(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 third quarter 2009, our revenue decreased $24.9 million, or 22.2%, compared to the third quarter 2008. This reduction was driven largely by reduced customer demand across all product lines as well as an unfavorable foreign currency exchange rate impact of $2.7 million. We are experiencing very challenging business conditions due to the overall economic environment which have resulted in reduced demand of 23.8% during the third quarter from our combined five largest OEM customers as they continue to work down inventory levels and the timing of their various product launches. We cannot be certain as to the timing of when this downward trend will reverse.

Despite our current demand, we are optimistic about the future as the larger OEMs are increasingly focused on improving their supply chains. This will result in fewer suppliers who in turn will be expected to provide a wider range of services coupled with high quality and reduced overall costs. We believe that we are well positioned to benefit from increased OEM outsourcing.

Recently we have been engaged in more active and positive discussions with our customers to provide enhanced services. While these changes do not happen overnight, we continue to believe that we are in a favorable position to emerge as a supplier of choice for our major customers. We believe our global capacity and competitive strengths will benefit us when the order volume and large project launches return, particularly within the dynamic and aging US population.

We have been focused on cost reduction and cash conservation for some time and are confident that further cost savings can be achieved. We are reviewing all aspects of our operations to achieve these further cost reductions.

Over the last four years, we have completed six acquisitions which have enabled us to assemble and 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.

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 as more and more of our customers are impacted by an increased quality and regulatory requirements. Many of our customers are reducing their number of suppliers and consolidating purchases with larger strategic providers. We are able to leverage our global resources while providing a local presence across the global marketplace. This allows us to be close to our customers, provide quicker response times and increase our value added services.

Third Quarter Results of Operations

Revenue.  Revenue for the three month period ended October 3, 2009 decreased
$24.9 million, or 22.2%, to $87.2 million from $112.1 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
                    October 3,         October 4,
                       2009               2008
                             (unaudited)
Instruments        $       41.3       $       48.7
Implants                   24.2               31.5
Cases                      16.4               23.0
Other                       5.3                8.9

Total              $       87.2       $      112.1

The $24.9 million decrease in revenue resulted from challenging business conditions due to the overall economic environment that has resulted in reduced demand of 23.8% for our five largest OEM customers as they work down inventory levels and their timing of various product launches. We also experienced unfavorable foreign currency exchange rate fluctuations of $2.7 million. Instrument revenue decreased $7.4 million. This decrease was driven primarily by lower demand from our major OEM customers due to the timing of their various product launch activity and worked down their inventory levels. Foreign currency exchange rate fluctuations compounded the decrease in instrument revenues as they had an unfavorable impact of $0.4 million. Implant revenue decreased $7.3 million primarily driven by our major OEM customers working down inventory and unfavorable foreign currency exchange rate fluctuations of $1.4 million. Case revenue decreased $6.6 million due to lower demand from our major OEM customers associated with product launch activity timing and worked down their inventory levels as well as lower customer demand from our non-orthopedic medical customers as they react to the current economic environment. Case revenue also experienced a $0.3 million reduction driven by unfavorable foreign currency exchange rate fluctuations. Other product revenue decreased $3.6 million driven primarily by a reduction of customer demand 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 $0.6 million.

Gross Profit. Gross profit for the three month period ended October 3, 2009 decreased $4.4 million, or 17.2%, to $21.2 million from $25.7 million for the comparable 2008 period. This decrease was primarily due to the 22.2% decline in revenue. Despite experiencing declining revenues, the Corporation increased the gross margin percentage to 24.4% in the third quarter of 2009 from 22.9% in the comparable 2008 period. This improvement was driven primarily by aggressive actions to manage labor and other costs at all facilities and improved operational performance at our Sheffield, UK operating unit due to the favorable impacts of our headcount reduction initiatives, 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 October 3, 2009, selling, general and administrative expenses ("SG&A") were $10.8 million compared with the three month period ended October 4, 2008 of $15.2 million. The improvement reflects a decrease in employee compensation costs, including headcount reductions, taken in response to offset the lower revenue levels and our continued cost control efforts. Additionally, performance based compensation and non-cash restricted stock compensation expense decreased $1.6 million due to the decline in our financial performance. The decrease also resulted from professional fees and expenses incurred in the third quarter 2008 of $0.9 million from the review of accounting irregularities at our Sheffield, UK operating unit.

Other (Income) Expense. Interest expense for the three month period ended October 3, 2009 decreased $1.0 million, or 37.9%, to $1.7 million from $2.7 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 third quarter 2009 as compared to 2008. Additionally, aggregate outstanding indebtedness has decreased $44.8 million, or 28.9% as compared to October 4, 2008. The net derivatives gain in third 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 the provisions of the applicable FASB statement as compared to a loss of $0.3 million for the comparable period in 2008 that was more than offset by a gain of $1.3 million on foreign currency forwards. The interest rate swaps are used to convert our variable rate long-term debt to fixed rates. During 2008, the Corporation held foreign currency forwards to mitigate fluctuations in foreign currency on the statement of operations. A gain on the foreign currency valuation of $1.3 million was recorded in derivative valuation gain in the third quarter 2008 and was partially offset $3.3 million of losses on foreign currency fluctuations that were included within other expense.

Provision for Income Taxes. Our effective tax rate was 34.5% for the three month period ended October 3, 2009 as compared to 55.5% for the three month period ended October 4, 2008. Provision for income taxes decreased by $0.3 million, or 9.8%, to $2.9 million for the three month period ended October 3, 2009 from $3.2 million for the comparable 2008 period. The third quarter 2008 rate differed from the US Federal statutory rate of 35% primarily due to a valuation reserve for uncertain tax positions related to our Sheffield, UK unit.

Nine Months Results of Operations

Revenue.  Revenue for the nine month period ended October 3, 2009 decreased
$34.2 million, or 10.6%, to $289.5 million from $323.7 million for the
comparable 2008 period.  Revenue for each of our principal product categories in
these periods was as follows:

Product Category        Nine Months Ended
                   October 3,       October 4,
                      2009             2008
                           (unaudited)
Instruments        $     134.7     $      133.1
Implants                  83.2             93.0
Cases                     53.7             67.9
Other                     17.9             29.8

Total              $     289.5     $      323.7

The $34.2 million decrease in revenue primarily resulted from reduced demand of 5.1% from the five largest OEM customers as they work down inventory levels and their timing of various product launches as well as continued lower demand from other customers as they react to the current economic environment. Revenue also decreased due to unfavorable foreign currency exchange rate fluctuations of $15.9 million. Instrument revenue increased $1.6 million driven by an increase in customer demand of $1.4 million due to $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 $2.0 million. Implant revenue decreased $9.8 million driven by unfavorable foreign currency exchange rate fluctuations of $7.9 million and decreased customer demand of $2.4 million, partially offset by the additional sales from our New Bedford acquisition of $0.5 million. Case revenue decreased $14.2 million due to a $12.2 million decrease in customer demand primarily from our non-orthopedic medical customers as they react to the current economic environment as well as lower orthopedic customer demand in the third quarter of 2009 as they used excess inventory and due to the timing of their various product. Case revenue also experienced $2.0 million of unfavorable foreign currency exchange rate fluctuations. Other product revenue decreased $11.9 million driven by both a reduction in customer demand of $7.9 million due to our largest customer in the aerospace industry reacting to deteriorating market conditions in that sector and unfavorable foreign currency exchange rate fluctuations of $4.0 million.

Gross Profit. Gross profit for the nine month period ended October 3, 2009 decreased $4.4 million, or 5.8%, to $72.6 million from $77.0 million for the comparable 2008 period primarily due to the decline in revenue of 10.6%. Despite experiencing declining revenues, the Corporation was able to increase the gross margin percentage to 25.1% in 2009 from 23.8% in the comparable 2008 period. This improvement was primarily due to aggressive actions to manage labor and other costs at all facilities and improved operational performance at our Sheffield, UK operating unit driven by the favorable impacts of our headcount reduction initiatives, improved manufacturing processes and reduced material costs from the renegotiation of a key supply agreement.

Selling, General and Administrative Expenses. For the nine month period ended October 3, 2009, selling, general and administrative expenses ("SG&A") were $37.4 million compared with the nine month period ended October 4, 2008 of $44.5 million. The decrease was primarily driven by a reduction in professional fees and expenses incurred in the first three quarters of 2008 of $4.5 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, taken in response to lower revenue levels and our continued cost control efforts. Additionally, performance based compensation and non-cash restricted stock compensation expense decreased $1.2 million due to lower financial results.

Other (Income) Expense. Interest expense for the nine month period ended October 3, 2009 decreased $3.2 million, or 39.2%, to $5.1 million from $8.3 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 three quarters of 2009 as compared to 2008. Additionally, aggregate outstanding indebtedness has decreased $44.8 million, or 28.9% as compared to October 4, 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 nine month period ended October 3, 2009 consists of a gain on interest rate swap valuation of $0.7 million related to our interest rate swap that has not been designated as a hedge the provisions of the applicable FASB statement as compared to a loss of $0.4 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. A gain on the foreign currency valuation of $1.4 million was recorded in derivative valuation gain for the nine months ended October 4, 2008 and partially offset $2.9 million of losses on foreign currency fluctuations that were included within other expense.

Provision for Income Taxes. Our effective tax rate was 30.4% for the nine month period ended October 3, 2009 as compared to 44.0% for the nine month period ended October 4, 2008. Provision for income taxes decreased by $0.7 million, or 7.3%, to $9.3 million for the nine month period ended October 3, 2009 from $10.0 million for the comparable 2008 period and differed from the US Federal rate of 35% primarily due to the settlement of issues in a tax audit and a reduction in estimated taxes payable in foreign jurisdictions related to 2008 activities.

Liquidity and Capital Resources

Current Market Conditions

We are experiencing very challenging business conditions due to the overall economic environment that has resulted in reduced demand from our major OEM customers. Our major OEM customers continue to work down inventory levels and experienced fluctuated timing of their various product launch activity.

Current global economic conditions have resulted in increased volatility in the financial markets. During the first three quarters 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 nine month period ended October 3, 2009 were cash generated from operations and borrowings under our senior revolving credit facility. Principal uses of cash in the nine month period ended October 3, 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 other cost control measures and began to consolidate operating facilities.

Operating Activities. Operating activities generated cash of $39.9 million in the nine month period ended October 3, 2009 compared to $4.9 million for the nine month period ended October 4, 2008, an increase of $35.0 million. The increase in cash from operations 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 $3.9 million in the nine month period ended October 3, 2009 as compared to a use of $27.6 million in the comparable 2008 period. In the nine month period ended October 3, 2009, the primary sources of cash for working capital came from a decrease in accounts receivable and a cash refund for income taxes, offset by increases in inventory and reductions in accounts payable and accrued expenses. In the nine month period ended October 4, 2008, the primary uses of cash for working capital were driven by 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 $13.5 million were $3.4 million lower in the nine month period ended October 3, 2009 compared to the nine month period ended October 4, 2008. The acquisition of New Bedford used $45.2 million of cash in the nine month period ended October 4, 2008.

Financing Activities. Financing activities used $21.4 million of cash in the nine month period ended October 3, 2009 due primarily to payments on long-term debt, capital leases and 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 $13.5 million for the nine months ended October 3, 2009, compared to $16.8 million for the nine month period ended October 4, 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 October 3, 2009, we had an aggregate of $110.2 million of outstanding indebtedness, which consisted of $93.8 million of term loan borrowings outstanding under our Senior Credit Agreement, $7.4 million of borrowings outstanding under our revolving credit facility, $3.7 million of borrowings under our UK short-term credit facility, $1.8 million of borrowings under our Malaysia short-term credit facility, and $3.5 million of capital lease obligations. We had one outstanding letter of credit as of October 3, 2009 for $3.5 million. Subsequent to October 3, 2009, we increased the line of credit by $0.2 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 October 3, 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)    $   101.2     $       4.2     $          97.0     $         -     $           -
Capital lease obligations               6.3             0.3                 2.9             1.7               1.4
Operating lease obligations             4.4             0.5                 3.1             0.8                 -
Purchase obligations (2)               37.0             6.5                30.5               -                 -

Total                             $   148.9     $      11.5     $         133.5     $       2.5     $         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 plastic, 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. As of November 9, 2009, we had two letters of credit outstanding in the amount of $3.5 million and $0.2 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 $0.4 million in capital expenditures for environmental, health and safety related projects in the nine month period ended October 3, 2009 compared to $0.2 million for the comparable 2008 period.

In connection with our prior 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 October 3, 2009.

New Accounting Pronouncements

Business Combinations. The Corporation adopted the provisions of the FASB Statement on Business Combinations on January 4, 2009. This Statement amends the previously issued Statement on 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 the Statement had an immaterial impact on the Corporation's financial position and results of operations.

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