UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1O-Q/A

(Amendment No. 1)

 

(Mark One)

 

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

 

For the quarterly period ended

June 30, 2007

 

or

 

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

 

For the transition period from                                                                              to

 

Commission File Number: 001-32374

 

SYMMETRY MEDICAL INC.

(Exact name of registrant as specified in its charter)

 

Delaware		35-1996126
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

3724 North State Road 15, Warsaw, Indiana		46582
(Address of principal executive offices)		(Zip Code)

 

(574) 268-2252

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed 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.                       o Yes   x 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 o		Accelerated filer x
		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

 

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

o Yes x No

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

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

o Yes o No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

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

 

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

 

 

 

TABLE OF CONTENTS

 

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

 

2

 

Cautionary Note Regarding Forward-Looking Statements

 

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

 

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

 

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

 

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

 

Explanatory Note Regarding Our Restatement

 

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

 

This Form 10-Q/A reflects the restatement of: i) our previously issued consolidated financial statements for the three months and six months ended July 1, 2006 and June 30, 2007 and the year ended December 30, 2006; and ii) Management’s Discussion and Analysis, based on the restated quarterly financial information.  These adjustments are discussed in Note 2 to the condensed consolidated financial statements.  Along with this report, we are filing our amended Quarterly Report on Form 10-Q/A for the first quarter of fiscal 2007 and the delayed third quarter of fiscal 2007 on Form 10-Q as well as our Annual Report for fiscal 2007 on Form 10-K. We do not intend to amend our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods prior to fiscal 2007.  The financial information that was presented in previous filings or otherwise reported for these periods is amended by the information in our Annual Report for fiscal 2007 on Form 10-K.  The financial statements and related financial information contained in such previously filed reports should no longer be relied upon.

 

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

 

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

 

3

 

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Symmetry Medical Inc.

 

Condensed Consolidated Balance Sheets

 

		June 30,			December 30,
		2007			2006
		(Restated)			(Restated)
		(unaudited)
		(In Thousands, Except Per Share Data)
Assets:
Current Assets:
Cash and cash equivalents		$	10,991		$	11,721
Accounts receivables, net		37,995			32,909
Inventories		35,163			33,134
Refundable income taxes		4,253			4,374
Deferred income taxes		2,418			2,826
Other current assets		4,025			3,965
Total current assets		94,845			88,929
Property and equipment, net		103,595			102,907
Goodwill		132,791			129,966
Intangible assets, net of accumulated amortization		37,077			31,613
Other assets		1,098			981
Total Assets		$	369,406		$	354,396
Liabilities and Shareholders’ Equity:
Current Liabilities:
Accounts payable		$	26,754		$	20,683
Accrued wages and benefits		8,055			7,816
Other accrued expenses		4,647			4,104
Income tax payable		95			970
Deferred income taxes		752			249
Derivative valuation liability		58			1,184
Revolving line of credit		1,062			—
Current portion of capital lease obligations		2,895			3,500
Current portion of long-term debt		8,275			5,550
Total current liabilities		52,593			44,056
Deferred income taxes		8,132			8,392
Derivative valuation liability		175			549
Capital lease obligations, less current portion		4,498			5,142
Long-term debt, less current portion		62,575			63,650
Total Liabilities		127,973			121,789
Commitments and contingencies (Note 9)
Shareholders’ Equity:
Common Stock, $.0001 par value; 72,410 shares authorized; shares issued June 30, 2007—35,435; December 30, 2006—35,107)		4			4
Additional paid-in capital		272,294			270,716
Retained earnings (deficit)		(39,066		)	(45,377		)
Accumulated other comprehensive income		8,201			7,264
Total Shareholders’ Equity		241,433			232,607
Total Liabilities and Shareholders’ Equity		$	369,406		$	354,396

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

Symmetry Medical Inc.

 

Condensed Consolidated Statements of Operations

 

		Three Months Ended						Six Months Ended
		June 30,			July 1,			June 30,			July 1,
		2007			2006			2007			2006
		(Restated)			(Restated)			(Restated)			(Restated)
		(unaudited)
		(In Thousands, Except Per Share Data)
Revenue		$	69,713		$	63,181		$	134,436		$	131,505
Cost of Revenue		54,997			46,427			108,007			96,096
Gross Profit		14,716			16,754			26,429			35,409
Selling, general and administrative expenses		8,030			6,873			15,681			13,908
Operating Income		6,686			9,881			10,748			21,501
Other (income)/expense:
Interest expense		1,607			925			3,194			1,586
Derivatives valuation (gain)/loss		(278		)	408			(16		)	407
Other		(765		)	(2,174		)	(665		)	(2,557		)
Income before income taxes		6,122			10,722			8,235			22,065
Income tax expense		1,426			2,982			1,924			6,359
Net income		$	4,696		$	7,740		$	6,311		$	15,706
Net income per share:
Basic		$	0.13		$	0.22		$	0.18		$	0.45
Diluted		$	0.13		$	0.22		$	0.18		$	0.45
Weighted average common shares and equivalent shares outstanding:
Basic		35,119			34,830			35,046			34,774
Diluted		35,277			35,177			35,237			35,157

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

Symmetry Medical Inc.

 

Condensed Consolidated Statements of Cash Flows

 

		Six Months Ended
		June 30,			July 1,
		2007			2006
		(Restated)			(Restated)
		(unaudited)
		(In Thousands)
Operating activities
Net Income		$	6,311		$	15,706
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		8,591			7,677
Amortization		1,012			386
Foreign currency transaction (gain) loss		(279		)	(1,534		)
Net (gain) loss on sale of assets		(348		)	(1,233		)
Deferred income tax provision		(695		)	2,275
Excess tax benefit from stock-based compensation		(796		)	(1,062		)
Stock-based compensation		142			212
Derivative valuation change		(1,500		)	407
Change in operating assets and liabilities:
Accounts receivable		(2,019		)	2,759
Other assets		132			834
Inventories		1,263			(208		)
Current income taxes		399			(3,923		)
Accounts payable		4,259			(6,180		)
Accrued expenses and other		623			(1,861		)
Net cash provided by operating activities		17,095			14,255
Investing activities
Purchases of property and equipment		(3,963		)	(11,487		)
Proceeds from the sale of fixed assets		1,589			2,434
Acquisition, net of cash received		(17,621		)	(45,629		)
Net cash used in investing activities		(19,995		)	(54,682		)
Financing activities
Proceeds from bank revolver		49,013			47,598
Payments on bank revolver		(44,471		)	(45,373		)
Issuance of long-term debt		—			40,000
Payments on long-term debt and capital lease obligations		(3,742		)	(5,130		)
Proceeds from the issuance of common stock, net of expenses		641			547
Excess tax benefit from stock-based compensation		796			1,062
Debt issuance costs paid		—			(322		)
Net cash provided by financing activities		2,237			38,382
Effect of exchange rate changes on cash		(67		)	260
Net increase (decrease) in cash and cash equivalents		(730		)	(1,785		)
Cash and cash equivalents at beginning of period		11,721			12,471
Cash and cash equivalents at end of period		$	10,991		$	10,686
Supplemental disclosures:
Cash paid for interest		$	3,204		$	1,284
Cash paid for income taxes		$	2,221		$	6,996

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

Symmetry Medical Inc.

 

Notes to Condensed Consolidated Financial Statements

 

(In Thousands, Except Per Share Data)

(unaudited)

 

1. Basis of Presentation

 

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, and TNCO, Inc.  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 as well as all adjustments discussed in Note 2, “Restatement” 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 2006 restated consolidated financial statements and the notes thereto included in the Corporation’s Annual Report on Form 10-K for fiscal year 2007 filed contemporaneously with this Form 10-Q/A.

 

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

 

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

 

On January 9, 2007, the Corporation acquired all of the stock of Whedon Limited, a privately owned company based in Warwickshire, UK and the holding company of Clamonta Limited (collectively “Clamonta Ltd”), for $10,331 in cash, subject to certain post closing adjustments.  Clamonta Ltd manufactures aerospace products for the global aerospace industry.

 

On April 3, 2007, the Corporation acquired all of the stock of TNCO, Inc. (“TNCO”), a privately owned company based in Whitman, Massachusetts for $7,223 in cash, subject to certain post closing adjustments.   TNCO designs and supplies precision instruments for arthroscopic, laparoscopic, sinus, and other minimally invasive procedures.

 

2.  Restatement

 

Background of the Investigation

 

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

 

This Form 10-Q/A reflects the restatement of our previously issued condensed consolidated financial statements for the three months and six months ended July 1, 2006 and June 30, 2007 and the year ended December 30, 2006.  Along with this report, we are filing our amended Quarterly Report on Form 10-Q/A for the first quarter of fiscal 2007 and

 

7

 

the delayed third quarter of fiscal 2007 on Form 10-Q as well as our Annual Report for fiscal 2007 on Form 10-K. We do not intend to amend our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods prior to fiscal 2007.  The financial information that was presented in previous filings or otherwise reported for these periods is amended by the information in our Annual Report for fiscal 2007 on Form 10-K.  The financial statements and related financial information contained in such previously filed reports should no longer be relied upon.

 

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

 

We have quantified the impact of the irregularities identified at our Sheffield, UK operating unit, and are restating our financial statements to correct those irregularities.  The restatements correct misstatements within accounts receivable, inventory, accounts payable, property, plant and equipment and the corresponding income tax and profit and loss impacts. Furthermore, once the restated financial performance was known, an impairment of goodwill and certain other intangibles at that subsidiary occurred in fiscal 2005. The cumulative impact to beginning retained earnings as of December 31, 2005 was $46.5 million.

 

Restatement Adjustments

 

The following table represents the effect of the restatement on the condensed consolidated statements of operations for the three months ended June 30, 2007 and July 1, 2006 and should be reviewed in conjunction with the descriptions of the adjustments following the condensed consolidated balance sheets:

 

		Three Months Ended									Three Months Ended
		June 30,			June 30,			June 30,			July 1,			July 1,			July 1,
		2007			2007			2007			2006			2006			2006
		(Reported)			(Adjustment)			(Restated)			(Reported)			(Adjustment)			(Restated)
		(unaudited)
		(In Thousands, Except per Share Data)
Revenue		$	69,566		$	147		$	69,713		$	64,760		$	(1,579	)	$	63,181
Cost of Revenue		54,093			904			54,997			47,873			(1,446		)	46,427
Gross Profit		15,473			(757		)	14,716			16,887			(133		)	16,754
Selling, general, and administrative expenses		8,365			(335		)	8,030			6,892			(19		)	6,873
Operating Income		7,108			(422		)	6,686			9,995			(114		)	9,881
Other expense:
Interest expense		1,607			—			1,607			925			—			925
Derivatives valuation (gain)/loss		(278		)	—			(278		)	408			—			408
Other		(730		)	(35		)	(765		)	(2,059		)	(115		)	(2,174		)
Income before income taxes		6,509			(387		)	6,122			10,721			1			10,722
Income tax expense		2,078			(652		)	1,426			3,042			(60		)	2,982
Net income		$	4,431		$	265		$	4,696		$	7,679		$	61		$	7,740
Net income per share:
Basic		$	0.13		$	0.00		$	0.13		$	0.22		$	0.00		$	0.22
Diluted		$	0.13		$	0.00		$	0.13		$	0.22		$	0.00		$	0.22
Weighted average common shares and equivalent shares outstanding:
Basic		35,119			—			35,119			34,830			—			34,830
Diluted		35,277			—			35,277			35,177			—			35,177

 

8

 

The following table represents the effect of the restatement on the condensed consolidated statements of operations for the six months ended June 30, 2007 and July 1, 2006 and should be reviewed in conjunction with the descriptions of the adjustments following the condensed consolidated balance sheets:

 

		Six Months Ended									Six Months Ended
		June 30, 2007			June 30, 2007			June 30, 2007			July 1, 2006			July 1, 2006			July 1, 2006
		(Reported)			(Adjustment)			(Restated)			(Reported)			(Adjustment)			(Restated)
		(unaudited)
Revenue		$	137,085		$	(2,649	)	$	134,436		$	134,373		$	(2,868	)	$	131,505
Cost of Revenue		106,651			1,356			108,007			97,145			(1,049		)	96,096
Gross Profit		30,434			(4,005		)	26,429			37,228			(1,819		)	35,409
Selling, general, and administrative expenses		16,238			(557		)	15,681			13,932			(24		)	13,908
Operating Income (loss)		14,196			(3,448		)	10,748			23,296			(1,795		)	21,501
Other (income) expense:
Interest expense		3,194			—			3,194			1,586			—			1,586
Derivatives valuation (gain)/loss		(16		)	—			(16		)	407			—			407
Other		(741		)	76			(665		)	(2,280		)	(277		)	(2,557		)
Income before income taxes		11,759			(3,524		)	8,235			23,583			(1,518		)	22,065
Income tax expense		3,618			(1,694		)	1,924			7,526			(1,167		)	6,359
Net income (loss)		$	8,141		$	(1,830	)	$	6,311		$	16,057		$	(351	)	$	15,706
Net income (loss) per share:
Basic		$	0.23		$	(0.05	)	$	0.18		$	0.46		$	(0.01	)	$	0.45
Diluted		$	0.23		$	(0.05	)	$	0.18		$	0.46		$	(0.01	)	$	0.45
Weighted average common shares and equivalent shares outstanding:
Basic		35,046			—			35,046			34,774			—			34,774
Diluted		35,237			—			35,237			35,157			—			35,157

 

9

The following table represents the effect of the restatement on the condensed consolidated balance sheets as of June 30, 2007 and December 30, 2006 and should be reviewed in conjunction with the descriptions of the adjustments following the condensed consolidated balance sheets:

 

		June 30, 2007			June 30, 2007			June 30, 2007			December30, 2006			December 30, 2006			December 30, 2006
		(Reported)			(Adjustment)			(Restated)			(Reported)			(Adjustment)			(Restated)
		(unaudited)			(unaudited)			(unaudited)
		(In Thousands, Except Per Share Data)
Assets:
Current Assets:
Cash and cash equivalents		$	10,991		$	—		$	10,991		$	11,721		$	—		$	11,721
Accounts receivables, net		53,101			(15,106		)	37,995			47,506			(14,597		)	32,909
Inventories		50,208			(15,045		)	35,163			47,392			(14,258		)	33,134
Refundable income taxes		32			4,221			4,253			111			4,263			4,374
Deferred income taxes		2,418			—			2,418			2,826			—			2,826
Other current assets		5,457			(1,432		)	4,025			3,965			—			3,965
Total current assets		122,207			(27,362		)	94,845			113,521			(24,592		)	88,929
Property and equipment, net		110,030			(6,435		)	103,595			106,147			(3,240		)	102,907
Goodwill		159,706			(26,915		)	132,791			156,241			(26,275		)	129,966
Intangible assets, net of accumulated amortization		38,719			(1,642		)	37,077			33,257			(1,644		)	31,613
Other assets		1,098			—			1,098			981			—			981
Total Assets		$	431,760		$	(62,354	)	$	369,406		$	410,147		$	(55,751	)	$	354,396
Liabilities and Shareholders’ Equity:
Current Liabilities:
Accounts payable		$	23,010		$	3,744		$	26,754		$	14,860		$	5,823		$	20,683
Accrued wages and benefits		8,055			—			8,055			7,816			—			7,816
Other accrued expenses		4,647			—			4,647			4,104			—			4,104
Income tax payable		386			(291		)	95			850			120			970
Deferred income taxes		332			420			752			249			—			249
Derivative valuation liability		58			—			58			1,184			—			1,184
Revolving line of credit		1,062			—			1,062			—			—			—
Current portion of capital lease obligations		2,895			—			2,895			3,500			—			3,500
Current portion of long-term debt		8,275			—			8,275			5,550			—			5,550
Total current liabilities		48,720			3,873			52,593			38,113			5,943			44,056
Deferred income taxes		12,310			(4,178		)	8,132			11,832			(3,440		)	8,392
Derivative valuation liability		175			—			175			549			—			549
Capital lease obligations, less current portion		4,498			—			4,498			5,142			—			5,142
Long-term debt, less current portion		62,575			—			62,575			63,650			—			63,650
Total Liabilities		128,278			(305		)	127,973			119,286			2,503			121,789
Commitments and contingencies (Note 9)
Shareholders’ Equity:
Common Stock, $.0001 par value; 72,410 shares authorized; shares issued June 30, 2007—35,435; December 30, 2006—35,107)		4			—			4			4			—			4
Additional paid-in capital		273,482			(1,188		)	272,294			271,388			(672		)	270,716
Retained earnings (deficit)		14,912			(53,978		)	(39,066		)	6,771			(52,148		)	(45,377		)
Accumulated other comprehensive income (loss)		15,084			(6,883		)	8,201			12,698			(5,434		)	7,264
Total Shareholders’ Equity		303,482			(62,049		)	241,433			290,861			(58,254		)	232,607
Total Liabilities and Shareholders’ Equity		$	431,760		$	(62,354	)	$	369,406		$	410,147		$	(55,751	)	$	354,396

 

The adjustments resulting in the restatements are described as follows:

 

Revenue and Accounts Receivable Adjustments - Revenue adjustments include the correction of revenue recognized in incorrect periods and the elimination of fictitious transactions.

 

Cost of Revenue, Inventory and Accounts Payable Adjustments - Adjustments include the correction of cost of sales related to revenue adjustments discussed above in addition to the eliminations of fictitious work in process inventory which had been previously sold or scrapped and adjustments to properly reflect the timing of inventory receipts and related disbursements.

 

Selling General and Administrative and Additional Paid in Capital Adjustments - Selling, general and administrative adjustments include the reversal of amortization expense related to performance based restricted stock awards which are no longer probable of vesting due to the lower restated financial results at Sheffield.

 

Other Expense Adjustments - Other expense adjustments are due primarily to revised the foreign currency transaction gains and losses associated with the restated accounts receivable balances.

 

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

 

Property & Equipment, Net Adjustments – Remove costs in construction in progress related to costs associated with tools and dies that were capitalized erroneously.

 

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

 

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