
(3,370 |
) |
|
$ |
- |
|
|
$ |
(3,771 |
) |
|
$ |
- |
|
|
$ |
(3,771 |
) |
|
|
$ -
|
|
$ |
(3,370 |
) |
$ -
|
|
$ |
(3,370 |
) |
|
$ |
- |
|
|
$ |
(3,771 |
) |
|
$ |
- |
|
|
$ |
(3,771 |
) |
Additionally,
financial instruments also consist of cash and cash equivalents, accounts
receivable, and long-term debt, including interest-rate swap agreements and
foreign exchange forward contracts. The carrying value of these
financial instruments approximates fair value.
The
provision for income taxes differs from that computed at the Federal statutory
rate of 39% in 2009 and 2008 as follows:
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Tax
at Federal statutory rate
|
|
$ |
4,258 |
|
|
$ |
3,899 |
|
|
$ |
7,784 |
|
|
$ |
5,950 |
|
State
income taxes
|
|
|
415 |
|
|
|
415 |
|
|
|
760 |
|
|
|
615 |
|
State
tax credits
|
|
|
(25 |
) |
|
|
(35 |
) |
|
|
(45 |
) |
|
|
(61 |
) |
Foreign
income taxes
|
|
|
(1,349 |
) |
|
|
(201 |
) |
|
|
(1,526 |
) |
|
|
(306 |
) |
Qualified
production activities deduction
|
|
|
(108 |
) |
|
|
(154 |
) |
|
|
(198 |
) |
|
|
(259 |
) |
Research
and development credits—current year
|
|
|
(58 |
) |
|
|
49 |
|
|
|
(106 |
) |
|
|
(53 |
) |
Valuation
allowance
|
|
|
- |
|
|
|
82 |
|
|
|
- |
|
|
|
82 |
|
Reserve
for uncertain tax positions
|
|
|
68 |
|
|
|
674 |
|
|
|
(309 |
) |
|
|
674 |
|
Other
|
|
|
(12 |
) |
|
|
210 |
|
|
|
57 |
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,189 |
|
|
$ |
4,939 |
|
|
$ |
6,417 |
|
|
$ |
6,832 |
|
The
Corporation’s policy with respect to interest and penalties associated with
reserves for uncertain tax positions is to classify such interest and penalties
in income tax expense in the Statements of Operations. As of July 4, 2009, the
total amount of unrecognized income tax benefits computed under FIN 48 was
approximately $6,423, all of which, if recognized, would impact the effective
income tax rate of the Corporation. As of July 4, 2009, the Corporation had
recorded a total of $299 of accrued interest and penalties related to uncertain
tax positions. The Corporation foresees possible changes in its reserves for
uncertain income tax positions as reasonably possible during the next
12 months that could result in an increase or decrease in the reserves of
$149 or $575, respectively, due to R&D credits. As of July 4, 2009, the
Corporation is subject to unexpired statutes of limitation for U.S. federal
income taxes for the year 2008. The Corporation is also subject to unexpired
statutes of limitation for various states including most significantly Indiana,
Michigan, and New Hampshire generally for the years 2001-2008.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
Balance
at January 3, 2009
|
|
$ |
8,695 |
|
Additions
based on tax positions—current year
|
|
|
374 |
|
Additions
for tax positions—prior years
|
|
|
- |
|
Settlements
|
|
|
(2,646 |
) |
|
|
|
|
|
Balance
at July 4, 2009
|
|
$ |
6,423 |
|
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In millions)
We are a
leading independent provider of implants and related instruments and cases to
orthopedic device manufacturers and other medical markets. We also design,
develop and produce these products for companies in other segments of the
medical device market, including the arthroscopy, dental, laparoscopy,
osteobiologic and endoscopy sectors, and provide limited specialized products to
non-healthcare markets, such as the aerospace industry.
We offer
our customers Total Solutions® for complete implant systems—implants,
instruments and cases. While our revenue to date has been derived primarily from
the sale of implants, instruments and cases separately, or instruments and cases
together, our ability to provide Total Solutions® for complete implant systems
has already proven to be attractive to our customers, and we expect that this
capability will continue to provide us with growth opportunities. In addition,
we expect that our Total Solutions® capability will increase the relative
percentage of value added products that we supply to our customers.
During
the second quarter 2009, our revenue decreased $8.8 million, or 8.0%, compared
to the second quarter 2008, which was largely driven by a $5.9 million
unfavorable impact from foreign currency exchange rate
fluctuations. Excluding foreign currency exchange rate fluctuations,
our revenue declined by 2.6% in the second quarter of 2009 compared to the
second quarter 2008. Our revenue from our top five orthopedic customers
represented 68.3% of total revenues. We experienced slightly
higher revenue in instrument and implant products as our core orthopedic
customers continue to launch new products. However, this increase in
revenue was more than offset by decreased revenue in cases and aerospace
products as our non-orthopedic customers reduced their requirements in response
to the current economic environment. Excluding aerospace, our medical
revenue increased 0.6% as compared to second quarter 2008, on a constant
currency basis.
Over the
last four years, we have completed five acquisitions which have afforded us the
opportunity to offer a comprehensive line of implants, surgical instruments and
cases for orthopedic device manufacturers and other medical markets on a global
basis, as well as specialized parts into the aerospace industry.
In
January 2008, we acquired DePuy Orthopaedics, Inc.’s (“DePuy”) New Bedford,
Massachusetts instrument manufacturing facility (“New Bedford”). We purchased
substantially all of the assets and real estate of New Bedford for approximately
$45.2 million in cash. New Bedford produces orthopedic instruments, general
medical instruments and some small spine related implants. Historically, 100% of
the products produced at the facility were for DePuy. Commencing in the third
quarter of 2008, we began to utilize this facility to serve our other medical
customers, as we have a strategy to diversify and expand both product and
customer portfolio at this facility. In connection with the acquisition, we
entered into a supply agreement which requires DePuy to make minimum purchases
from New Bedford for a four year period. The agreement stipulates
that these purchases are incremental to other products we presently or
previously produced on DePuy’s behalf. The commitment from DePuy totals $106.0
million over the four year period, with specific amounts in each year. Certain
key members of New Bedford’s pre-acquisition management team continue to lead
this business unit. We believe this acquisition strengthens our position as a
leading provider to the orthopedic industry and provides additional
manufacturing capacity to better serve our broad customer base, builds on our
relationship with DePuy, expands our East Coast presence and allows us to move
forward with an existing skilled workforce to service our growing
market.
Our focus
remains on being a leader in our core orthopedic business, while capitalizing on
our leadership to extend our Total Solutions® approach into other medical
markets. We continue to see a favorable customer response to our offerings
and are experiencing growth as more and more of our customers are
impacted by an increased quality and regulatory environment. Many of
our customers are reducing their number of suppliers and consolidating purchases
with larger strategic providers. By leveraging our global resources yet
providing a local presence across the global marketplace, we become closer to
our customers, provide quicker response times and increase our value added
services.
Second
Quarter Results of Operations
Revenue. Revenue
for the three month period ended July 4, 2009 decreased $8.8 million, or 8.0%,
to $101.0 million from $109.8 million for the comparable 2008 period.
Revenue for each of our principal product categories in these periods was as
follows:
Product Category
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
Instruments
|
|
$ |
46.9 |
|
|
$ |
45.1 |
|
Implants
|
|
|
29.9 |
|
|
|
31.2 |
|
Cases
|
|
|
18.9 |
|
|
|
23.4 |
|
Other
|
|
|
5.3 |
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
101.0 |
|
|
$ |
109.8 |
|
The $8.8
million decrease in revenue resulted from unfavorable foreign currency exchange
rate fluctuations of $5.9 million and reduced sales on a constant currency basis
within our case and aerospace product lines, which was only partially offset by
increases in instrument and implant product lines. Instrument revenue increased
$1.8 million. This increase was driven by an increase in organic customer demand
of $2.5 million due to the continuation of several large projects for our top
five customers driven primarily by product launches. Foreign currency exchange
rate fluctuations partially offset the increases in instrument revenues as they
had an unfavorable impact of $0.7 million. Implant revenue decreased $1.3
million driven by unfavorable foreign currency exchange rate fluctuations of
$3.0 million, partially offset by organic growth of $1.7 million resulting
from general industry growth. Case revenue decreased $4.5 million due to a $3.6
million decrease in customer demand from our non-orthopedic medical customers as
they react to the current economic environment and $0.9 million of unfavorable
foreign currency exchange rate fluctuations. Other product revenue
decreased $4.8 million primarily driven by a reduction of customer
demand of $3.5 million due to our largest customer in the aerospace industry
reacting to deteriorating market conditions in that sector in addition to
unfavorable foreign currency exchange rate fluctuations of $1.3
million.
Gross
Profit. Gross profit for the three month period ended July 4,
2009 decreased $0.6 million, or 2.3%, to $26.8 million from $27.4 million for
the comparable 2008 period. Despite experiencing declining revenues and
gross profit, management was able to increase the gross margin percentage to
26.5% in the second quarter of 2009 from 25.0% in the comparable 2008
period. This improvement was primarily driven by improved operational
performance at our Sheffield, UK operating unit due to the favorable impacts of
our headcount reduction initiatives in late 2008, improved manufacturing
processes and reduced material costs from the renegotiation of a key supply
agreement.
Selling, General and Administrative
Expenses. For the three month period ended July 4, 2009,
selling, general and administrative expenses (“SG&A”) were $13.2 million
compared with the three month period ended June 28, 2008 of $14.9 million. The
decrease was primarily driven by a reduction in professional fees and expenses
incurred in the second quarter 2008 of $1.4 million from the review of
accounting irregularities at our Sheffield, UK operating unit. The
improvement also reflects a decrease in employee compensation costs,
including headcount reductions, driven by lower revenue levels and our continued
cost control efforts, partially offset by an increase in non-cash, stock based
compensation expense of $0.5 million.
Other (Income)
Expense. Interest expense for the three month
period ended July 4, 2009 decreased $1.4 million, or 46.4%, to $1.6 million
from $2.9 million for the comparable period in 2008. This decrease reflects
the reduction in the interest rate on our debt due to our improved financial
ratios, as well as the general decline in the interest rate market in the second
quarter 2009 as compared to 2008. Additionally, aggregate outstanding
indebtedness has decreased $20.6 million, or 14.2% as compared to June 28,
2008. The net derivatives gain in second quarter 2009 consists of a
gain on interest rate swap valuation of $0.2 million related to our interest
rate swap that has not been designated as a hedge under SFAS 133 as compared to
a gain of $1.4 million for the comparable period in 2008. The interest rate
swaps are used to convert our variable rate long-term debt to fixed rates.
During 2008, the Corporation also held foreign currency forwards to mitigate
fluctuations in foreign currency on the statement of operations. The gain of the
foreign currency valuation for fiscal 2008 offset losses on foreign currency
fluctuations that were included within other expense.
Provision for Income
Taxes. Our effective tax rate was 26.2% for the three month period
ended July 4, 2009 as compared to 44.3% for the three month period ended June
28, 2008. Provision for income taxes decreased by $1.7 million, or 35.4%, to
$3.2 million for the three month period ended July 4, 2009 from $4.9 million for
the comparable 2008 period and differed from the US Federal statutory rate of
35% primarily due to a reduction in reserves for uncertain tax positions and a
reduction in estimated taxes payable in foreign jurisdictions related to 2008
activities.
Six
Months Results of Operations
Revenue. Revenue
for the six month period ended July 4, 2009 decreased $9.2 million, or 4.3%, to
$202.4 million from $211.6 million for the comparable 2008 period. Revenue
for each of our principal product categories in these periods was as
follows:
Product Category
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
Instruments
|
|
$ |
93.4 |
|
|
$ |
84.4 |
|
Implants
|
|
|
59.0 |
|
|
|
61.4 |
|
Cases
|
|
|
37.4 |
|
|
|
44.9 |
|
Other
|
|
|
12.6 |
|
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
202.4 |
|
|
$ |
211.6 |
|
The $9.2
million decrease in revenue resulted from unfavorable foreign currency exchange
rate fluctuations of $13.3 million and decreased cash and other revenue
partially offset by increased revenue within our instrument and implant product
lines on a constant currency basis. Instrument revenue increased $9.0 million
driven by an increase in organic customer demand of $8.4 million due to the
continuation of several large projects related to product launches for our top
five customers. In addition, 2009 instrument revenue increased $2.2 million from
our New Bedford acquisition which was completed at the end of January 2008.
Foreign currency exchange rate fluctuations partially offset the increases in
instrument revenues as they had an unfavorable impact of $1.6 million. Implant
revenue decreased $2.4 million driven by unfavorable foreign currency exchange
rate fluctuations of $6.6 million, partially offset by organic growth of $3.7
million resulting from general industry growth and the additional sales from our
New Bedford acquisition of $0.5 million. Case revenue decreased $7.5 million due
to a $5.8 million decrease in customer demand from our non-orthopedic medical
customers as they react to the current economic environment and $1.7 million of
unfavorable foreign currency exchange rate fluctuations. Other
product revenue decreased $8.3 million driven by both unfavorable
foreign currency exchange rate fluctuations of $3.4 million and a reduction in
customer demand of $4.9 million due to our largest customer in the aerospace
industry reacting to deteriorating market conditions in that
sector.
Gross
Profit. Gross profit for the six month period ended July 4,
2009 remained comparable with the 2008 period, decreasing $0.1 million, to $51.3
million from $51.4 million. Despite experiencing declining revenues and
gross profit, management was able to increase the gross margin percentage to
25.4% in the second quarter of 2009 from 24.3% in the comparable 2008
period. This improvement was primarily due to improved operational
performance at our Sheffield, UK operating unit driven by the favorable impacts
of our headcount reduction initiatives in late 2008, improved manufacturing
processes and reduced material costs from the renegotiation of a key supply
agreement.
Selling, General and Administrative
Expenses. For the six month period ended July 4, 2009,
selling, general and administrative expenses (“SG&A”) were $26.6 million
compared with the six month period ended June 28, 2008 of $29.3 million. The
decrease was primarily driven by a reduction in professional fees and expenses
incurred in the first half of 2008 of $3.6 million from the review of accounting
irregularities at our Sheffield, UK operating unit. The improvement
also reflects a decrease in employee compensation costs, including headcount
reductions, driven by lower revenue levels and our continued cost control
efforts, partially offset by an increase in non-cash, stock based compensation
expense of $1.1 and the additional costs from the acquisition of New
Bedford, which was acquired at the end of January 2008.
Other (Income)
Expense. Interest expense for the six month period
ended July 4, 2009 decreased $2.2 million, or 39.8%, to $3.4 million from
$5.6 million for the comparable period in 2008. This decrease reflects the
reduction in our interest rate margin above LIBOR due to improved financial
ratios, as well as the general decline in the interest rate market in the first
half of 2009 as compared to 2008. Additionally, aggregate outstanding
indebtedness has decreased $20.6 million, or 14.2% as compared to June 28,
2008. In 2009, the Corporation entered into a forward swap contract to
manage interest rate risk related to a portion of its current variable rate
senior secured term loan. The Corporation has hedged the future interest
payments related to $64.1 million of the total outstanding term loan
indebtedness due in 2011 pursuant to this forward swap contract. This
swap contract is designated as a cash flow hedge of the future payment of
variable rate interest with three-month LIBOR fixed at 1.34% per annum in 2009,
2010 and 2011, respectively. The net derivatives gain for the six
month period ended July 4, 2009 consists of a gain on interest rate swap
valuation of $0.6 million related to our interest rate swap that has not been
designated as a hedge under SFAS 133 as compared to a gain of $0.1 million for
the comparable period in 2008. The interest rate swaps are used to convert our
variable rate long-term debt to fixed rates. During 2008, the Corporation also
held foreign currency forwards to mitigate fluctuations in foreign currency on
the statement of operations. The gain of the foreign currency valuation for
fiscal 2008 offset losses on foreign currency fluctuations that were included
within other expense.
Provision for Income
Taxes. Our effective tax rate was 28.9% for the six month period
ended July 4, 2009 as compared to 40.2% for the six month period ended June 28,
2008. Provision for income taxes decreased by $0.4 million, or 6.1%, to $6.4
million for the six month period ended July 4, 2009 from $6.8 million for the
comparable 2008 period and differed from the US Federal rate of 35% primarily
due to the settlement of tax reserve and a reduction in estimated taxes payable
in foreign jurisdictions related to 2008 activities.
Liquidity
and Capital Resources
Current
Market Conditions
Current
global economic conditions have resulted in increased volatility in the
financial markets. During the first half of Fiscal 2009, we actively monitored
the financial health of our supplier base, tightened requirements for customer
credit, and increased spending controls across the company. We will continue to
monitor and manage these activities depending on current and expected market
developments.
Liquidity
Our
principal sources of liquidity in the six month period ended July 4, 2009 were
cash generated from operations and borrowings under our senior revolving credit
facility. Principal uses of cash in the six month period ended July 4,
2009 included increased working capital and capital expenditures as well as
debt service. We expect that our principal uses of cash in the future will be to
finance working capital, to pay for capital expenditures, to service debt and to
fund possible future acquisitions.
We
believe our cash resources will permit us to stay committed to our strategic
plan of increasing our share in the orthopedic market and expanding into other
medical device segments. In order to sustain profitability and cash
flow during these current economic conditions we have reduced our work force,
decreased the amount of overtime, renegotiated a key supply agreement for
reduced material costs, implemented cost control measures and began to
consolidate operating facilities.
Operating
Activities. Operating activities generated cash of $23.6
million in the six month period ended July 4, 2009 compared to a use of $2.9
million for the six month period ended June 28, 2008, an increase of $26.5
million. The increase in cash from operations for the six month period
ended July 4, 2009 is primarily a result of improved net income due to reduced
SG&A costs, lower interest and lower taxes, in addition to decreased working
capital requirements.
Cash used
for working capital fluctuations was $8.1 million in the six month period ended
July 4, 2009 as compared to a use of $24.0 million in the comparable 2008
period. In the six month period ended July 4, 2009, the primary
sources of cash for working capital came from a cash refund for income taxes,
offset by increases in inventory and reductions in accounts payable and accrued
expenses. In the six month period ended June 28, 2008, the primary
uses of cash for working capital came from increases in accounts receivable and
inventory as a result of our post-acquisition production activity at New Bedford
and a significant increase in organic revenue growth.
Investing Activities.
Capital expenditures of $9.2 million were $0.2 million higher in the six month
period ended July 4, 2009 compared to the six month period ended June 28,
2008. The acquisition of New Bedford used $45.2 million of cash in the six
month period ended June 28, 2008.
Financing
Activities. Financing activities used $6.8 million of
cash in the six month period ended July 4, 2009 compared to the six month period
ended June 28, 2008 due primarily to payments on long-term debt and capital
leases, partially offset by borrowings on our revolving line of
credit. During 2008, the incremental $60.0 million of borrowings
under our senior credit loan facility was used to fund the New Bedford
acquisition, in addition to payments on long-term debt and capital
leases.
Capital
expenditures totaled $9.2 million for the six months ended July 4, 2009,
compared to $9.0 million for the six month period ended June 28, 2008.
Expenditures were primarily for expansion and capability enhancement efforts in
our Malaysia facility, software and hardware system improvements at our US and
Sheffield, UK operating units as well as continued spending on automation and
replacement of equipment.
Debt
and Credit Facilities
As of
July 4, 2009, we had an aggregate of $124.9 million of outstanding indebtedness,
which consisted of $98.1 million of term loan borrowings outstanding under our
Senior Credit Agreement, $16.0 million of borrowings outstanding under our
revolving credit facility, $5.3 million of borrowings under our UK short-term
credit facility, $1.8 million of borrowings under our Malaysia short-term credit
facility, and $3.8 million of capital lease obligations. We had one outstanding
letter of credit as of July 4, 2009 for $3.5 million.
Our
Senior Credit Agreement contains various financial covenants, including
covenants requiring a maximum total debt to EBITDA ratio, minimum EBITDA to
interest ratio and a minimum EBITDA to fixed charges ratio. We were in
compliance with these covenants under the senior credit facility as of July 4,
2009.
We
believe that cash flow from operating activities and borrowings under our Senior
Credit Agreement will be sufficient to fund currently anticipated working
capital, planned capital spending and debt service requirements for the next
twelve months. We also review technology, manufacturing and other strategic
acquisition opportunities regularly, which may require additional debt or equity
financing.
Contractual
Obligations and Commercial Commitments
|
|
Payments due by period
|
|
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
More than 5
years
|
|
|
|
(in millions)
|
|
Long-term
debt obligations (1)
|
|
$ |
114.1 |
|
|
$ |
8.5 |
|
|
$ |
105.6 |
|
|
$ |
- |
|
|
$ |
- |
|
Capital
lease obligations
|
|
|
6.7 |
|
|
|
0.7 |
|
|
|
2.0 |
|
|
|
2.6 |
|
|
|
1.4 |
|
Operating
lease obligations
|
|
|
5.1 |
|
|
|
1.2 |
|
|
|
2.5 |
|
|
|
1.4 |
|
|
|
- |
|
Purchase
obligations (2)
|
|
|
19.9 |
|
|
|
8.5 |
|
|
|
11.4 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
145.8 |
|
|
$ |
18.9 |
|
|
$ |
121.5 |
|
|
$ |
4.0 |
|
|
$ |
1.4 |
|
* Less
than 1 year is defined as the remainder of fiscal 2009. Following periods are
whole fiscal years.
**
Liabilities for unrecognized tax benefits of $6.4 million are excluded as
reasonable estimates could not be made regarding the timing of future cash
outflows associated with those liabilities.
(1) Represents principal
maturities only and, therefore, excludes the effects of interest and interest
rate swaps. Scheduled payments for our Revolving Credit Facility
exclude interest payments as rates are variable. Borrowings under the
Revolving Credit Facility bear interest at a variable rate based on the London
Interbank Offer Rate (LIBOR) or a base rate determined by the lender’s prime
rate plus an applicable margin, as defined in the agreement. The
applicable margin for borrowings under the Amendment ranges from 0.25% to 1.25%
for base rate borrowings and 1.25% to 2.25% for LIBOR borrowings, subject to
adjustment based on the average availability under the Revolving Credit
Facility.
(2)
Primarily represents purchase agreements to buy minimum quantities of titanium
and cobalt chrome through December 2011.
Off-Balance
Sheet Arrangements
Our
off-balance sheet arrangements include our operating leases and letters of
credit, which are available under the senior credit facility. We had one letter
of credit outstanding as of July 4, 2009 in the amount of $3.5
million.
Environmental
Our
facilities and operations are subject to extensive federal, state, local and
foreign environmental and occupational health and safety laws and regulations.
These laws and regulations govern, among other things, air emissions; wastewater
discharges; the generation, storage, handling, use and transportation of
hazardous materials; the handling and disposal of hazardous wastes; the cleanup
of contamination; and the health and safety of our employees. Under such laws
and regulations, we are required to obtain permits from governmental authorities
for some of our operations. If we violate or fail to comply with these laws,
regulations or permits, we could be fined or otherwise sanctioned by regulators.
We could also be held responsible for costs and damages arising from any
contamination at our past or present facilities or at third-party waste disposal
sites. We cannot completely eliminate the risk of contamination or injury
resulting from hazardous materials, and we may incur material liability as a
result of any contamination or injury.
We
incurred approximately $0.3 million in capital expenditures for environmental,
health and safety in the six month period ended July 4, 2009 compared to $0.2
million for the comparable 2008 period.
In
connection with our recent acquisitions, we completed Phase I assessments and
did not identify any significant issues that need to be remediated. We
cannot be certain that environmental issues will not be discovered or arise in
the future related to these acquisitions.
In
conjunction with the New Bedford acquisition in January 2008, we purchased $5.0
million of environmental insurance coverage for this facility. This policy
expires January 25, 2013. In 2000, we purchased pollution legal liability
insurance that covers certain environmental liabilities that may arise at our
Warsaw, Indiana facility, at a former facility located in Peru, Indiana, and at
certain non-owned locations that we use for the disposal of waste. The insurance
has a $5.0 million aggregate limit and is subject to a deductible and certain
exclusions. The policy period expires in 2010. While the insurance may mitigate
the risk of certain environmental liabilities, we cannot guarantee that a
particular liability will be covered by this insurance.
Based on
information currently available, we do not believe that we have any material
environmental liabilities.
Critical
Accounting Policies and Estimates
The
preparation of our financial statements requires management to make estimates,
judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the periods presented. Our Annual
Report on Form 10-K for fiscal year ended January 3, 2009 includes a
summary of the critical accounting policies we believe are the most important to
aid in understanding our financial results. There have been no material changes
to these critical accounting policies that impacted our reported amounts of
assets, liabilities, revenues or expenses during the three months ended July 4,
2009.
New
Accounting Pronouncements
Business
Combinations. The Corporation adopted the provisions of the
FASB Statement of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations, on
January 4, 2009. This Statement amends SFAS 141, Business Combinations, and
provides revised guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any non-controlling interest in the
acquiree. It also provides disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The adoption of SFAS No. 141(R) had an immaterial impact
on our financial position and results of operations.
Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No.
133. The Corporation adopted the provisions of the FASB
Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of SFAS No. 133, on
January 4, 2009. The Statement
requires entities that utilize derivative instruments to provide qualitative
disclosures about their objectives and strategies for using such instruments, as
well as any details of credit-risk-related contingent features contained within
derivatives. SFAS 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS 133 have been applied, and
the impact that hedges have on an entity’s financial position, results of
operations, and cash flows. The adoption of SFAS No. 161 had no impact on our
financial position or results of operations.
Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating
Securities. The Corporation
adopted the provisions of the FASB Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating
Securities, on January 4, 2009,
with retrospective application. This FSP was
issued to clarify that unvested share-based payment awards with a right to
receive non-forfeitable dividends are participating securities. This
FSP also provides guidance on how to allocate earnings to participating
securities and compute basic earnings per share (EPS) using the two-class
method. The adoption of EITF 03-6-1 reduced previously reported EPS
by $0.01 for the three and six months ended June 28, 2008.
Subsequent
Events. The Corporation adopted the provisions of the FASB
Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent Events, on July
4, 2009. This Statement modifies the definition of subsequent events
and defines the two types of subsequent events as recognized and
non-recognized. It also requires entities to disclose the date
through which subsequent events have been evaluated and the basis for choosing
that date. The
Corporation issued its financial statements by filing with the Securities
Exchange Commission on August 7, 2009, for the quarter ended July 4,
2009. The Corporation evaluated subsequent events up through the
time of the filing.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For
financial market risks related to changes in interest rates, foreign currency
exchange rates, commodity prices and the effects of inflation, reference is made
to Item 7a “Quantitative and Qualitative Disclosures About Market
Risk” contained in Part II of our Annual Report on Form 10-K for the fiscal
year ended January 3, 2009. Our exposure to these risks, at the end of the
second quarter covered by this report, has not changed materially since January
3, 2009.
ITEM 4.
CONTROLS AND PROCEDURES
This
Report includes the certifications of our Chief Executive Officer and Chief
Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934
(the “Exchange Act”). See Exhibits 31.1 and 31.2. This
Item 4 includes information concerning the controls and control evaluations
referred to in those certifications.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) are designed to ensure that information required to be disclosed
in reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC rules and
forms and that such information is accumulated and communicated to management,
including the chief executive officer and the chief financial officer, to allow
timely decisions regarding required disclosures.
In
connection with the preparation of this Report, our management, under the
supervision and with the participation of the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures as of the end of the
fiscal quarter covered by this report on Form 10-Q. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were effective as of July
4, 2009.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our “internal control over financial reporting” (as
defined in Rule 13a-15(f) of the Exchange Act) that occurred during the
fiscal quarter covered by this report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting except that we implemented a new ERP system at our
Sheffield, UK operating unit which has improved our internal controls over
financial reporting at that location.
PART II OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
SEC
Inquiry
Following
the discovery of the accounting irregularities at our Sheffield, UK operating
unit, the Audit Committee self-reported the matter to the staff of the SEC in
October 2007. Thereafter, the SEC commenced an informal inquiry
regarding this matter.
We have
fully cooperated with the SEC in its investigation. At this time we
are unable to predict the time period necessary to resolve the investigation or
the ultimate resolution thereof. To date, considerable legal, tax and
accounting expenses have been incurred in connection with our Audit Committee’s
investigation into this matter and expenditures may continue to be incurred in
the future with regard to the SEC’s investigation. It is also
possible that the investigation may continue to require management’s time and
attention and accounting and legal resources, which could otherwise be devoted
to the operation of our business. Moreover, any action by the SEC
against us, or members of our management, may cause us to be subject to
injunctions, fines or other penalties or sanctions or result in private civil
actions, loss of key personnel or other adverse consequences and may require us
to devote additional time and resources to these matters. The
investigation may adversely affect our ability to obtain, and /or increase the
cost of obtaining directors’ and officers’ liability insurance and/or other
types of insurance, which could have a material adverse affect on our business,
results of operations and financial condition. In addition, the SEC
investigation and the remedies applied may affect certain of our business
relationships and consequently may have an adverse effect on our business in the
future.
ITEM 1A.
RISK FACTORS
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A “Risk Factors” contained
in our Annual Report on Form 10-K for the fiscal year ended January 3,
2009, which could materially affect our business, financial condition or future
results.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our
Annual Meeting of Shareholders was held June 22, 2009. Proxies were
solicited for the Annual Meeting in accordance with the requirements of The
Securities Exchange Act 1934. At the Annual Meeting, the following
occurred:
|
·
|
With respect to
Proposal 1 in our Proxy Statement (Election of Directors), John S. Krelle,
Thomas E. Chorman and Robert G. Deuster were elected to serve as the Class
I Directors. The newly-elected Class I Directors will serve a
three-year term, expiring at the annual shareholder meeting in 2012.
The Class II Directors, James S. Burns and Craig B. Reynolds are
continuing Directors serving three-year terms that expire at the annual
shareholder meeting in 2010. The Class III Directors, Brian S. Moore
and Francis T. Nusspickel are continuing Directors serving three-year
terms that expire at the annual shareholder meeting in
2011. The voting result for the Class I Directors was as
follows:
|
Class II Director
|
|
Shares Voted
For
|
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
|
John
S. Krelle
|
|
|
25,283,103 |
|
|
|
8,490,616 |
|
|
|
|
74.86 |
% |
|
|
25.14 |
% |
|
|
|
|
|
|
|
|
|
Thomas
E. Chorman
|
|
|
33,354,177 |
|
|
|
419,542 |
|
|
|
|
98.76 |
% |
|
|
1.24 |
% |
|
|
|
|
|
|
|
|
|
Robert
G. Deuster
|
|
|
33,343,201 |
|
|
|
430,518 |
|
|
|
|
98.73 |
% |
|
|
1.27 |
% |
|
·
|
With
respect to Proposal 2 in our Proxy Statement (Ratification of the
Appointment of Ernst & Young LLP as Auditors for the Year 2009), Ernst
& Young LLP was approved as our independent auditors for the year
ending January 2, 2010:
|
Shares
Voted For
|
|
|
32,899,305 |
|
|
|
|
97.41 |
% |
|
|
|
|
|
Shares
Voted Against
|
|
|
843,110 |
|
|
|
|
2.50 |
% |
|
|
|
|
|
Abstentions
|
|
|
31,304 |
|
|
|
|
0.09 |
% |
|
|
|
|
|
Broker
Non-Votes
|
|
|
0 |
|
|
|
|
0.00 |
% |
|
·
|
With respect to
Proposal 3 in our Proxy Statement (Approval of Amendment No. 1 to the
Symmetry Medical Inc. Amended and Restated 2004 Equity Incentive Plan),
the Amendment was
approved:
|
Shares
Voted For
|
|
|
29,683,182 |
|
|
|
|
90.73 |
% |
|
|
|
|
|
Shares
Voted Against
|
|
|
3,008933 |
|
|
|
|
9.21 |
% |
|
|
|
|
|
Abstentions
|
|
|
19,869 |
|
|
|
|
0.06 |
% |
|
|
|
|
|
Broker
Non-Votes
|
|
|
0 |
|
|
|
|
0.00 |
% |
ITEM 6.
EXHIBITS
10.42
|
|
Form
of Restricted Stock Agreement – Key Employees
|
|
|
|
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.**
|
|
|
|
** Filed
concurrently herewith
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
SYMMETRY MEDICAL INC.
|
|
|
|
|
By
|
/s/ Brian S. Moore
|
|
|
Brian S. Moore,
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
By
|
/s/ Fred L. Hite
|
|
|
Fred L. Hite,
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
|
|
August 7,
2009