UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

Form 10-Q

______________________________



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

For the quarterly period ended September 30, 2013

Commission File Number: 333-130470

______________________________

Accellent Inc.

(Exact name of registrant as specified in its charter)

______________________________



Maryland		84-1507827
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

100 Fordham Road Wilmington, Massachusetts		01887
(Address of registrant’s principal executive offices)		(Zip code)

(978) 570-6900

Registrant’s Telephone Number, Including Area Code:

______________________________

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. Yes ¨ No x

(Note: As a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act, the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant would have been required to file such reports) as if it were subject to such filing requirements).

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 (§232.405 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 x No ¨

Indicate by check mark 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.

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

As of November 8, 2013, 1,000 shares of the registrant’s common stock were outstanding. The registrant is a wholly-owned subsidiary of Accellent Holdings Corp.

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PART I FINANCIAL INFORMATION	3

ITEM 1. Financial Statements	3
Unaudited Condensed Consolidated Balance Sheets	3
Unaudited Condensed Consolidated Statements of Operations	4
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income	5
Unaudited Condensed Consolidated Statements of Cash Flows	6
Notes to Unaudited Condensed Consolidated Financial Statements	7

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	39

ITEM 4. Controls and Procedures	39

PART II OTHER INFORMATION	40

ITEM 1. Legal Proceedings	40

ITEM 1A. Risk Factors	40

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	40

ITEM 3. Defaults Upon Senior Securities	41

ITEM 4. Mine Safety Disclosures	41

ITEM 5. Other Information	41

ITEM 6. Exhibits	41

Signatures	42

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACCELLENT INC.

Unaudited Condensed Consolidated Balance Sheets

As of December 31, 2012 and September 30, 2013

(in thousands, except share and per share data)



	December 31, 2012			September 30, 2013
Assets
Current assets:
Cash	$	59,902		$	64,577
Accounts receivable, net of allowances of $2,106 and $2,508 as of December 31, 2012 and September 30, 2013, respectively	49,403			56,735
Inventory	57,069			63,329
Prepaid expenses and other current assets	10,973			3,403
Total current assets	177,347			188,044
Property, plant and equipment, net	114,809			116,315
Assets held for sale	1,060			880
Goodwill	619,443			556,315
Other intangible assets, net	134,747			123,543
Deferred financing costs and other assets, net	13,766			11,634
Total assets	$	1,061,172		$	996,731
Liabilities and Stockholders' equity
Current liabilities:
Current portion of long-term debt	$	11		$	7
Accounts payable	20,044			22,259
Accrued payroll and benefits	6,829			11,766
Accrued interest	19,323			18,804
Accrued expenses and other current liabilities	17,359			15,915
Total current liabilities	63,566			68,751
Long-term debt	713,294			713,560
Other liabilities	39,905			40,984
Total liabilities	816,765			823,295
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, par value $0.01 per share, 50,000,000 shares authorized; 1,000 shares issued and outstanding at December 31, 2012 and September 30, 2013, respectively	—			—
Additional paid-in capital	639,610			640,503
Accumulated other comprehensive loss	(2,554		)	(2,041		)
Accumulated deficit	(392,649		)	(465,026		)
Total stockholders’ equity	244,407			173,436
Total liabilities and stockholders’ equity	$	1,061,172		$	996,731

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ACCELLENT INC.

Unaudited Condensed Consolidated Statements of Operations

For the three and nine months ended September 30, 2012 and 2013

(in thousands)



	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2013			September 30, 2012			September 30, 2013
Net sales	$	125,961		$	135,437		$	376,526		$	386,968
Cost of sales (exclusive of amortization)	92,250			97,561			280,370			287,819
Gross profit	33,711			37,876			96,156			99,149
Operating expenses:
Selling, general and administrative expenses	12,833			12,511			41,502			39,536
Research and development expenses	419			508			1,364			1,507
Impairment of goodwill	—			—			—			63,128
Restructuring expenses	714			66			2,552			(115		)
(Gain) loss on disposal of assets	(221		)	204			(254		)	896
Amortization of intangible assets	3,735			3,735			11,205			11,205
Total operating expenses	17,480			17,024			56,369			116,157
Income (loss) from continuing operations	16,231			20,852			39,787			(17,008		)
Other (expense) income, net:
Interest expense, net	(17,379		)	(17,288		)	(51,879		)	(51,865		)
Other income (expense), net	592			(103		)	(90		)	(283		)
Total other expense, net	(16,787		)	(17,391		)	(51,969		)	(52,148		)
(Loss) income from continuing operations before income taxes	(556		)	3,461			(12,182		)	(69,156		)
Provision for income taxes	999			1,035			2,717			3,158
Net (loss) income from continuing operations	(1,555		)	2,426			(14,899		)	(72,314		)
Net loss from discontinued operations, net of tax of $111 and $515 for the three and nine months ended September 30, 2012, respectively, and net of tax of $0 for the three and nine months ended September 30, 2013, respectively	(4,925		)	(63		)	(4,175		)	(63		)
Net (loss) income	$	(6,480	)	$	2,363		$	(19,074	)	$	(72,377	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ACCELLENT INC.

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

For the three and nine months ended September 30, 2012 and 2013

(in thousands)



	Three Months Ended					Nine Months Ended
	September 30, 2012			September 30, 2013		September 30, 2012			September 30, 2013
Net (loss) income	$	(6,480	)	$	2,363	$	(19,074	)	$	(72,377	)
Other comprehensive income:
Unrealized (loss) gain on available for sale security	(250		)	—		(57		)	32
Realized gain on available for sale security	—			—		—			(242		)
Cumulative translation adjustment	344			655		358			723
Other comprehensive income	94			655		301			513
Comprehensive (loss) income	$	(6,386	)	$	3,018	$	(18,773	)	$	(71,864	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ACCELLENT INC.

Unaudited Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2012 and 2013

(in thousands)



	Nine Months Ended
	September 30, 2012			September 30, 2013
Cash flows from operating activities:
Net loss	$	(19,074	)	$	(72,377	)
Less net income from discontinued operations, net of tax	(4,175		)	(63		)
Net loss from continuing operations	(14,899		)	(72,314		)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	29,578			24,634
Amortization of debt discounts and non-cash interest accrued	2,329			2,449
Restructuring charges, net of payments	1,711			—
Impairment of goodwill	—			63,128
(Gain) loss on disposal of assets	(254		)	896
Realized gain on available for sale of security	—			(242		)
Deferred income tax expense	2,099			1,785
Non-cash compensation expense	432			908
Changes in operating assets and liabilities:
Accounts receivable	(3,853		)	(7,319		)
Inventory	(2,954		)	(6,150		)
Prepaid expenses and other current assets	(824		)	(757		)
Accounts payable, accrued expenses and other liabilities	381			5,599
Net cash provided by operating activities of continuing operations	13,746			12,617
Net cash provided by (used in) operating activities of discontinued operations	2,406			(265		)
Net cash provided by operating activities	16,152			12,352
Cash flows from investing activities:
Capital expenditures	(13,180		)	(16,193		)
Proceeds from sale of property and equipment	264			68
Proceeds from the sale of available for sale securities	—			242
Net cash used in investing activities of continuing operations	(12,916		)	(15,883		)
Net cash provided by investing activities of discontinued operations	7,484			7,987
Net cash used in investing activities	(5,432		)	(7,896		)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	(16		)	(9		)
Repurchase of common stock	(43		)	—
Net cash used in financing activities	(59		)	(9		)
Effect of exchange rate changes	68			228
Net increase in cash	10,729			4,675
Cash, beginning of period	38,858			59,902
Cash, end of period	$	49,587		$	64,577
Supplemental disclosure of cash flow information:
Cash paid for interest	$	50,270		$	49,846
Cash paid for income taxes	$	2,749		$	1,165
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment purchases included in accrued expenses	$	854		$	997

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ACCELLENT INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2013

1. Summary of significant accounting policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Accellent Inc. and its wholly owned subsidiaries (collectively, the “Company”). All intercompany transactions have been eliminated.

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. The Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as the audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and in the opinion of management, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on April 1, 2013.

During the first quarter of 2013, the Company reorganized its business into two segments. The reorganization changed the reporting structure and changed the composition of the Company's reporting units. During the third quarter of 2013 the Company classified certain long term assets as held for sale (see Note 7). As a result, prior year amounts have been reclassified to conform to the current year’s presentation.

Customer Concentration

During the three and nine months ended September 30, 2012, the Company's ten largest customers accounted for approximately 62% and 64% of its consolidated net sales. During the three and nine months ended September 30, 2013, the Company's ten largest customers accounted for approximately 66% and 67% of its consolidated net sales, respectively.

The actual percentage of net sales derived from each customer whose sales represented 10% or more of the Company's consolidated net sales was as follows for the periods presented:



	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2013		September 30, 2012		September 30, 2013
Customer A	13	%	17	%	13	%	16	%
Customer B	15	%	14	%	16	%	14	%
Customer C	11	%	11	%	11	%	11	%
Customer D	*		*		*		10	%

(*) Less than 10%

At September 30, 2013, Customer A accounted for approximately 19% and Customers B and C each accounted for approximately 10% of accounts receivable, net. At December 31, 2012, Customers A and B each accounted for approximately 13% and 12%, respectively, of accounts receivable, net.

2. New Accounting Pronouncements

On February 5, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This accounting update requires additional disclosure requirements about reclassification adjustments out of accumulated other comprehensive income ("AOCI"). These adjustments include (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI. The ASU does not change the current requirements for the reporting of comprehensive income. The Company adopted the provisions of this ASU on January 1, 2013 and the adoption did not have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

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On July 18, 2013, the FASB issued ASU No. 2013-11, “Presentation of a Liability for an Unrecognized Tax Benefit When a Net Operating Loss or Tax Credit Carryforward Exists." This accounting update requires that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss (“NOL”) carryforward or other tax credit carryforward when settlement in this manner is available under applicable tax law. This guidance will be effective for the Company’s interim and annual periods beginning January 1, 2014. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

3. Inventories

Inventories consisted of the following at December 31, 2012 and September 30, 2013 (in thousands):



	December 31, 2012		September 30, 2013
Raw materials	$	12,100	$	16,147
Work-in-process	27,779		30,409
Finished goods	17,190		16,773
Total	$	57,069	$	63,329

4. Goodwill and intangible assets

Goodwill is the amount by which the cost of acquired net assets in a business combination exceeds the fair value of net identifiable assets acquired. Intangible assets include the value ascribed to trade names and trademarks, developed technology and know-how, as well as customer contracts and relationships obtained in connection with business combinations. During the first quarter of 2013, the Company reorganized its business into two segments: Advanced Surgical ("AS Segment") and Cardio & Vascular ("CV Segment").

The evaluation of the reporting units has also been reassessed and changed to reflect the current structure and operations. During the first quarter of fiscal 2013, goodwill was assigned to the new reporting units based on the relative fair values of the reporting units. This resulted in goodwill of $134 million being assigned to its Advanced Surgical reporting unit, and $485.4 million being assigned to its Cardio & Vascular reporting unit.

After the preliminary allocation of the goodwill, the carrying amount of the Advanced Surgical reporting unit exceeded its fair value by approximately $16 million, which required the Company to perform an interim goodwill impairment test for the Advanced Surgical reporting unit. Pursuant to the next step of impairment testing, the Company calculated an implied fair value of goodwill based on a hypothetical purchase price allocation. During the first quarter of 2013, the Company had not finalized this step of its impairment testing due to the complexities involved in estimating fair value. In accordance with accounting guidance the Company recognized an estimated impairment charge and recorded a pre-tax goodwill impairment charge of $51.0 million in the first quarter of 2013. The Company finalized the second step of the analysis during the second quarter of 2013 and recorded an additional pre-tax goodwill impairment charge of $12.1 million. The Company has recorded a total pre-tax goodwill impairment charge of $63.1 million in the nine months ended September 30, 2013.

The Company has elected October 31st as its annual impairment assessment date for goodwill and the indefinite lived intangible assets and performs additional impairment tests if triggering events occur. No impairment charges were recorded for goodwill and the indefinite lived intangible assets during the year ended December 31, 2012.

The Company reports all amortization expense related to finite lived intangible assets separately within its unaudited condensed consolidated statement of operations. For the three and nine months ended September 30, 2012 and 2013, the Company recorded amortization expense related to intangible assets as follows (in thousands):



	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2013		September 30, 2012		September 30, 2013
Cost of sales	$	497	$	497	$	1,491	$	1,491
Selling, general and administrative	3,238		3,238		9,714		9,714
Total	$	3,735	$	3,735	$	11,205	$	11,205

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Intangible assets consisted of the following at September 30, 2013 (in thousands):



	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology and know how	$	16,991	$	(15,665	)	$	1,326
Customer contracts and relationships	197,575		(104,758		)	92,817
Trade names and trademarks	29,400		—			29,400
Total intangible assets	$	243,966	$	(120,423	)	$	123,543

Intangible assets consisted of the following at December 31, 2012 (in thousands):



	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology and know how	$	16,991	$	(14,174	)	$	2,817
Customer contracts and relationships	197,575		(95,045		)	102,530
Trade names and trademarks	29,400		—			29,400
Total intangible assets	$	243,966	$	(109,219	)	$	134,747

Estimated intangible asset amortization expense for the remainder of 2013 is approximately $3.7 million. The estimated annual intangible asset amortization expense approximates $13.8 million in 2014, $13.0 million in each year in 2015, 2016, and 2017, and $37.6 million thereafter.

At December 31, 2012 and September 30, 2013, the remaining weighted-average amortization periods for the Company’s finite lived intangible assets were as follows (in years):



	Remaining weighted - average amortization period
	December 31, 2012	September 30, 2013
Developed technology and know how	1.4	0.7
Customer contracts and relationships	7.9	7.2
Total finite lived intangible assets	7.7	7.1

5. Long-term debt

Long-term debt consisted of the following at December 31, 2012 and September 30, 2013 (in thousands):



	December 31, 2012			September 30, 2013
Senior secured notes maturing on February 1, 2017, interest at 8.375% ("Senior Secured Notes")	$	400,000		$	400,000
Senior subordinated notes maturing on November 1, 2017, interest at 10.0% ("Senior Subordinated Notes")	315,000			315,000
Capital lease obligations	20			11
Total debt	715,020			715,011
Less—unamortized discount	(1,715		)	(1,444		)
Less—current portion	(11		)	(7		)
Long term debt, excluding current portion	$	713,294		$	713,560

The Company maintains an asset backed line of credit (the “ABL Revolver”) that provides for up to $75.0 million of borrowing capacity, subject to borrowing base availability. At September 30, 2013, there were no amounts outstanding under the ABL Revolver and the Company’s aggregate borrowing capacity was $38.6 million, after giving effect to outstanding letters of credit totaling $10.9 million and the amount of ineligible accounts receivable and inventories, as defined in the credit agreement governing the ABL Revolver.

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6. Restructuring

During the nine months ended September 30, 2013, the Company undertook no material restructuring actions.

In December 2011, the Company's Board of Directors approved a plan of closure with respect to the Company's manufacturing facility in Manchester, England. In April of 2012, the Manchester facility was closed, and substantially all employees were terminated. All affected employees were provided with stay-bonuses as well as one-time termination benefits that were received upon cessation of employment, provided they remained with the Company through the closing date. The total one-time termination benefits totaled approximately $0.6 million and were recorded over each employee’s remaining service period as they were required to stay through their termination date to receive the benefits. During the nine months ended September 30, 2012, the Company recorded $1.4 million of restructuring costs related to the facility's closure that are recorded within “Restructuring expenses” in the accompanying unaudited condensed consolidated statement of operations. During the three and nine months ended September 30, 2013, restructuring costs were negligible.

In April 2012, the Company announced a plan to close its manufacturing facility in Englewood, Colorado. The Company completed the facility closure in the first quarter of 2013 upon completion of the transfer of the facility's business to the Company's other facilities. In connection with the closure, the Company provided certain one-time termination benefits to affected employees. These one-time termination benefits were recorded over each employee's remaining service period as employees were required to stay through their termination date to receive the benefits. The Company recorded approximately $0.2 million of restructuring costs related to this facility during the three and nine months ended September 30, 2013.

The following table summarizes the amounts recorded related to restructuring activities, which are included in the accompanying unaudited condensed consolidated balance sheet as of September 30, 2012 (in thousands):



	Employee costs			Other exit costs			Total
Balance, January 1, 2012	$	340		$	—		$	340
Restructuring expenses	1,577			975			2,552
Payments	(698		)	(143		)	(841		)
Balance, September 30, 2012	$	1,219		$	832		$	2,051



	Employee costs			Other exit costs			Total
Balance, January 1, 2013	$	1,329		790			$	2,119
Restructuring expenses	(100		)	(15		)	(115		)
Payments	(1,175		)	(119		)	(1,294		)
Balance, September 30, 2013	$	54		$	656		$	710

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7. Divestitures & Assets Held for Sale

As part of the Company's continuing efforts to better focus its efforts and align with its customers, the Company discontinued certain businesses. The Company has accounted for these businesses as discontinued operations and, accordingly, has presented the results of operations and related cash flows as discontinued operations for all periods presented.

Summary results of the discontinued operations were as follows (in thousands):



	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2013			September 30, 2012			September 30, 2013
Sales	$	2,501		$	—		$	13,745		$	—
Costs and expenses	7,315			63			17,399			63
Operating loss from discontinued operations	(4,814		)	(63		)	(3,654		)	(63		)
Other expenses, net	—			—			(6		)	—
Loss from discontinued operations before income taxes	(4,814		)	(63		)	(3,660		)	(63		)
Provision for income taxes	111			—			515			—
Loss from discontinued operations, net of tax	$	(4,925	)	$	(63	)	$	(4,175	)	$	(63	)

Assets held for Sale

The Company is in the process of selling its facility located in Huntsville, Alabama. As of September 30, 2013, the property met the requirements to be classified as held for sale in the condensed consolidated balance sheet, and the sale is considered probable within the next twelve months. The assets had a net book value of approximately $1.1 million and $0.9 million as of December 31, 2012 and September 30, 2013, respectively. Assets measured at fair value on a non-recurring basis in the current period include the assets held for sale, as described in Note 11.

8. Stock-based compensation

Employee stock-based compensation

The Company maintains a 2005 Equity Plan for Key Employees of Accellent Holdings Corp. (the “2005 Equity Plan”), which provides for grants of incentive stock options, nonqualified stock options, restricted stock units and stock appreciation rights. Vesting is determined in the applicable stock option agreement and generally occurs either in equal installments over five years from the date of grant (“Time-Based”), or upon achievement of certain performance targets over a five-year period (“Performance-Based”). Targets underlying the vesting of Performance-Based shares are generally achieved upon the attainment of a specified level of Adjusted EBITDA, as defined in the indenture governing the Company’s senior secured notes, measured each calendar year. The vesting requirements for Performance-Based shares permit a catch-up of vesting should the target not be achieved in a calendar year but achieved in a subsequent calendar year, over the five year vesting period. In addition, in connection with the acquisition of the Company in 2005, the Company exchanged fully vested stock options to acquire common shares of its predecessor entities for 4,901,107 fully vested stock options, or “Roll-Over” options, of Accellent Holdings Corp. which are recorded as a liability until such options are exercised, forfeited, expired or settled.

The table below summarizes the activity relating to the Roll-Over options during the three months ended September 30, 2012 and 2013:



	Three Months Ended
	September 30, 2012			September 30, 2013
	Liability (in thousands)		Roll-Over Shares Outstanding	Liability (in thousands)		Roll-Over Shares Outstanding
Balance at July 1	$	141	80,727	$	141	80,727
Shares repurchased	—		—	—		—
Options exercised	—		—	—		—
Options forfeited	—		—	—		—
Change in fair value	—		—	—		—
Balance at end of period	$	141	80,727	$	141	80,727

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The table below summarizes the activity relating to the Roll-Over options during the nine months ended September 30, 2012 and 2013:



	Nine Months Ended
	September 30, 2012					September 30, 2013
	Liability (in thousands)			Roll-Over Shares Outstanding		Liability (in thousands)		Roll-Over Shares Outstanding
Balance at January 1	$	355		201,817		$	141	80,727
Shares repurchased	(119		)	(67,607	)	—		—
Options exercised	(58		)	(33,301	)	—		—
Options forfeited	(35		)	(20,182	)	—		—
Change in fair value	(2		)	—		—		—
Balance at end of period	$	141		80,727		$	141	80,727

The Company’s stock-based compensation expense is based on the fair value of stock-based awards measured at the grant date that is recognized over the relevant service period and includes any adjustments to the fair value of the Company’s liability related to the Roll-Over options. For stock based awards, the Company estimates the fair value of each award on the date of grant using the Black-Scholes option valuation model. For Roll-Over options, the Company estimates their fair value at each balance sheet date. The Black-Scholes option pricing model incorporates assumptions regarding stock price volatility, the expected life of the option, a risk-free interest rate, dividend yield, and an estimate of the fair value of Accellent Holdings Corp.'s common stock. The fair value of Accellent Holdings Corp.’s common stock is determined by the Board of Directors of Accellent Holdings Corp. utilizing a market based approach. The volatility of Accellent Holdings Corp.’s common stock is estimated utilizing a weighted average stock price volatility of its publicly traded peer companies, adjusted for the Company’s financial performance and the risks associated with the illiquid nature of Accellent Holdings Corp.'s common stock. The expected life of an option is estimated based on past exercise experience. The Company used the following assumptions as of September 30, 2013 to determine the fair value of the Roll-Over options:



	September 30, 2013
Expected term to exercise	0.50 years
Expected volatility	24.72	%
Risk-free rate	0.33	%
Dividend yield	—	%

During the three months ended September 30, 2012 and 2013, the Company granted stock options to employees to purchase approximately 2,347,500 and 2,102,500 shares, respectively, of Accellent Holdings Corp.'s common stock. Of the total stock options granted during the three months ended September 30, 2012,1,173,750 were Performance-Based awards. During the three months ended September 30, 2013, the Company issued no Performance-Based awards to employees. Stock options granted during the three months ended September 30, 2012 and 2013 had a weighted average grant date fair value of $0.79 and $0.68 per share, respectively. During the three months ended September 30, 2012 and 2013, 125,000 and 90,500 shares, respectively, were forfeited by employees.

During the nine months ended September 30, 2012 and 2013, the Company granted stock options to employees to purchase approximately 2,772,500 and 2,367,500 shares, respectively, of Accellent Holdings Corp.'s common stock. Of the total stock options granted during the nine months ended September 30, 2012 and 2013, 1,386,250 and 132,500, respectively, were Performance-Based awards. Stock options granted during the nine months ended September 30, 2012 and 2013 had a weighted average grant date fair value of $0.79 and $0.69 per share, respectively. During the nine months ended September 30, 2012 and 2013, 857,916 and 782,000 shares, respectively, were forfeited by employees.

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The following tables summarize the classification of recorded stock-based compensation in the unaudited condensed consolidated statements of operations and the recorded stock-based compensation by type of award for the three and nine months ended September 30, 2012 and 2013.

Classification of expense (in thousands):



	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2013		September 30, 2012		September 30, 2013
Cost of sales	$	43	$	158	$	81	$	269
Selling, general and administrative	139		260		283		549
Total	$	182	$	418	$	364	$	818

Stock-based compensation related to stock awards by type of award (in thousands):



	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2013		September 30, 2012			September 30, 2013
Time-based vesting options	$	130	$	316	$	314		$	508
Restricted stock awards	52		102		52			310
Roll-over options	—		—		(2		)	—
Total expense	$	182	$	418	$	364		$	818

At September 30, 2013, the Company determined that attainment of certain of the targets through 2013 necessary for Performance-Based options to vest is not probable. Accordingly, the Company has not recorded stock-based compensation expense for Performance-Based stock awards during the three and nine months ended September 30, 2013.

The total unvested Performance-Based shares and their aggregate fair values were 4,923,067 and 4,707,355, and $5.1 million and $4.9 million, at September 30, 2012 and 2013, respectively. The total unvested Time-Based shares and their aggregate fair values were 3,131,850 and 4,243,550, and $3.0 million and $3.4 million, at September 30, 2012 and 2013, respectively.

During the nine months ended September 30, 2012, the Company granted 837,500 shares of Restricted Stock to employees, of which 160,000 were vested and 60,000 were forfeited at September 30, 2013. The awards vest annually each year over a five year period beginning on the grant date. The aggregate grant date fair value was $2,039,750, or $2.50 per share. During the nine months ended September 30, 2013, the Company granted 50,000 shares of Restricted Stock to employees, none of which were vested at September 30, 2013. The awards vest annually each year over a five year period beginning on the grant date. The aggregate grant date fair value was $125,000, or $2.50 per share. The Company recorded approximately $0.1 million of stock-based compensation expense for the three and nine months ended September 30, 2012 related to restricted stock. The Company recorded approximately $0.1 million and $0.3 million of stock-based compensation expense during the three and nine months ended September 30, 2013 related to restricted stock.

Non-employee stock-based compensation During the three months ended September 30, 2012 and 2013, the Company recognized approximately $22,500 and $30,000, respectively, of non-employee stock-based compensation related to fees paid to members of the Company’s Board of Directors. These fees are recorded as a liability and recorded in “Other liabilities” in the unaudited condensed consolidated balance sheets.

During the nine months ended September 30, 2012 and 2013, the Company recognized approximately $67,500 and $90,000, respectively, of non-employee stock-based compensation related to fees paid to members of the Company’s Board of Directors. These fees are recorded as a liability and recorded in “Other liabilities” in the unaudited condensed consolidated balance sheets.

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9. Income taxes

The Company provides for deferred income taxes resulting from temporary differences between financial and taxable income as well as current taxes attributable to the states and foreign jurisdictions in which the Company is required to pay income taxes. The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company has not provided for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries, as these earnings have been permanently reinvested or would be offset by foreign tax credits or net operating losses.

Income tax expense for the three and nine months ended September 30, 2012 was $1.0 million and $2.7 million, respectively, and included $0.7 million and $2.1 million, respectively, of deferred income tax expense for differences in the book and tax treatment of goodwill and $0.3 million and $0.6 million, respectively, in state, foreign, and other taxes.

Income tax expense for the three and nine months ended September 30, 2013 was $1.0 million and $3.2 million, respectively, and included $0.7 million and $2.0 million, respectively, related to the book and tax treatment of goodwill and approximately $0.3 million and $1.2 million, respectively, of state, foreign, and other taxes.

The Company believes that it is more likely than not that the Company will not recognize the benefits of its domestic federal and state deferred tax assets. As a result, the Company continues to provide a full valuation allowance on those deferred tax assets. The Company’s deferred tax assets are not offset by the tax liabilities related to non-deductible goodwill when determining the need for a valuation allowance. The Company had $29.9 million and $31.9 million of net deferred tax liabilities included in “Other liabilities” in the accompanying unaudited condensed consolidated balance sheets as of December 31, 2012 and September 30, 2013, respectively, relating to goodwill basis differences.

The Company is subject to income taxes in the U.S. Federal jurisdiction, and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax law and regulations and require significant judgment to apply. The Company is currently under examination by the State of New York for income tax years ended December 31, 2008 through 2010. The Company is currently under examination by the State of Massachusetts for excise tax year ended December 31, 2011. There are no other current income tax audits. The tax years ended December 31, 2005 through 2011 remain subject to examination by major tax jurisdictions. However, since the Company has net operating loss carryforwards, which may be utilized in future years to offset taxable income, those years may also be subject to review by relevant taxing authorities if utilized, notwithstanding that the statute for assessment may have closed.

In September 2013, the U.S. Department of the Treasury and the Internal Revenue Service released final regulations relating to guidance on applying tax rules to amounts paid to acquire, produce or improve tangible personal property as well as rules for materials and supplies. The Company is currently assessing these rules and the impacts to the financial statements, if any.

10. Related party transactions

The Company maintains a management services agreement with its principal equity owner, Kohlberg, Kravis, Roberts & Co., (“KKR”) pursuant to which KKR provides certain structuring, consulting and management advisory services. During the three and nine months ended September 30, 2012 and 2013, the Company incurred management fees and related expenses pursuant to this agreement of $0.3 million and $1.0 million, respectively. As of December 31, 2012 and September 30, 2013, the Company owed KKR $0.4 million and $0.3 million for each period, respectively for unpaid management fees which are included in “Accrued expenses and other current liabilities” in the accompanying unaudited condensed consolidated balance sheets. The Company has also historically utilized the services of Capstone Consulting LLC (“Capstone”), an entity affiliated with KKR. No fees or expenses related to Capstone were incurred during the three and nine months ended September 30, 2012 and September 30, 2013. At December 31, 2012 the Company owed Capstone $0.3 million, and had no outstanding payables as of September 30, 2013.

In addition to the above, entities affiliated with KKR Asset Management (“KKR-AM”), an affiliate of KKR, owned approximately $14.0 million principal amount of the Company’s Senior Secured Notes and approximately $23.4 million principal amount of the Company’s Senior Subordinated Notes at September 30, 2013. At December 31, 2012, entities affiliated with KKR-AM owned approximately $14.7 million principal amount of the Company’s Senior Secured Notes and approximately $23.4 million principal amount of the Company’s Senior Subordinated Notes.

The Company sells products to Biomet, Inc., which is privately owned by a consortium of private equity sponsors, including KKR. Net sales resulting from product shipments to Biomet, Inc. during the three and nine months ended September 30, 2012 totaled $0.1 million and $0.3 million, respectively. Net sales resulting from product shipments to Biomet, Inc. during the three and nine months ended September 30, 2013 were approximately $0.1 million, respectively. At

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December 31, 2012, accounts receivable from Biomet, Inc. aggregated $0.1 million. At September 30, 2013, accounts receivable from Biomet were negligible.

The Company utilizes the services of SunGard Data Systems, Inc. (“SunGard”), a provider of software and information processing solutions, which is privately owned by a consortium of private equity sponsors, including KKR and Bain Capital. The Company maintains an agreement with SunGard to provide information systems hosting services for the Company. The Company incurred approximately $0.2 million and $0.6 million in fees in connection with this agreement for the three and nine month periods ended September 30, 2012 and September 30, 2013, respectively. At December 31, 2012 and September 30, 2013, the Company owed SunGard approximately $0.1 million.

11. Fair value measurements

The Company determines fair value utilizing a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value. In general, fair values determined using Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined using Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The Company uses the Black-Scholes option pricing model to value its liability for Roll-Over option awards. A roll-forward of the change in fair value of this financial instrument and information regarding the inputs used in the Black-Scholes model, that are determined by management, that is used to derive the Roll-Over options fair value, is included in Note 8.

The following tables provide a summary of the financial assets and liabilities recorded at fair value at December 31, 2012 and September 30, 2013 (in thousands):



			Fair Value Measurements at December 31, 2012 determined using
	Total Carrying Value at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment in Available for Sale Security	$	210	$	210	$	—	$	—
Liability for Roll-Over options	$	141	$	—	$	—	$	141



			Fair Value Measurements at September 30, 2013 determined using
	Total Carrying Value at September 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liability for Roll-Over options	$	141	$	—	$	—	$	141

For other instruments, the estimated fair value has been determined by the Company using available market information; however, considerable judgment is required in interpreting market data to develop these estimates. The methods and assumptions used to estimate the fair value of each class of financial instruments is as set forth below:


•	Accounts receivable and accounts payable—The carrying amounts of these items are a reasonable estimate of their fair values at December 31, 2012 and September 30, 2013 based on the short-term nature of these items.


•	Borrowings under the Senior Secured Notes due 2017—Borrowings under the Senior Secured Notes have a fixed rate. The Company intends to carry the Senior Secured Notes until their maturity. At September 30, 2013, the fair value of the Senior Secured Notes, which is Level 2 in the fair value hierarchy, was approximately 104.9%, or $419.6 million, compared to their carrying value of $400 million.

•

Borrowings under the Senior Subordinated Notes due 2017—Borrowings under the Senior Subordinated Notes due 2017 have a fixed rate. The Company intends to carry the Senior Subordinated Notes until their maturity. At September 30, 2013 the fair value of the Senior Subordinated Notes, which is Level 2 in the fair value hierarchy, was approximately 92.4%, or $291.1 million, compared to their carrying value of $315 million.

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Nonrecurring Fair Value Measurements

The Company evaluated the assets held for sale using a market approach related to the divestiture of the building in Huntsville, Alabama, which is classified as a Level 2 input within the fair value hierarchy. As bid and transaction values become apparent during the marketing and divestiture process, the fair values of the assets held for sale was established based on the Company's expectations of a sale price. The carrying value of approximately $1.1 million as of December 31, 2012 was written down to fair value, less costs to sell, resulting in a loss of approximately $0.2 million. The loss was recorded in income (loss) from continuing operations.

12. Commitments and Contingencies

The Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

Product liability claims or product recalls with respect to the Company’s components or the end-products of the Company’s customers into which the Company’s components are incorporated, could require the Company to pay significant damages or to spend significant time and money in litigation or responding to investigations or requests for information. Expenditures on litigation or damages, to the extent not covered by insurance, and declines in revenue could impair the Company’s earnings and the Company’s financial condition. There is no recall or litigation pending or, to the knowledge of the Company, threatened, that the Company expects to have a material effect on the Company’s consolidated financial position, results of operations or cash flow.

13. Environmental matters

The Pennsylvania Department of Environmental Protection (“DEP”) filed a petition for review with the U.S. Court of Appeals for the District of Columbia Circuit challenging recent amendments to the U.S. Environmental Protection Agency (“EPA”) National Air Emissions Standards for hazardous air pollutants from halogenated solvent cleaning operations. These revised standards exempt three industry sectors (aerospace, narrow tube manufacturers and facilities that use continuous web-cleaning and halogenated solvent cleaning machines) from facility emission limits for Trichloroethylene (“TCE”) and other degreaser emissions. The EPA has agreed to reconsider the exemption. The Company’s Collegeville facility meets current EPA control standards for TCE emissions and is exempt from the new lower TCE emission limit since the Company manufactures narrow tubes. As part of efforts to lower TCE emissions, the Company has begun to implement a process that will reduce the Company’s TCE emissions generated by its Collegeville facility. However, this process will not reduce TCE emissions to the levels required should a new standard become law.

At each of December 31, 2012 and September 30, 2013, the Company maintained a reserve for environmental liabilities of approximately $1.6 million and $1.4 million. The Company expects to pay $0.1 million during the balance of 2013.

14. Supplemental guarantor condensed consolidating financial statements

All of the Company's domestic subsidiaries (the “Subsidiary Guarantors”) that are 100% owned by the Company, directly or indirectly, guarantee on a joint and several, full and unconditional basis, the obligations of Accellent Inc. under the Senior Secured Notes and the Senior Subordinated Notes (collectively, the "Notes"). Foreign subsidiaries of Accellent Inc. (the “Non-Guarantor Subsidiaries”) have not guaranteed the Notes.

The following tables present the unaudited condensed consolidating statements of operations and the unaudited condensed consolidating statements of comprehensive (loss) income for the three and nine months ended September 30, 2012 and 2013, the unaudited condensed consolidating balance sheets as of December 31, 2012 and September 30, 2013, and the unaudited condensed consolidating statements of cash flows for the nine months ended September 30, 2012 and 2013, of Accellent Inc. (the “Parent”), the Subsidiary Guarantors and the Non-Guarantor Subsidiaries.

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Unaudited Condensed Consolidating Statements of Operations —

Three months ended September 30, 2012 (in thousands):



	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	115,587		$	10,939		$	(565	)	$	125,961
Cost of sales (exclusive of amortization)	—			85,095			7,720			(565		)	92,250
Selling, general and administrative expenses	23			11,918			892			—			12,833
Research and development expenses	—			210			209			—			419
Restructuring expenses	—			714			—			—			714
Amortization of intangible assets	3,735			—			—			—			3,735
(Gain) loss on disposal of assets	—			(223		)	2			—			(221		)
(Loss) income from continuing operations	(3,758		)	17,873			2,116			—			16,231
Interest (expense) income, net	(17,363		)	656			(672		)	—			(17,379		)
Other income, net	—			167			425			—			592
Equity in earnings (losses) of affiliates	19,772			1,313			—			(21,085		)	—
(Loss) income from continuing operations before income taxes	(1,349		)	20,009			1,869			(21,085		)	(556		)
Provision for income taxes	—			443			556			—			999
Net (loss) income from continuing operations	(1,349		)	19,566			1,313			(21,085		)	(1,555		)
Net (loss) income from discontinued operations, net of tax	(5,131		)	206			—			—			(4,925		)
Net (loss) income	$	(6,480	)	$	19,772		$	1,313		$	(21,085	)	$	(6,480	)

Unaudited Condensed Consolidating Statements of Operations —

Three months ended September 30, 2013 (in thousands):



	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	123,983		$	11,864		$	(410	)	$	135,437
Cost of sales (exclusive of amortization)	—			89,848			8,123			(410		)	97,561
Selling, general and administrative expenses	30			11,594			887			—			12,511
Research and development expenses	—			294			214			—			508
Impairment of goodwill	—			—			—			—			—
Restructuring expenses	—			66			—			—			66
Amortization of intangible assets	3,735			—			—			—			3,735
Loss on disposal of assets	—			148			56			—			204
(Loss) income from continuing operations	(3,765		)	22,033			2,584			—			20,852
Interest (expense) income, net	(17,287		)	715			(716		)	—			(17,288		)
Other income (expense), net	—			1,160			(1,263		)	—			(103		)
Equity in earnings of affiliates	23,415			202			—			(23,617		)	—
Income (loss) from continuing operations before income taxes	2,363			24,110			605			(23,617		)	3,461
Provision for income taxes	—			632			403			—			1,035
Net income (loss) from continuing operations	2,363			23,478			202			(23,617		)	2,426
Net loss from discontinued operations, net of tax	—			(63		)	—			—			(63		)
Net income (loss)	$	2,363		$	23,415		$	202		$	(23,617	)	$	2,363

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Unaudited Condensed Consolidating Statements of Operations —

Nine months ended September 30, 2012 (in thousands):



	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	346,842		$	31,397		$	(1,713	)	$	376,526
Cost of sales (exclusive of amortization)	—			260,184			21,899			(1,713		)	280,370
Selling, general and administrative expenses	69			38,702			2,731			—			41,502
Research and development expenses	—			707			657			—			1,364
Restructuring expenses	—			2,552			—			—			2,552
Amortization of intangible assets	11,205			—			—			—			11,205
(Gain) loss on disposal of assets	—			(264		)	10			—			(254		)
(Loss) income from continuing operations	(11,274		)	44,961			6,100			—			39,787
Interest (expense) income, net	(51,812		)	1,997			(2,064		)	—			(51,879		)
Other (expense) income, net	—			(1,154		)	1,064			—			(90		)
Equity in earnings of affiliates	49,143			3,273			—			(52,416		)	—
(Loss) income from continuing operations before income taxes	(13,943		)	49,077			5,100			(52,416		)	(12,182		)
Provision for income taxes	—			890			1,827			—			2,717
Net (loss) income from continuing operations	(13,943		)	48,187			3,273			(52,416		)	(14,899		)
Net (loss) income from discontinued operations, net of tax	(5,131		)	956			—			—			(4,175		)
Net (loss) income	$	(19,074	)	$	49,143		$	3,273		$	(52,416	)	$	(19,074	)

Unaudited Condensed Consolidating Statements of Operations —

Nine months ended September 30, 2013 (in thousands):



	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	355,194		$	32,827		$	(1,053	)	$	386,968
Cost of sales (exclusive of amortization)	—			265,785			23,087			(1,053		)	287,819
Selling, general and administrative expenses	92			36,746			2,698			—			39,536
Research and development expenses	—			919			588			—			1,507
Impairment of goodwill	63,128			—			—			—			63,128
Restructuring expenses	—			(115		)	—			—			(115		)
Amortization of intangible assets	11,205			—			—			—			11,205
Loss on disposal of assets	—			814			82			—			896
(Loss) income from continuing operations	(74,425		)	51,045			6,372			—			(17,008		)
Interest (expense) income, net	(51,867		)	2,123			(2,121		)	—			(51,865		)
Other income (expense), net	923			306			(1,512		)	—			(283		)
Equity in earnings of affiliates	52,992			1,649			—			(54,641		)	—
(Loss) income from continuing operations before income taxes	(72,377		)	55,123			2,739			(54,641		)	(69,156		)
Provision for income taxes	—			2,068			1,090			—			3,158
Net (loss) income from continuing operations	(72,377		)	53,055			1,649			(54,641		)	(72,314		)
Net loss from discontinued operations, net of tax	—			(63		)	—			—			(63		)
Net (loss) income	$	(72,377	)	$	52,992		$	1,649		$	(54,641	)	$	(72,377	)

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Unaudited Condensed Consolidating Balance Sheets

December 31, 2012 (in thousands):



	Parent		Subsidiary Guarantors			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Cash	$	—	$	53,812		$	6,090	$	—		$	59,902
Accounts receivable, net	—		46,992			2,929		(518		)	49,403
Inventories	—		52,807			4,262		—			57,069
Prepaid expenses and other current assets	215		10,399			359		—			10,973
Total current assets	215		164,010			13,640		(518		)	177,347
Property, plant and equipment, net	—		89,413			25,396		—			114,809
Assets held for sale	—		1,060			—		—			1,060
Intercompany receivables, net	—		365,713			—		(365,713		)	—
Investment in subsidiaries	554,794		9,143			—		(563,937		)	—
Goodwill	619,443		—			—		—			619,443
Other intangible assets, net	134,747		—			—		—			134,747
Deferred financing costs and other assets, net	13,269		(8		)	505		—			13,766
Total assets	$	1,322,468	$	629,331		$	39,541	$	(930,168	)	$	1,061,172
Current portion of long-term debt	$	—	$	11		$	—	$	—		$	11
Accounts payable	1		18,613			1,948		(518		)	20,044
Accrued expenses and other current liabilities	19,317		20,267			3,927		—			43,511
Total current liabilities	19,318		38,891			5,875		(518		)	63,566
Long-term debt	1,057,832		—			21,175		(365,713		)	713,294
Other long-term liabilities	911		35,646			3,348		—			39,905
Total liabilities	1,078,061		74,537			30,398		(366,231		)	816,765
Equity	244,407		554,794			9,143		(563,937		)	244,407
Total liabilities and equity	$	1,322,468	$	629,331		$	39,541	$	(930,168	)	$	1,061,172

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Unaudited Condensed Consolidating Balance Sheets

September 30, 2013 (in thousands):



	Parent		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Cash	$	—	$	56,651	$	7,926	$	—		$	64,577
Accounts receivable, net	—		52,603		4,559		(427		)	56,735
Inventories	—		58,232		5,097		—			63,329
Prepaid expenses and other current assets	24		3,095		284		—			3,403
Total current assets	24		170,581		17,866		(427		)	188,044
Property, plant and equipment, net	—		87,721		28,594		—			116,315
Assets held for sale	—		880		—		—			880
Intercompany receivables, net	—		417,205		—		(417,205		)	—
Investment in subsidiaries	608,507		11,523		—		(620,030		)	—
Goodwill	556,315		—		—		—			556,315
Other intangible assets, net	123,543		—		—		—			123,543
Deferred financing costs and other assets, net	11,090		64		480		—			11,634
Total assets	$	1,299,479	$	687,974	$	46,940	$	(1,037,662	)	$	996,731
Current portion of long-term debt	$	—	$	7	$	—	$	—		$	7
Accounts payable	—		20,845		1,841		(427		)	22,259
Accrued expenses and other current liabilities	18,804		22,098		5,583		—			46,485
Total current liabilities	18,804		42,950		7,424		(427		)	68,751
Long-term debt	1,106,313		—		24,452		(417,205		)	713,560
Other long-term liabilities	926		36,517		3,541		—			40,984
Total liabilities	1,126,043		79,467		35,417		(417,632		)	823,295
Equity	173,436		608,507		11,523		(620,030		)	173,436
Total liabilities and equity	$	1,299,479	$	687,974	$	46,940	$	(1,037,662	)	$	996,731

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Unaudited Condensed Consolidating Statements of Comprehensive (Loss) Income

Three months ended September 30, 2012 (in thousands):



	Parent			Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(6,480	)	$	19,772	$	1,313	$	(21,085	)	$	(6,480	)
Other comprehensive income (loss):
Unrealized gain on available for sale security	(250		)	—		—		—			(250		)
Cumulative translation adjustment	344			163		181		(344		)	344
Comprehensive (loss) income	$	(6,386	)	$	19,935	$	1,494	$	(21,429	)	$	(6,386	)

Unaudited Condensed Consolidating Statements of Comprehensive (Loss) Income

Three months ended September 30, 2013 (in thousands):



	Parent		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	2,363	$	23,415	$	202	$	(23,617	)	$	2,363
Other comprehensive income (loss):
Cumulative translation adjustment	655		269		386		(655		)	655
Comprehensive income	$	3,018	$	23,684	$	588	$	(24,272	)	$	3,018

Unaudited Condensed Consolidating Statements of Comprehensive (Loss) Income

Nine months ended September 30, 2012 (in thousands):



	Parent			Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(19,074	)	$	49,143	$	3,273	$	(52,416	)	$	(19,074	)
Other comprehensive income (loss):
Unrealized gain on available for sale security	(57		)	—		—		—			(57		)
Cumulative translation adjustment	358			218		140		(358		)	358
Comprehensive (loss) income	$	(18,773	)	$	49,361	$	3,413	$	(52,774	)	$	(18,773	)

Unaudited Condensed Consolidating Statements of Comprehensive (Loss) Income

Nine months ended September 30, 2013 (in thousands):



	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(72,377	)	$	52,992		$	1,649	$	(54,641	)	$	(72,377	)
Other comprehensive income (loss):
Unrealized gain on available for sale security	32			—			—		—			32
Realized gain on available for sale security	(242		)	—			—		—			(242		)
Cumulative translation adjustment	723			(8		)	731		(723		)	723
Comprehensive (loss) income	$	(71,864	)	$	52,984		$	2,380	$	(55,364	)	$	(71,864	)

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Unaudited Condensed Consolidating Statements of Cash Flows —

Nine months ended September 30, 2012 (in thousands):



	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities of continuing operations	$	(49,930	)	$	59,628		$	4,048		$	—	$	13,746
Net cash provided by operating activities of discontinued operations	—			2,406			—			—		2,406
Net cash (used in) provided by operating activities	(49,930		)	62,034			4,048			—		16,152
Cash flows from investing activities:
Capital expenditures	—			(4,552		)	(8,628		)	—		(13,180		)
Proceeds from disposition of assets	—			264			—			—		264
Net cash used in investing activities of continuing operations	—			(4,288		)	(8,628		)	—		(12,916		)
Net cash provided by investing activities of discontinued operations	—			7,484			—			—		7,484
Net cash provided by (used in) investing activities	—			3,196			(8,628		)	—		(5,432		)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	—			(14		)	(2		)	—		(16		)
Intercompany receipts (advances)	49,973			(53,379		)	3,406			—		—
Repurchase of parent company stock	(43		)	—			—			—		(43		)
Cash flows provided by (used in) financing activities	49,930			(53,393		)	3,404			—		(59		)
Effect of exchange rate changes in cash	—			86			(18		)	—		68
Net increase (decrease) in cash	—			11,923			(1,194		)	—		10,729
Cash, beginning of period	—			32,627			6,231			—		38,858
Cash, end of period	$	—		$	44,550		$	5,037		$	—	$	49,587

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Unaudited Condensed Consolidating Statements of Cash Flows —

Nine months ended September 30, 2013 (in thousands):



	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities of continuing operations	$	(48,325	)	$	56,307		$	4,635		$	—	$	12,617
Net cash used in operating activities of discontinued operations	—			(265		)	—			—		(265		)
Net cash (used in) provided by operating activities	(48,325		)	56,042			4,635			—		12,352
Cash flows from investing activities:
Capital expenditures	—			(9,877		)	(6,316		)	—		(16,193		)
Proceeds from sale of equipment	—			61			7			—		68
Proceeds from the sale of available for sale securities	242			—			—			—		242
Net cash provided by (used in) investing activities of continuing operations	242			(9,816		)	(6,309		)	—		(15,883		)
Net cash provided by investing activities of discontinued operations	—			7,987			—			—		7,987
Net cash provided by (used in) investing activities	242			(1,829		)	(6,309		)	—		(7,896		)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	—			(9		)	—			—		(9		)
Intercompany receipts (advances)	48,083			(51,357		)	3,274			—		—
Cash flows provided by (used in) financing activities	48,083			(51,366		)	3,274			—		(9		)
Effect of exchange rate changes in cash	—			(8		)	236			—		228
Net increase in cash	—			2,839			1,836			—		4,675
Cash, beginning of period	—			53,812			6,090			—		59,902
Cash, end of period	$	—		$	56,651		$	7,926		$	—	$	64,577

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15. Changes in Stockholders' Equity

The following table summarizes the changes in stockholders’ equity during the nine months ended September 30, 2013 (in thousands except share data):



	Common Stock			Additional Paid-In Capital		Accumulated other comprehensive income (loss)			Accumulated (deficit)			Total Equity
	Shares	Amount		Additional Paid-In Capital		Accumulated other comprehensive income (loss)			Accumulated (deficit)			Total Equity
Balance, January 1, 2013	1,000	$	—	$	639,610	$	(2,554	)	$	(392,649	)	$	244,407
Comprehensive loss:
Net loss		—		—		—			(72,377		)	(72,377		)
Unrealized gain on available for sale security		—		—		32			—			32
Realized gain on available for sale security		—		—		(242		)	—			(242		)
Cumulative translation adjustment		—		—		723			—			723
Total comprehensive loss												(71,864		)
Stock-based compensation and other		—		893		—			—			893
Balance, September 30, 2013	1,000	$	—	$	640,503	$	(2,041	)	$	(465,026	)	$	173,436

16. Changes in Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive (loss) income for the three months ended September 30, 2012 (in thousands):



	Defined Benefit Pension Items			Unrealized Gains and Losses on Available-for-Sale Securities			Foreign Currency Items			Total
Balance at July 1, 2012	$	(317	)	$	1,348		$	(2,090	)	$	(1,059	)
Other comprehensive (loss) income before reclassifications	—			(250		)	344			94
Amounts reclassified from accumulated other comprehensive income	—			—			—			—
Net current-period other comprehensive (loss) income	—			(250		)	344			94
Balance at September 30, 2012	$	(317	)	$	1,098		$	(1,746	)	$	(965	)

The following table summarizes the changes in accumulated other comprehensive income (loss) for the three months ended September 30, 2013 (in thousands):



	Defined Benefit Pension Items			Unrealized Gains and Losses on Available-for-Sale Securities		Foreign Currency Items			Total
Balance at July 1, 2013	$	(1,159	)	$	—	$	(1,537	)	$	(2,696	)
Other comprehensive income before reclassifications	—			—		655			655
Amounts reclassified from accumulated other comprehensive income	—			—		—			—
Net current-period other comprehensive income	—			—		655			655
Balance at September 30, 2013	$	(1,159	)	$	—	$	(882	)	$	(2,041	)

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The following table summarizes the changes in accumulated other comprehensive (loss) income for the nine months ended September 30, 2012 (in thousands):



	Defined Benefit Pension Items			Unrealized Gains and Losses on Available-for-Sale Securities			Foreign Currency Items			Total
Balance at January 1, 2012	$	(317	)	$	1,155		$	(2,104	)	$	(1,266	)
Other comprehensive (loss) income before reclassifications	—			(57		)	358			301
Amounts reclassified from accumulated other comprehensive income	—			—			—			—
Net current-period other comprehensive (loss) income	—			(57		)	358			301
Balance at September 30, 2012	$	(317	)	$	1,098		$	(1,746	)	$	(965	)

The following table summarizes the changes in accumulated other comprehensive (loss) income for the nine months ended September 30, 2013 (in thousands):



	Defined Benefit Pension Items			Unrealized Gains and Losses on Available-for-Sale Securities			Foreign Currency Items			Total
Balance at January 1, 2013	$	(1,159	)	$	210		$	(1,605	)	$	(2,554	)
Other comprehensive (loss) income before reclassifications	—			(210		)	723			513
Amounts reclassified from accumulated other comprehensive income	—			—			—			—
Net current-period other comprehensive (loss) income	—			(210		)	723			513
Balance at September 30, 2013	$	(1,159	)	$	—		$	(882	)	$	(2,041	)

17. Segment Information

Operating segments, as defined under GAAP, are components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and assess performance. From 2007 to 2012, the Company has operated centrally with separate and distinct functional leaders for operations, sales, engineering, quality and technology along with information systems, finance and human resources. Through December 31, 2012, the Company operated its facilities under common management reporting on a functional basis to various functional leaders with the Company's Chief Executive Officer with the role chief operating decision maker.

During the first quarter of 2013, the Company reorganized its business into two segments: Advanced Surgical ("AS" or "AS Segment") and Cardio & Vascular ("CV" or "CV Segment"). The AS Segment is led by the president of AS who reports to the Chief Executive Officer. This segment produces products for (1) orthopaedics that include joint, spinal, arthroscopy, and trauma products, and (2) endoscopy that include gastrointestinal, urology, and laparoscopy products. The CV Segment is also led by the president of CV who reports to the Chief Executive Officer. This segment produces products for (1) cardiac rhythm management that includes pacemakers, implantable defribillators, tools and accessories, (2) cardiovascular that includes cardiac and peripheral stents, guide wires, catheters and delivery systems, and (3) cardiac surgery that includes heart valves, perfusion cannulae kits, vein grafting and bypass instruments. As a result, the Company's reportable segment information has been restated to reflect the current structure.

The Company allocates resources based on revenues as well as earnings before interest, taxes, depreciation, amortization, and other specific and non-recurring items ("Adjusted EBITDA") of each segment. Those expenses not allocable to each segment include non-allocable overhead costs, selling, general and administrative expenses, including human resources, legal, finance, information technology, general and administrative expenses. Non-allocable expenses also include the

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amortization of intangible assets and certain restructuring expenses. Corporate services assets include intangible assets, deferred tax assets and liabilities, cash and cash equivalents, debt and other non-allocated assets.

The Company's net sales and Adjusted EBITDA by segment as well as a reconciliation of Total Adjusted EBITDA to the consolidated loss from continuing operations before provision for income taxes is as follows (in thousands):



	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2013			September 30, 2012			September 30, 2013
Net sales:
Cardio & Vascular	$	79,550		$	83,337		$	236,235		$	240,505
Advanced Surgical	48,996			53,169			147,170			148,827
Intersegment	(2,585		)	(1,069		)	(6,879		)	(2,364		)
Total net sales	$	125,961		$	135,437		$	376,526		$	386,968

Adjusted EBITDA:
Cardio & Vascular	$	25,307		$	26,852		$	72,758		$	72,568
Advanced Surgical	8,470			9,493			22,586			22,638
Corporate Services	(5,625		)	(5,761		)	(19,400		)	(18,569		)
Total Adjusted EBITDA	$	28,152		$	30,584		$	75,944		$	76,637

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ACCELLENT INC 10-Q