(In millions)

Business Overview

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

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
                                                 Less than                                       More than 5
                                    Total         1 year         1-3 years       4-5 years          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 . . .