United States
Securities and Exchange Commission
Washington, D.C.
Form 10-K
(Amendment No. 1)
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2013 | Commission file number 0-16093 |
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
New York | 16-0977505 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
525 French Road, Utica, New York | 13502 | |
(Address of principal executive offices) | (Zip Code) |
(315) 797-8375
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
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.
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨o
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 filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of
June 30, 2013,The number of shares of the registrant'sregistrant’s $0.01 par value common stock outstanding as of
DOCUMENTS INCORPORATED BY REFERENCE:
None
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) supplements the Annual Report on Form 10-K of CONMED Corporation (“CONMED” or the “Company”) for the year ended December 31, 2013 (the “Form 10-K”), which we filed with the Securities and Exchange Commission (“SEC”) on February 25, 2014. This amendment is being filed primarily to provide the information required by Items 10, 11, 12, 13 and 14 of Part III of Form 10-K. The information was previously omitted from the Form 10-K in reliance on General Instruction G(3) to Form 10-K, which permits the information in Part III to be incorporated in the Form 10-K by reference from a definitive proxy statement if such statement is filed no later than 120 days after the end of our fiscal year. We are filing this Form 10-K/A because we no longer expect to file our definitive proxy statement by such date. Accordingly, this Form 10-K/A hereby amends and replaces in its entirety Part III of Form 10-K. In addition, the reference on the cover page of the Definitive Proxy Statement or other informational filing forForm 10-K to the
We have filed herewith Exhibit 31, Rule 13a-14(a) Certifications. Because no financial statements have been included in this Form 10-K/A and this Form 10-K/A does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. We are not including the certificate under Section 906 of the Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this report.
Except as described above, this Form 10-K/A does not amend any other information set forth in the Form 10-K, and we have not updated disclosures included therein to reflect any subsequent events. This Form 10-K/A should be read in conjunction with the Form 10-K and with our filings with the SEC subsequent to the Form 10-K.
FORM FOR THE YEAR ENDED DECEMBER 31, PART III Security Ownership of Certain Beneficial Owners and Certain Relationships and Related Transactions, and Director PART III Item 10. Directors, Executive Officers and Corporate Governance About our Directors Our goal is to assemble a Board that operates cohesively and challenges and questions management in a constructive way. We have a process in place for selecting qualified director candidates that seeks to identify individuals who possess a broad range of qualifications that would enhance Board composition. Our process retains the flexibility to consider a number of factors in the selection process, which may include judgment, skill, diversity, reputation, experience with businesses and other organizations of comparable size as executives, directors or in other leadership positions, an understanding of finance and financial reporting processes, a corporate governance background, the ability to dedicate significant time for service on the Company’s Board of Directors, the interplay of the candidate’s experience with the experience of other Board members, and the extent to which the candidate would be a desirable addition to the Board and any committees of the Board. In this regard, we also look for the skills and expertise required to satisfy the listing requirements of the NASDAQ Stock Market, on which CONMED’s stock is traded. After searching for candidates with experience in the medical device field, in July 2013, we increased the size of the Board to nine directors, seven of whom are independent, with the additions of Brian Concannon and Dirk M. Kuyper. Additionally, in February 2014, we announced several other changes to our board structure in connection with the Company entering into an agreement (the “Nomination and Standstill Agreement”) with Coppersmith Capital Management LLC, Jerome J. Lande, Craig Rosenblum and Curt R. Hartman. Coppersmith Capital Management, LLC beneficially owned 1,630,800 shares of the Company’s common stock, par value $.01 per share (“Common Stock”) as of February 27, 2014, representing approximately 6% of the outstanding Common Stock based on 27,216,544 shares outstanding as of April 22, 2014. The Nomination and Standstill Agreement resulted in Mr. Hartman and Mr. Lande becoming Directors of the Company on March 1, 2014 and Mark E. Tryniski assuming the role of Chairman of the Board. Lastly, two long serving members of the Board, Bruce F. Daniels and Stuart J. Schwartz, have announced they will retire from the Board and not stand for election at the 2014 Annual Meeting. Following this agreement and the 2014 Annual Meeting, the Company’s Board will comprise ten directors, eight of whom will be independent. The Company’s Directors are elected at each annual meeting of shareholders and serve until the next annual meeting and until their successors are duly elected and qualified. Eugene R. Corasanti’s employment is subject to an employment agreement that is terminable at will, as further described below. Joseph J. Corasanti’s employment is subject to an amended and restated employment agreement which expires on December 31, 2014. The Company’s other officers are appointed by the Board of Directors and, except as set forth below, hold office at the will of the Board of Directors. Directors BRIAN CONCANNON (age 56) has served as a Director of the Company since July 2013. Mr. Concannon is the President and Chief Executive Officer (“CEO”) of Haemonetics Corporation, a publicly traded company (NYSE: HAE) headquartered in Braintree, Massachusetts, that provides blood management technologies and services to hospitals, blood collectors and plasma biopharmaceutical companies worldwide. He joined Haemonetics in 2003 as the President, Patient Division and was promoted to President, Global Markets in 2006. In 2007, Mr. Concannon was promoted to Chief Operating Officer and in April 2009, Mr. Concannon was promoted to President and Chief Executive Officer, and elected to the Haemonetics Board of Directors. Immediately prior to joining the Company, Mr. Concannon was the President, Northeast Region, for Cardinal Health Medical Products and Services where he was employed since 1998. From 1985 to 1998, he was employed by American Hospital Supply Corporation, Baxter Healthcare Corp and Allegiance Healthcare in a series of sales and operations management positions of increasing responsibility. He has served in leadership roles within the healthcare industry for more than 25 years. Mr. Concannon is a 1979 graduate of West Point. The Board of Directors has determined that Mr. Concannon is independent within the meaning of the rules of the Securities and Exchange Commission. Mr. Concannon’s qualifications for serving on CONMED’s Board include his experience as an active CEO of a publicly-traded medical device company, and the former president of a distribution company. Mr. Concannon offers industry experience from a sales and marketing perspective. He has the ability and willingness to serve on a Board, and the correct fit to work in a collegial manner with the other directors. EUGENE R. CORASANTI (age 83) served as Chairman of the Board of the Company since its incorporation in 1970 until February 25, 2014 and has served as a Director of the Company since then. Mr. E. Corasanti also served as the Company’s Chief Executive Officer from its founding through December 31, 2006 and continues to serve as Vice Chairman, a non-officer, non-director position he has held since January 1, 2007. Prior to the founding of the Company, Mr. E. Corasanti was an independent public accountant. Mr. E. Corasanti holds a B.B.A. degree in Accounting from Niagara University. Eugene R. Corasanti’s son, Joseph J. Corasanti, is Chief Executive Officer and President and a Director of the Company. Mr. E. Corasanti’s qualifications for serving on CONMED’s Board include being the founder of the Company. His accomplishments, financial acumen, knowledge of the industry and markets, and appetite for risk are particularly relevant to directing the strategy for the Company, as are his knowledge and contacts in the Company’s industry and the markets in which they compete. Mr. E. Corasanti’s intimate knowledge of the Company he founded provides a viewpoint distinct from that of management. JOSEPH J. CORASANTI (age 50) has served as President and Chief Executive Officer (“CEO”) since January 1, 2007, having served as President and Chief Operating Officer of the Company since August 1999 and as a Director of the Company since May 1994. Mr. J. Corasanti is also a member of the Board of Directors of II-VI, Inc. (NASDAQ: IIVI), a manufacturer of optical and electro-optical components and devices for infrared, e-ray, gamma-ray, telecommunication and other applications, where Mr. J. Corasanti is a member of the audit committee. He also served as General Counsel and Vice President-Legal Affairs of the Company from March 1993 to August 1998 and Executive Vice-President/General Manager of the Company from August 1998 to August 1999. Prior to that time, he was an Associate Attorney with the law firm of Morgan, Wenzel & McNicholas, Los Angeles, California from 1990 to March 1993. Mr. J. Corasanti is admitted to the State Bar of New York and California. Mr. J. Corasanti holds a B.A. degree in Political Science from Hobart College and a J.D. degree from Whittier College School of Law. Joseph J. Corasanti is the son of Eugene R. Corasanti, Director of the Company and Vice Chairman of the Company. Mr. J. Corasanti’s qualifications for serving on CONMED’s Board include his accomplishments as the Chief Executive Officer of the Company in growing the Company over the past several years. His oversight and management of the executive officers are most relevant to directing the strategy for the Company, as are his knowledge and contacts in the Company’s industry and the markets in which they compete. BRUCE F. DANIELS (age 79) has served as a Director of the Company since August 1992. Mr. Daniels is a retired executive. From August 1974 to June 1997, Mr. Daniels held various executive positions, including a position as Controller with Chicago Pneumatic Tool Company. Mr. Daniels holds a B.S. degree in Business from Utica College of Syracuse University. The Board of Directors has determined that Mr. Daniels is independent, and that he is an audit committee financial expert, within the meaning of the rules of the Securities and Exchange Commission. Mr. Daniels’ qualifications for serving on CONMED’s Board include his experience as a Controller of Chicago Pneumatic for several years, along with this service as a director and chair of the Audit Committee for the past eighteen years. Mr. Daniels’ experience and background with Chicago Pneumatic brings a different perspective to the Board than that offered by other directors whose experience has been in other industries. JO ANN GOLDEN (age 66) has served as a Director of the Company since May 2003. Ms. Golden is a certified public accountant and through her retirement in July 2012 was the managing partner of the New Hartford, New York office of Dermody Burke and Brown, CPAs, LLC, an accounting firm. Ms. Golden is also a member of the Board of Directors of the Bank of Utica, serving in this role since December 2009, and as Chair of the Audit & Examining Committee since 2010. Ms. Golden is a past President of the New York State Society of Certified Public Accountants (“the State Society”), having served previously as the Secretary and Vice President of the State Society. In addition, Ms. Golden was a president of the New York State Society’s Foundation for Accounting Education. Ms. Golden served as a member of the governing Council of the American Institute of Certified Public Accountants (“AICPA”), and was a member of the AICPA’s Global Credential Survey Task Force in 2001. Ms. Golden holds a B.A. from the State University College at New Paltz, and a B.S. in Accounting from Utica College of Syracuse University. The Board of Directors has determined that Ms. Golden is independent, and that she is an audit committee financial expert, within the meaning of the rules of the Securities and Exchange Commission. Ms. Golden’s qualifications for serving on CONMED’s Board include her financial and accounting expertise, acquired through her experience as the managing partner of Dermody, Burke and Brown, CPAs as well as her vast service to the State Society. Ms. Golden’s experience and background with a professional accounting firm bring a different perspective to the Board than that offered by other directors. CURT R. HARTMAN (age 50) has served as a Director of the Company since March 1, 2014. He had a twenty-two year career at Stryker Corporation (“Stryker”) from 1990 through February 2013. Most recently, he served as the Interim Chief Executive Officer of Stryker from February 2012 to October 2012. Prior to this role, Mr. Hartman was the Vice President, Chief Financial Officer (“CFO”) of Stryker from April 2009 to October 2012. Mr. Hartman has a Bachelor of Science degree in Aerospace Engineering from the University of Michigan. The Board of Directors has determined that Mr. Hartman is independent, and that he is an audit committee financial expert, within the meaning of the rules of the Securities and Exchange Commission. Mr. Hartman was appointed to the Company’s Board of Directors pursuant to an agreement the Company entered into with Coppersmith Capital Management LLC, certain of its affiliates and Mr. Hartman that is further described under the heading “About our Directors” in this Item 10. Mr. Hartman’s qualifications for serving on CONMED’s Board include his experience as a former CFO of a publicly-traded medical device company in the orthopedic space. He offers industry experience from both an operational and a financial perspective. Mr. Hartman is believed to have the ability and willingness to commit adequate time to the Board, and his long-term tenure at Stryker suggests that he has been able to work with others, and will be able to work in a collegial manner with the other directors. DIRK M. KUYPER (age 57) has served as a Director of the Company since July 2013. Mr. Kuyper is the President and CEO of Illuminoss Medical, Inc., a privately-held medical device company specializing in minimally invasive solutions for bone fractures. Prior to joining Illuminoss in April 2013, Mr. Kuyper served as a consultant for a number of medical device companies including Benvenue Cap Medical. From June 2007 to August 2012, Mr. Kuyper served as the President & CEO, and President of Global Commercial Operations of Alphatec Spine, (NASDAQ – ATEC) and as a member of the Board of Directors from June 2007 to August 2012. Prior to his work for Alphatec, he served in several executive capacities including as President and as Executive Vice President and Chief Operating Officer for Aesculap, Inc.’s North American operations in Center Valley, Pennsylvania. Mr. Kuyper has a Bachelor’s of Science degree from the University of Miami. The Board of Directors has determined that Mr. Kuyper is independent within the meaning of the rules of the Securities and Exchange Commission. Mr. Kuyper’s qualifications for serving on CONMED’s Board include his experience as an active CEO of a smaller, entrepreneurial medical device company, as the former CEO of a publicly-traded medical device company, and the former president of a large medical device company. Mr. Kuyper offers industry experience from a sales and marketing perspective. Based on discussions and experience on the Board, he has the ability and willingness to serve on a Board, and the correct fit to work in a collegial manner with the other directors. JEROME J. LANDE (age 38) has served as a Director of the Company since March 1, 2014. He is the Managing Partner of Coppersmith Capital which he co-founded in April 2012. Previously, Mr. Lande was a partner at MCM Capital Management, LLC (“MCM”), from January 2006 until February 2012, and served as an Executive Vice President at MCM from January 2005 until he left the company. MCM was the general partner of MMI Investments, L.P., a small-cap deep value fund where Mr. Lande was responsible for all areas of portfolio management. He served as a Vice President of MCM from February 2002 to January 2005 and as an Associate from January 1999 to February 2002. Mr. Lande served as Corporate Development Officer of Key Components, Inc., a global diversified industrial manufacturer that was formerly an SEC reporting company, from January 1999 until its acquisition by Actuant Corporation in February 2004. Mr. Lande holds a B.A. from Cornell University. The Board of Directors has determined that Mr. Lande is independent within the meaning of the rules of the Securities and Exchange Commission. Mr. Lande was appointed to the Company’s Board of Directors pursuant to an agreement the Company entered into with Coppersmith Capital Management LLC, certain of its affiliates and Mr. Hartman that is further described under the heading “About our Directors” in this Item 10. Mr. Lande’s qualifications for serving on CONMED’s Board include his experience as an investor in CONMED and in other stocks. He offers a shareholder-centric perspective which is unique to the Board to some degree, as all Directors own stock in the Company. Mr. Lande’s contacts and familiarity with investor and shareholder matters is unique on the Board. Mr. Lande is believed to have the ability and willingness to commit adequate time to the Board and Committee meetings. Mr. Lande is believed, based on the manner in which he approached the Board and was appointed as a director, to be able to work in a collegial manner with the other directors, and his experience and background brings a different perspective to the Board than that offered by other directors. STEPHEN M. MANDIA (age 49) has served as a Director of the Company since July 2002. Mr. Mandia is the President of Mandia International Trading Corp. He has served as Chairman of the Board of Directors of Sovena USA, formerly East Coast Olive Oil Corp., and now a subsidiary of Sovena Group since January 1, 2010 and currently serves as the Chairman of the Board of Eva Gourmet. He previously served as Chief Executive Officer of Sovena USA from 1991 to December 31, 2009. Mr. Mandia holds a B.S. Degree from Bentley College, located in Waltham, Massachusetts, having also undertaken undergraduate studies at Richmond College in London. The Board of Directors has determined that Mr. Mandia is independent within the meaning of the rules of the Securities and Exchange Commission. Mr. Mandia’s qualifications for serving on CONMED’s Board include his experience as the founder and Chief Executive Officer of a privately-held company which he grew into the largest importer of olive oil in the United States. Likewise, his exposure to and familiarity with conducting business in multiple countries and cultures outside the United States, as well as his experience with managing employees and growth, offers insights and perspectives that are unique on the Board. STUART J. SCHWARTZ (age 77) has served as a Director of the Company since May 1998. Dr. Schwartz is a retired physician. From 1969 to December 1997 he was engaged in private practice as an urologist. Dr. Schwartz holds a B.A. degree from Cornell University and an M.D. degree from SUNY Upstate Medical College, Syracuse, NY. The Board of Directors has determined that Dr. Schwartz is independent within the meaning of the rules of the Securities and Exchange Commission. Dr. Schwartz’s qualifications for serving on CONMED’s Board include his extensive education and experience as a surgeon. This experience has provided unique insights for the Board’s evaluation of technologies and acquisitions, as well as marketing strategies, from the perspective of the ultimate consumer of many, if not all, of the Company’s products. MARK E. TRYNISKI (age 53) has served as a Director of the Company since May 2007 and was the Lead Independent Director from May 2009 until he became Chairman of the Board on February 25, 2014. He is the President and Chief Executive Officer of Community Bank System, Inc. (NYSE:CBU), where he served as Executive Vice President and Chief Operating Officer from February 2004 through August 2006. From June 2003 through February 2004, Mr. Tryniski was the Chief Financial Officer. Prior to joining Community Bank in June 2003, Mr. Tryniski was a partner with PricewaterhouseCoopers LLP. Mr. Tryniski also serves on the Board of Directors of the New York Bankers Association as well as the Independent Bankers Association of New York State. Mr. Tryniski holds a B.S. degree from the State University of New York at Oswego. The Board of Directors has determined that Mr. Tryniski is independent, and that he is an audit committee financial expert, within the meaning of the rules of the Securities and Exchange Commission. Mr. Tryniski’s qualifications for serving on CONMED’s Board include his extensive experience as an active Chief Executive Officer of a public financial institution as well as his financial and accounting expertise acquired through his experience as an audit partner with PricewaterhouseCoopers LLP. His exposure to, and familiarity with banking and financial matters offers a number of contacts and level of familiarity with financial matters that is unique on the Board. Further, his experience constructively engaging with shareholders makes him well-suited to serve in the role of Chairman of the Board. Mr. Daniels and Dr. Schwartz, both current Directors of the Company, have chosen not to stand for re-election at the Annual Meeting. Executive Officers WILLIAM W. ABRAHAM (age 82) joined the Company in May 1977 as General Manager. He served as the Company’s Vice President-Manufacturing and Engineering from June 1983 until October 1989. In November 1989, he was named Executive Vice President serving in a number of senior management roles including business development. In March 2013, Mr. Abraham’s title was changed to Executive Vice President, Business Development. Mr. Abraham holds a B.S. degree in Industrial Management from Utica College of Syracuse University. HEATHER L. COHEN (age 41) joined the Company in October 2001 as Associate Counsel and has served as Deputy General Counsel since March 2002 and as the Company’s Secretary since March 2008. In June 2008, Ms. Cohen was also named the Vice President of Corporate Human Resources. In March 2013, Ms. Cohen’s title was changed to Executive Vice President, Human Resources, Deputy General Counsel and Secretary. Prior to joining the Company, Ms. Cohen was an Associate Attorney with the law firm Getnick Livingston Atkinson Gigliotti & Priore, LLP from 1998 to 2001. Ms. Cohen holds a B.A. in Political Science and Education from Colgate University and a J.D. from Emory University. Ms. Cohen is the sister-in-law-by-marriage of Joseph J. Corasanti, the Chief Executive Officer, and President and Director of the Company in that Ms. Cohen’s husband is the brother of the wife of Joseph J. Corasanti, who is the son of Eugene R. Corasanti, Director of the Company and Vice Chairman of the Company. JOSEPH G. DARLING (age 56) joined the Company in May 2008 as a member of the executive team and in July 2011 was named Vice President – Corporate Commercial Operations with responsibility for corporate sales, marketing and research activities. In March 2013, Mr. Darling’s title was changed to Executive Vice President, Commercial Operations. Prior to joining the Company, Mr. Darling served in a number of management roles at Smith & Nephew, Inc. from October 2005 through April 2008 where he most recently was Senior Vice President & General Manager and a member of the executive leadership team for the sports medicine business unit within the Endoscopy division. Prior to Smith & Nephew, Mr. Darling served Baxter International, Inc. in a number of increasingly senior positions from May 1999 to October 2005. Additionally, Mr. Darling held a variety of senior sales and marketing positions with Abbott Laboratories Pharmaceutical Products Division and Wyeth-Ayerst Laboratories from 1983 to 1999. Mr. Darling holds a B.A. degree in Political Science from Syracuse University Maxwell School of Citizenship. DANIEL S. JONAS (age 50) joined the Company as General Counsel in August 1998 and in addition became the Vice President-Legal Affairs in March 1999. In March 2013, Mr. Jonas’ title was changed to Executive Vice President, Legal Affairs & General Counsel. Mr. Jonas is also the Chairman of MedTech Association, Inc. Prior to his employment with the Company, Mr. Jonas was a partner with the law firm of Harter, Secrest & Emery, LLP in Syracuse from January 1998 to August 1998, having joined the firm as an Associate Attorney in 1995. Mr. Jonas holds an A.B. degree from Brown University and a J.D. from the University of Pennsylvania Law School. GREGORY R. JONES (age 59) joined the Company in June 2008 as Vice President, Regulatory Affairs & Quality Assurance and became Vice President of Corporate Quality Assurance/Regulatory Affairs in February 2009. In March 2013, Mr. Jones’ title was changed to Executive Vice President, Quality Assurance/Regulatory Affairs. Prior to joining CONMED, Mr. Jones was Senior Vice President, Regulatory Affairs & Quality Assurance and a member of the Executive Management team with Power Medical Interventions (“PMI”) from November 2003 to May 2008. Prior to joining PMI, Mr. Jones spent 14 years from 1989 to 2003 in increasingly senior RA/QA management positions at Ethicon, a Johnson & Johnson Company, ultimately serving as the Worldwide Director, Regulatory Affairs & Quality Assurance for Ethicon’s GYNECARE division from 2001 to 2003. Mr. Jones holds a B.A. degree in Sociology from Geneva College. LUKE A. POMILIO (age 49) joined the Company as Controller in September 1995. Subsequently, Mr. Pomilio assumed additional responsibility for certain corporate functions including worldwide operations and select administrative functions. In May 2009, Mr. Pomilio was promoted to Vice President, Controller and Corporate General Manager. In March 2013, Mr. Pomilio’s title was changed to Executive Vice President, Controller and Corporate General Manager. Prior to his employment with the Company, Mr. Pomilio was employed as a manager with Price Waterhouse LLP. Mr. Pomilio is a certified public accountant and graduated with a B.S. degree in Accounting from Clarkson University. ROBERT D. SHALLISH, Jr. (age 65) joined the Company as Chief Financial Officer (“CFO”) and Vice President-Finance in December 1989 and has also served as an Assistant Secretary since March 1995. In March 2013, Mr. Shallish’s title was changed to Executive Vice President, Finance & Chief Financial Officer. Prior to this, he was employed as Controller of Genigraphics Corporation in Syracuse, New York since 1984. He was employed by Price Waterhouse LLP from 1972 through 1984 where he most recently served as a senior manager. Mr. Shallish is a certified public accountant and graduated with an A.B. degree in Economics from Hamilton College. He holds a Master’s degree in Accounting from Syracuse University. Other Company Officers TERENCE M. BERGE (age 44) joined the Company in June 1998 as Assistant Corporate Controller and has served as the Company’s Treasurer since March 2008. In March 2013, Mr. Berge’s title was changed to Corporate Vice President, Treasurer and Assistant Controller. Prior to joining the Company, Mr. Berge was employed by Price Waterhouse LLP from 1991 through 1998 where he served most recently as an audit manager. Mr. Berge is a certified public accountant and holds a B.S. degree in Accounting from the State University of New York at Oswego. MARK SNYDER (age 61) joined the Company as Group Director, Manufacturing in January 1986. He was named Vice President of Manufacturing Operations in September 1992 and Vice President, Global Operations & Supply Chain in June 2010. In March 2013, Mr. Snyder’s title was changed to Executive Vice President, Manufacturing Operations & Supply Chain. Prior to joining the company, he was employed by Price Waterhouse LLP since 1984 in the Management Consulting Services group where he was Manager of Manufacturing Services. In 1980 he joined the Management Information Systems group with National Supply Company and served as a Systems Project Leader. Mr. Snyder graduated with a B.A. degree in Philosophy from Temple University, and holds an M.B.A. from the University of Houston. Section 16(a) Beneficial Ownership Reporting Compliance Pursuant to regulations promulgated by the Securities and Exchange Commission, the Company is required to identify, based solely on a review of reports filed under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and furnished to the Company pursuant to Rule 16a-3(e) thereunder, each person who, at any time during its fiscal year ended December 31, 2013, was a director, officer or beneficial owner of more than 10% of the Company’s Common Stock that failed to file on a timely basis any such reports. Based on such reports, the Company is not aware of any such failure to file on a timely basis any such reports by any such person that has not previously been disclosed. Ethics Disclosure The Company has adopted, as of March 31, 2003, an ethics program which applies to all employees, including senior financial officers and the principal executive officer. The ethics program is available through the “Investors” section of the CONMED Corporation web site (http://www.conmed.com), and is administered by the Company’s General Counsel. The Program codifies standards reasonably necessary to deter wrongdoing and to promote honest and ethical conduct, avoidance of conflicts of interest, full, fair, accurate, timely and understandable disclosure, compliance with laws, prompt internal reporting of code violations and accountability for adherence to the code and permits anonymous reporting by employees to an independent third party, which will alert the Chair of the Audit Committee of the Board of Directors if and when it receives any anonymous reports. No waivers under the Ethics Program have been granted. Audit Committee The Company has a standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act, which currently consists of the following independent directors: Jo Ann Golden (Chair), Bruce F. Daniels, Curt R. Hartman and Mark E. Tryniski. Although not currently engaged professionally in the practice of auditing or accounting, the Audit Committee and Board of Directors have determined that Messrs. Daniels, Hartman and Tryniski and Ms. Golden qualify as “audit committee financial experts” within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002 and the implementing regulations and that such qualifications were acquired through relevant education and work experience. ITEM 11. Executive Compensation COMPENSATION DISCUSSION AND ANALYSIS The Company’s compensation programs are primarily designed to reward performance that appropriately balances achievement of both the Company’s short and long-term goals. For the executives, performance is measured by improvement in earnings, sales and other financial metrics, as well as operating results and individual contributions to the Company’s performance. The Company also considers the need to attract and retain executives with the requisite experience and qualifications to achieve our business goals. Executive employment, advancement and compensation are contingent on demonstrating high ethical standards and compliance with governmental and regulatory standards. The Compensation Committee is responsible for and oversees all aspects of compensation for executive officers as well as certain other key employees. The Committee relies on the CEO to make recommendations on compensation levels for the executives (other than the CEO). In July 2013, the Compensation Committee retained Semler Brossy as a compensation consultant relative to compensation paid to the CEO and CFO and the engagement has continued through 2014 as the Compensation Committee continues to evaluate the compensation for these positions. In addition, Semler Brossy reviewed Board of Director fees in 2013 as more fully described in the Director Compensation section. Semler Brossy does not provide any services to management and does not have any business or personal relationship with any member of the Committee or management. No decisions have been made based on this consultation other than consideration to adding additional peer companies in future compensation analysis. Each year the Compensation Committee reviews compensation for similar positions at other corporations within a designated peer group of companies that includes other public medical device companies. The purpose of the review is to ensure that the Company’s overall compensation levels, and the components thereof, are appropriate in light of the nature of the medical device business and the talent for which we compete. There is no fixed formula or percentile of market-established compensation levels which the Company strives to meet. The complete list of the companies reviewed in 2013 was: Accuray, Inc. Align Technology, Inc. Analogic Corp., Arthrocare Corp, Cooper Companies, Inc., Greatbatch Inc., Haemonetics Corporation, Hill-Rom Holdings, Inc. IDEXX Laboratories, Inc., Integra Life Sciences Holdings Corporation, Invacare Corp., Masimo Corp., Nuvasive Inc., Orthofix International N.V., Resmed Inc., Sirona Dental Systems, Inc., Steris Corporation, Teleflex, Inc., Thoratec Corp., West Pharmaceuticals, Inc., Wright Medical Group, Inc., and Zoll Medical Corp. The Compensation Committee may revise the list of peer companies used for annual benchmarking purposes as appropriate for reasons including, but not limited to, changes in revenue, market capitalization, profitability, and in the medical device industry so that the peer companies include those companies with whom we compete for executive talent. The Compensation Committee reviewed the voting results on the advisory resolution, commonly referred to as a “say-on-pay” resolution, when evaluating our executive compensation programs and noted 92.4% of the shares voted by shareholders at the 2013 Annual Shareholders meeting voted in favor of the compensation program. The Compensation Committee believes that these voting results evidence strong shareholder support for our current compensation practices, and accordingly did not make any changes to our executive compensation practices or programs. Risk Assessment The Compensation Committee has evaluated the Company’s compensation programs to assess whether such programs as designed or administered would facilitate or encourage excessive risk-taking by employees. The Committee has concluded that the programs are not reasonably likely to have a material adverse effect on the Company in part due to the following program elements: (i) limits provided on annual incentive and long-term performance awards, (ii) the potential opportunity derived from long-term incentive programs outweigh the benefit available under the annual incentive programs thereby creating a focus on sustained Company operational and financial performance, and (iii) the enhanced stock ownership guidelines impacting all executives. Elements of the Executive Compensation Program Element Description Performance Primary Objective Highlights For summary purposes, key features related to our executive compensation program include the following: Salary A Named Executive Officer’s (an “NEO”) salary is initially established based upon an evaluation of the competitive salaries for similar positions in the market. Absent a promotion or some other unusual circumstance, salaries are reviewed once per year. In this process, the Compensation Committee considers the recommendation of the CEO in reviewing and approving the base salaries of the executive officers and certain senior employees (other than the CEO) at a meeting of the Compensation Committee in the April/May time frame, with the final decisions made by the Compensation Committee and Board of Directors generally in May. In making his recommendation for the NEOs, other executive officers and certain senior employees, the CEO considers current compensation data derived from the proxies of the peer companies described above and, as appropriate, compensation data gathered from third-party surveys generally available to the Company. The CEO considers the individual’s contribution to the Company’s performance and exercises judgment and discretion when considering any additional factors that should appropriately affect the executive’s salary. Such factors from time to time may include the complexity of the NEO’s area of responsibility, individual achievements and the performance of his or her respective area of responsibility, expected future contributions, and internal pay equity. No specific formula is used to weigh or evaluate these factors, but rather the CEO considers such factors on the whole when making a base salary recommendation. As to the process for reviewing the base salary for the CEO, the Committee considers the Company’s performance, CEO’s contribution and responsibilities. No fixed formula or target percentile is established for setting the base salary. In May 2013, the Company increased the salaries of each of Mr. J. Corasanti, Mr. Shallish, Mr. Darling, Mr. Jonas and Mr. Pomilio by 3% (to $586,205, $323,385, $374,534, $292,987 and $318,907, respectively). Executive Bonus Plan The Company maintains the shareholder-approved EBP, used to pay incentive compensation to certain Company executives, including our NEOs. Annual bonus targets and performance metrics are established in the first quarter of the year by the Compensation Committee and the Board of Directors at the meeting typically held in late February or early March. 2013 Executive Bonus Plan Performance Goals As in the prior year, the target bonus percentage for NEOs in 2013 was 50% of base salary (and for Mr. J. Corasanti, it was base salary plus his contractual deferred compensation, which at the time was $200,000) (in each case, “Base Compensation”) with the first 20% of any bonus earned to be paid in 2014 based on also achieving at least 85% of the budgeted 2014 non-GAAP EPS goal. If at least 85% of the 2013 goal is not achieved, or if the NEO is no longer employed by the Company when the Form 10-K for 2014 is filed, the 20% portion of the bonus held back from 2013 will be forfeited. The 2013 performance goals for the NEOs included primary and secondary performance goals. The primary performance goal was based on earnings per share of $1.80, adjusted for items including restructuring charges, changes in tax or accounting rules, or other nonrecurring events. This primary performance goal, which was the minimum threshold for any payment of 2013 bonus for NEOs under the EBP, was consistent with the results of the Company’s internal budget goals and the Company’s guidance to investors. The maximum bonus potential for NEOs was 113% of Base Compensation if achievement of 120% (i.e., $2.10 earnings per share) or more of the target non-GAAP EPS performance goal was achieved. This generally results in a 2% increase in bonus payout for each $0.01 in non-GAAP EPS achieved. Under the terms of the EBP, the Compensation Committee reserves the right to exercise negative discretion with respect to each participant’s bonus amount. Secondary performance goals for 2013 bonuses under the EBP were based on GAAP net sales and adjusted operating cash flow. The net sales goal was $785 million and operating cash flow goal was $105 million. Operating cash flow was adjusted for items including restructuring charges, changes in tax or accounting rules, or other nonrecurring events. If the primary performance goal (non-GAAP EPS of $1.80) had not been met, no consideration would have been given to performance under the secondary targets and no bonus would have been paid regardless of performance under these secondary performance goals. If the primary targets were achievedand the secondary targets were exceeded on a combined average, the average percentage achievement on the secondary targets serves to increase the bonus due under the primary goal by that same percentage. An example is provided below, assuming achievement of the non-GAAP EPS target of $1.80 and secondary performance goals as follows: ($ in thousands) Net sales Operating cash flow Average % – Secondary goal performance In this example, the NEOs would have earned 101.8% of target bonus percentage which would result in a payout of 50.9% of Base Compensation. For 2013, the actual bonus earned by the NEOs was 52% of Base Compensation at December 31, 2013. This is based on the Company achieving non-GAAP earnings per share of $1.81, or 101% of the 2013 primary performance goal. Secondary goals were not achieved as 2013 actual net sales were 97.2% of the goal and operating cash flow was only 91.2% of the goal. Below is a reconciliation of GAAP to non-GAAP EPS ($ in thousands): Reported net income Facility consolidation costs Costs associated with the termination of a product offering Total cost of sales Administrative consolidation costs Patent dispute costs Pension settlement costs Total other expense Loss on early extinguishment of debt Total adjusted expense before income taxes Provision (benefit) for income taxes on adjusted expense Adjusted net income Per share data: Reported net income Basic Diluted Adjusted net income Basic Adjusted In addition, as provided for in 2012 bonuses, 20% of the incentive payout from 2012 was held back to be paid in 2014 based on achieving at least 85% of the 2013 non-GAAP EPS target, or a minimum of $1.53. This was achieved and the payout took place in March 2014. The Committee has the discretion, upon the recommendation of the CEO, to review at year-end the Company’s actual results, and may consider certain mitigating factors, such as one-time costs or other unique events not contemplated at the time the goals were established. The Committee in such circumstances may also consider the need to attract and retain executive talent and, in such instances, a discretionary bonus may be awarded to adjust for these factors. Although the Committee generally reserves the right to pay discretionary bonuses from time to time, no NEOs were awarded a discretionary bonus in 2013. 2014 Executive Bonus Plan Performance Goals The 2014 EBP performance goals were established by the Compensation Committee in February 2014 and are based on achievement of non-GAAP EPS and Net Sales. The target bonus at 100% achievement of both the non-GAAP EPS and Sales performance goals is 50% of salary. To reinforce profitability, the target bonus is weighted more heavily to earnings with 70% based on achievement of a non-GAAP EPS goal and 30% based on achievement of a sales goal. The bonus payment is based on a sliding scale between threshold and maximum performance as follows: Net sales (in thousands) % of target performance Payout – % of target bonus Non-GAAP EPS % of target performance Payout – % of target bonus Non-GAAP EPS for these purposes is adjusted for unusual items including restructuring charges, changes in tax or accounting rules, or other nonrecurring events. No bonus will be paid unless the threshold non-GAAP EPS is met. The Compensation Committee structured this scale to incent executives with challenging targets based upon the Company’s internal goals and guidance to investors. The 20% holdback of the incentive payout from the 2013 bonuses is payable to participants in March 2015 unless 2014 non-GAAP EPS is less than $1.66 (85% of the 2014 non-GAAP EPS target). It is also payable if employee is terminated without cause prior to March 2015. Equity Compensation Equity compensation, in the form of stock options, Stock Appreciation Rights (“SARs”), Restricted Stock Units (“RSUs”), or Performance Share Units (“PSUs”), is awarded to align the interests of NEOs with those of shareholders, to encourage long-term retention, and to provide a counter-balance to the incentives offered by the EBP which reward the achievement of comparatively short-term performance goals. Equity compensation awards to our NEOs are mainly granted under our Amended and Restated Long-Term Incentive Plan. The Company’s equity compensation awards generally provide vesting periods of five years (or longer). The exercise price on all outstanding options and SARs is equal to the quoted closing price of the stock on the date of grant. SARs are only settled in shares of the Company’s stock. RSUs and PSUs are valued at the market value or closing price of the underlying stock on the date of grant. Stock options, SARs, RSUs, and PSUs are generally non-transferable other than on death and expire ten years from date of grant. The Company has a policy against cash buyouts of underwater options or SARs. The Committee has historically taken a multi-tiered approach to equity compensation grants to NEOs whereby, the CEO’s and CFO’s equity compensation should reflect a larger percentage of the overall compensation so that the CEO and CFO have a greater incentive to focus on long-term growth and strategic positioning, as well as regulatory and ethics compliance. The Committee determines the amount of equity compensation for each NEO other than the CEO, based in part, on recommendations from the CEO in the April-May time frame, with all actual grants generally made in May to be effective on June 1st or the closest business day to this date for ease of administration. While there is no fixed formula for equity compensation grants, the Committee seeks to establish an appropriate balance between cash and non-cash compensation, short and long term incentives, at-risk compensation and the form of equity compensation. The Committee generally prefers consistent annual RSU and SAR grants to the NEOs but will alter such amounts to rebalance or alter the components of compensation to the extent it is deemed appropriate. NEOs receive a greater percentage of equity compensation in the form of SARs than RSUs. In general, the unit ratio of SARs to RSUs is 2.0 to 1 to 2.5 to 1. SARs emphasize stock price appreciation given that value is only recognized when the stock price increases above the strike price. RSUs emphasize retention and stock ownership given the grants have value immediately upon vesting. The Committee believes that this balance between SARs and RSUs is consistent with its philosophy that those employees, the NEOs in particular, who are in a position to most directly impact corporate performance should have the highest risk/reward potential tied to corporate performance. The June 1, 2013 equity grants to the CEO and CFO were 25,000 RSUs and 62,500 SARs, and 7,000 RSUs and 15,000 SARs, respectively. Mr. Pomilio was awarded 5,000 RSUs and 12,000 SARs to properly compensation him for his scope of responsibilities within the organization. All other NEOs were awarded equity grants of 4,000 RSUs and 10,000 SARs. In addition, on July 26, 2013 Mr. Pomilio received 5,000 RSUs for exceptional performance in connection with the ongoing restructuring activities. This resulted in the compensation balance which the Committee considered appropriate. Retirement Benefits All employees in the United States, including the NEOs, are eligible to participate in the Retirement Savings Plan and were eligible to participate in the Retirement Pension Plan if employed by the Company prior to May 14, 2009. The Company maintains the Benefits Restoration Plan for eligible employees including the NEOs. The following summary of the terms of these plans is qualified in its entirety by reference to the complete plan documents. Retirement Pension Plan As of May 14, 2009, pension accruals under the CONMED Corporation Retirement Pension Plan were frozen and participants will not accrue any additional benefits after that date. Retirement Savings Plan The Retirement Savings Plan (the “Savings Plan”) is a tax-qualified (401(k)) retirement savings plan pursuant to which all U.S. employees are eligible after completing three months of service, including the NEOs who meet the Savings Plan’s requirements. Effective January 1, 2010, the Retirement Savings Plan was amended to provide a 100% matching contribution up to a maximum of seven percent of the participant’s (including each NEO’s) compensation. Benefits Restoration Plan The Company has established a Benefits Restoration Plan effective January 1, 2010. The Benefits Restoration Plan is a funded nonqualified deferred compensation plan that provides eligible employees, which include the NEOs, the opportunity to defer receipt of up to 50% of base salary and up to 100% of incentive compensation and to receive 7% matching contributions or other contributions from the Company that would otherwise be unavailable under our Savings Plan because of limits imposed by the Internal Revenue Code of 1986 as amended (the “Code”). In addition, similar to the Savings Plan, the Company has discretion to contribute to the Benefits Restoration Plan in addition to the match. The funds are invested based upon the investments selected by the participant from the investments available under the Savings Plan. A participant is 100% vested in the participant’s contributions and any earnings. The Company’s match and any discretionary contributions to a participant’s deferred compensation account vest subject to a “Rule of 65”, which is defined so that vesting occurs when the sum of the participant’s age plus years of service equal to 65. Upon a “change in control,” the unvested portion of a participant’s account will automatically become vested. For purposes of the Benefits Restoration Plan, a “change in control” has the meaning provided in any written agreement between any participant and the employer, if applicable, and if there is no such written agreement with the employer defining a change in control, then a change in control generally means an acquisition of 25% or more of the outstanding voting shares or a change in a majority of the Board of Directors. Perquisites The Company has historically provided certain perquisites to the NEOs to provide convenience and support services that the Company viewed as customary and necessary to attract, motivate and retain executive talent. For the convenience of the Company and to provide flexibility to the NEOs, the Company provides a perquisite allowance to each of the NEOs. The perquisite allowance paid to the CEO is $3,200 per month and $1,500 per month for all other NEOs. This allowance replaces any other perquisite costs which may have previously been reimbursed. In addition, the Company leases a car for the CEO and reimburses him for certain life insurance policy premiums. The Company also provides long-term care insurance to certain NEOs. Each of these benefits is reflected in the “All Other Compensation” column of the Summary Compensation Table. No perquisite provided to any NEO is “grossed up” for associated taxes. Employment Contracts As a general matter, the Company does not provide employment agreements to members of management in the U.S. The exceptions to this general policy are the employment agreement with the CEO and the Change in Control Severance Agreements with all NEOs and certain key executives. The Company entered into the employment agreement with the CEO to provide a clear understanding of the terms of the employment relationship with the CEO. This allows the Company to retain his executive leadership and focus without the distraction that might otherwise exist absent this arrangement. With respect to the Change in Control agreements, the Company recognizes that, as in the case with many publically trade corporations, the possibility of a Change in Control may arise and that such possibility may result in the departure or distraction of the NEOs to the detriment of the Company and its shareholders. As a result, the Company has entered into Change in Control Agreements to encourage the retention and focus of the NEOs in the event of any threat or occurrence of a Change in Control. CEO Employment Agreement Consistent with the Company’s compensation policy, the Board of Directors believes that compensation of the CEO, should be heavily influenced by Company performance, long-term growth and strategic positioning, as well as regulatory and ethics compliance. Therefore, although there is necessarily non-performance-based pay reflected in providing a salary to him, major elements of the compensation package are directly tied to the Company’s performance, long-term growth and strategic positioning. Mr. J. Corasanti’s employment agreement with the Company expires December 31, 2014. Annual compensation under Mr. J. Corasanti’s employment agreement provides for annual base salary at a rate of no less than $511,000 per year, deferred compensation contributions of at least $175,000 per year, lifetime health and life insurance for Mr. J. Corasanti and his dependents and certain additional fringe benefits. Mr. J. Corasanti is entitled to participate in the Company’s employee equity compensation plan, other employee benefit plans and other compensatory arrangements as may be determined by the Board of Directors. In May 2013, the Committee recommended and the Board approved increasing the CEO’s annual deferred compensation to $225,000. Prior to the 2013 increase, the last time the CEO’s deferred compensation was adjusted was in May of 2011 when it was set at $200,000. The increase in the deferred compensation is consistent with the increases to Mr. J. Corasanti’s base salary between 2011 and 2013. Mr. J. Corasanti is subject to two year post-termination non-compete following a termination of employment for any reason and, during the term of his employment and at all times thereafter, a non-disclosure covenant. Additional features of Mr. J. Corasanti’s employment agreement are described in further detail in the narratives following and/or footnotes to the Summary Compensation Table, Non-Qualified Deferred Compensation Table and Potential Payments on Termination or Change in Control Table. Change In Control Severance Agreements Each Change in Control Severance Agreement provides that the covered NEO will not, in the event of the commencement of steps to effect a Change in Control (defined generally as an acquisition of 25% or more of the outstanding voting shares or a change in a majority of the Board of Directors), voluntarily leave the employ of the Company until the potential Change in Control has been terminated or until a Change in Control has occurred. These agreements were first entered into by the Company and Mr. J. Corasanti, Mr. Shallish, Mr. Jonas and Mr. Pomilio, in 2000, and were last amended in 2008 in order to conform to technical requirements under Section 409A of the Code. Mr. Darling and the Company entered into the same agreement in May of 2010. Prior to the occurrence of a Change in Control, the Board of Directors of the Company may terminate any such agreement upon three years’ prior written notice. The Board of Directors may also, at any time, terminate an agreement with respect to any NEO who is affiliated with any group seeking or accomplishing a Change in Control. Following a Change in Control during the term of the agreement, the agreement will continue in effect for two years. The Company has also entered into an Executive Severance Agreement with Mr. Darling. This Agreement provides that upon a Change of Control (as defined in the Executive Severance Agreement) of Linvatec Corporation where Mr. Darling did not retain the title of President and comparable responsibilities or is terminated without cause during the first eighteen (18) months of such change in control, Mr. Darling is entitled to payment of his salary then in effect for eighteen (18) months. If a Change in Control as defined in the Change in Control Severance Agreement occurred, Mr. Darling would not be eligible for payments under the Executive Severance Agreement. As of May of 2011, the Company grandfathered all executives with an existing Change in Control Severance Agreement containing a gross-up for excise taxes and has committed to not enter into agreements to gross-up excise taxes in future Change in Control Severance agreements with future executives. Split-Dollar Life Insurance Prior to December 31, 2001, the Company had paid certain premiums associated with split-dollar life insurance policies with face amounts totaling $2,500,000 for the benefit of Joseph J. Corasanti. The Company has not paid or accrued premiums since fiscal year 2001. Premiums paid by the Company in prior years are treated by the Company as a loan to Mr. J. Corasanti, and at December 31, 2013, the aggregate amount due the Company from Mr. J. Corasanti related to these split-dollar life insurance policies was $279,740. This amount (if any) will be repaid to the Company on Mr. J. Corasanti’s death and the balance of the policy will be paid to his estate or beneficiaries. Recoupment Policy In the interest of further aligning the interests of the NEOs with those of our shareholders, the Company’s Recoupment Policy allows the Committee to require any participant or former participant in the EBP or recipient of performance based equity awards in any of the prior three years to repay to the Corporation all or a portion of the amount received in connection with a fiscal year in which either (i) there was a recalculation of a financial or other performance metric related to the determination of a bonus award or performance-based equity award due to an error in the original calculation or (ii) there was a restatement of earnings for the Company due to material noncompliance with any financial reporting requirement under either GAAP or federal securities laws, other than as a result of changes to accounting policy, rules or regulation; and (iii) the restated earnings or corrected performance measurement would have (or likely would have) resulted in a smaller award than the amount actually received by the participant. A similar recoupment provision is extended to non-executives who participate in other Company incentive programs. Stock Ownership Guidelines and Hedging Policies The Company’s stock ownership guidelines are designed to encourage share ownership so that our executives have a direct stake in the Company’s future and to directly align their interests with those long-term interests of the shareholder. The ownership guidelines cover all NEOs. The guidelines are as follows: NEO President & CEO CFO All other NEOs The following share types are included under these guidelines: shares directly owned, shares jointly owned, and estimated net after tax shares of unvested RSUs. Share ownership guidelines for officers reaching the age of 62 are reduced by 50%. Executives are required to be in compliance with these guidelines within five (5) years of becoming subject to this policy. These ownership guidelines also contain a holding period for equity-based awards until such time as the minimum share ownership is achieved. A complete copy of these guidelines is available on the Company’s website in the investor relations section. The Company also prohibits its officers and directors from holding any derivatives other than those issued by the Company. The intention of this policy is to align the interests of senior management with those of the holders of the Company’s common stock. All NEOs were in compliance with the guidelines as assessed as of December 31, 2013. Deductibility of Executive Compensation Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1,000,000 paid to the Chief Executive Officer and the three other most highly compensated executive officers, other than the Chief Financial Officer, employed on the last day of any fiscal year. Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. The Committee considers deductibility as one factor when making a decision regarding executive compensation. In order to maximize the deductibility of the executives’ pay, the shareholder-approved EBP, Amended and Restated Long Term Incentive Plan and the 2006 Stock Incentive Plan are structured such that performance-based annual incentive bonuses and performance based equity compensation paid under those plans for our most senior executives should constitute qualifying performance-based compensation under Section 162(m). However, in some cases, the Committee may determine it is appropriate to provide compensation that may exceed deductibility limits in order to recognize performance, meet market demands and retain key executives. In 2013, the Committee provided competitive compensation to our executive officers without exceeding the deductibility limits of Section 162(m), except for a portion of Mr. J. Corasanti’s total compensation. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K/A. Submitted by the Compensation Committee, COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of our Compensation Committee during 2013 were Messrs. Schwartz, Daniels, Kuyper and Mandia. During 2013, none of our executive officers served as a director of, or a member of the compensation committee of, another company. Summary Compensation Table (a) Name and Principal Position Joseph J. Corasanti – President & Chief Executive Officer Robert D. Shallish, Jr. – Executive Vice President, Finance & Chief Financial Officer Joseph G. Darling – Executive Vice President, Commercial Operations Daniel S. Jonas – Executive Vice President, Legal Affairs & General Counsel Luke A. Pomilio – Executive Vice President, Controller and Corporate General Manager Grants of Plan-Based Awards The table below summarizes the estimated cash awards under the Executive Bonus Plan as well as equity compensation granted during 2013. Information regarding the terms of these awards can be found under the headings “Non-Equity Incentive Plan” and “Equity Compensation” in CD&A. (a) Name Joseph J. Corasanti Robert D. Shallish, Jr. Joseph G. Darling Daniel S. Jonas Luke A. Pomilio Material terms related to the NEOs’ compensation are described in the CD&A, footnotes to the Summary Compensation Table, Grants of Plan-Based Awards table and under the section “Potential Payments on Termination or Change-in-Control”. Outstanding Equity Awards at Fiscal Year-End (a) Name Joseph J. Corasanti Robert D. Shallish, Jr. Joseph G. Darling Daniel S. Jonas (a) Name Luke A. Pomilio Option Exercises and Stock Vested (a) Name Joseph J. Corasanti Robert D. Shallish, Jr. Joseph G. Darling Daniel S. Jonas Luke A. Pomilio Pension Benefits Under the CONMED Retirement Pension Plan (“Retirement Plan”), upon the later of the attainment of age 65 or the completion of 5 years of participation, our NEOs are entitled to annual pension benefits equal to the greater of: (a) 1.65% of a participant’s average monthly compensation multiplied by years of benefit service with the product being reduced by 0.65% of a participant’s monthly covered wages multiplied by years of benefit service (not to exceed 35) or (b) the benefit the participant would have been entitled to prior to December 31, 2003. Special plan provisions exist for early retirement, deferred retirement, death or disability prior to eligibility for retirement and lump sum benefit payments. A participant is 100% vested after five years of service. The participant may elect one of the following forms of payment: lump sum distribution for benefits earned through December 31, 2003, single life annuity or joint and survivor annuity. The table below shows the present value of accumulated benefits payable to each of the NEOs, including the number of years of service credited to each such NEO, under the CONMED Corporation Retirement Pension Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements. As discussed in the CD&A under the heading “Retirement Pension Plan”, pension accruals were frozen under the Retirement Plan effective May 14, 2009, therefore no additional benefits accrued after that date. As a result, years of actual service for NEOs will not equal the years of credited service noted below. (a) (b) Name Plan Name Joseph J. Corasanti CONMED Corporation Retirement Pension Plan Robert D. Shallish, Jr. CONMED Corporation Retirement Pension Plan Joseph G. Darling CONMED Corporation Retirement Pension Plan Daniel S. Jonas CONMED Corporation Retirement Pension Plan Luke A. Pomilio CONMED Corporation Retirement Pension Plan Non-Qualified Deferred Compensation The table below shows the executive contributions, Company contributions and aggregate earnings related to deferred compensation. Deferred compensation is provided to Mr. J. Corasanti as described in his employment agreement. Refer to the section title “CEO Employment Agreement” in CD&A for further details. Effective January 1, 2010, the Company began offering a Benefits Restoration Plan to eligible employees, including all NEOs. This Plan provides the opportunity to defer receipt of up to 50% of base salary and up to 100% of annual cash incentive compensation and to receive 7% matching contributions from the Company that would otherwise be unavailable under our 401(k) plan because of limits imposed by the Internal Revenue Code. Refer to the section “Retirement Benefits – Benefits Restoration Plan” in CD&A for further details. (a) Name Joseph J. Corasanti1 Robert D. Shallish, Jr. Joseph G. Darling Daniel S. Jonas Luke A. Pomilio As described above, Mr. J. Corasanti receives deferred compensation under his employment agreement as well as his participation in the Benefits Restoration Plan. Amount included above for the deferred compensation under his employment agreement is fully vested when credited and is payable over a period of up to 120 months with interest and includes an annual contribution of $225,000 for 2013 and above market interest of $98,073 for 2013 which are included in the “Salary” and “Change in Pension Value and Nonqualified Deferred Compensation Earnings” columns, respectively, of the Summary Compensation Table. Mr. J. Corasanti earns 10% interest on the portion of the outstanding balance he earned through December 31, 2004 and earns interest at the prime rate of JP Morgan at December 31st of each year plus two percent on the portion of the outstanding balance he earned subsequent to December 31, 2004. Potential Payments on Termination or Change-in-Control Termination/No Change In Control The table below represents the earnings Mr. J. Corasanti would receive if terminated on December 31, 2013 and no Change in Control had occurred. The table assumes that the Company terminated Mr. J. Corasanti’s employment without “just cause” (as defined in Mr. J. Corasanti’s employment agreement), Mr. J. Corasanti resigned following the Board’s failure to reelect him as the President and CEO, or the Board caused a material reduction of his duties and responsibilities (in each case subject to the Company’s failure to cure such circumstance within 30 days following receipt of notice). “Just cause” generally means a breach by Mr. J. Corasanti of his obligations under his employment agreement, willful misconduct, dishonesty or conviction of a crime (other than traffic or other similar violations or minor misdemeanors). Payments and Benefits for Joseph J. Corasanti(1) In the event of Mr. J. Corasanti’s death or disability, Mr. J. Corasanti or his estate or beneficiaries will be entitled to receive 100% of his base annual salary and other employment benefits (other than deferred compensation) for the balance of the term of his employment agreement. As described above, Mr. J. Corasanti is vested in his entitlement to life and health insurance benefits for life. In addition, as provided to all participants in the equity award program, the vesting date for all outstanding SARs and RSUs granted to Mr. J. Corasanti or any NEO would accelerate to the date of termination due to death or disability. These amounts are identical to the amounts reported under the headings “Accelerated Option/SAR Vesting” and “Accelerated RSU Vesting” in the Termination/Change In Control Table. Other than as described with respect to payments to Mr. J. Corasanti, all other NEOs are eligible for separation benefits provided under the Company’s general compensation programs. For example, all NEOs are subject to the Company’s severance policy applicable to all eligible employees for termination without just cause. This policy does not discriminate in favor of our NEOs and provides for severance pay equal to 1 1⁄2 weeks of base salary for each year of service, not to exceed 26 weeks. In the event of termination with just cause, no payments would be made to the NEOs, again other than for Mr. J. Corasanti as explained in footnote 1 of Termination/No Change in Control chart above. Termination/Change In Control The Change in Control Severance Agreements with the NEOs provide that if, within two and one-half years after a Change in Control, the NEO’s employment with the Company is terminated by the Company other than for Cause or by the NEO for Good Reason (as such capitalized terms are defined in the Change in Control Severance Agreements), the NEO would be entitled to receive (a) a lump sum payment equal to three times the sum of (i) his base salary plus (ii) the highest of the bonuses earned during the three years prior to such termination; (b) continuation of all medical, dental, accident, disability, long-term care and life insurance benefits or other fringe benefits and reimbursement of certain expenses for a period of three years; (c) for Mr. J. Corasanti, a lump sum payment equal to the aggregate amount credited to his deferred compensation account; and (d) a pro-rated annual bonus for the calendar year of such termination. “Cause” generally means the NEO’s willful and continued failure to substantially perform his duties or willfully engaging in illegal conduct or gross misconduct which is demonstrably and materially injurious to the Company or its affiliates. “Good Reason” includes, following a Change in Control, any material and adverse change in the NEO’s duties, responsibilities, titles or offices with the Company, a material reduction in the rate of annual base salary or annual target bonus opportunity, any requirement that the NEO be based more than 50 miles from the office where he is located at the time of the Change in Control, a substantial increase in obligations to travel on Company business and the discontinuation of (or material reduction of benefits under) any material employee benefit compensation welfare benefit or fringe benefit plan in which the NEO is eligible to participate in immediately prior to such Change in Control. For the NEOs, the Change in Control Severance Agreements provide for gross-up for any excise tax that may become due as a result of such Change in Control (to the extent that the amounts giving rise to the excise tax are greater than 10% of the “golden parachute” safe-harbor amount). The Company remains committed to not enter into agreements to gross-up excise taxes in future Change in Control Severance agreements with future executives. Mr. J. Corasanti’s employment agreement provides that if he is terminated in a manner that would qualify for payments and benefits under both the employment agreement and the Change in Control Severance Agreement, he would receive payments and benefits pursuant to the agreement that would provide him with the more favorable result, but in no event would he receive duplicate payments under both agreements. Following a termination of employment for any reason, Mr. J. Corasanti is subject to a two year non-compete and a perpetual non-disclosure covenant. This table includes amounts payable as a result of a Change in Control on December 31, 2013 and qualifying termination for each NEO on that date. A change in control is defined generally as an acquisition of 25% or more of the outstanding voting shares or a change in a majority of the Board of Directors. Change in Control benefits are provided in accordance with each NEO’s Change in Control Severance Agreement, other than Mr. J. Corasanti, whose benefits are provided in accordance with his Employment Agreement, as described above. Name Joseph J. Corasanti1 Robert D. Shallish, Jr. Joseph G. Darling7 Daniel S. Jonas Luke A. Pomilio DIRECTOR COMPENSATION The Company uses a mix of cash and equity-based incentive compensation to attract and retain qualified candidates to serve on the Board of Directors. Director compensation consists of a mix of an annual retainer and equity compensation for non-employee directors. The Compensation Committee and the full Board of Directors generally review director fees every three years. The Compensation Committee reviewed the fees in 2013 with the assistance of Semler Brossy, a compensation consultancy, and did not make any changes. Cash Compensation Paid to Directors For 2013, each director received compensation as described below: Annual Retainers Chairman (None if Executive Officer) $90,000 (two times director fee) Directors (Non-Executive only) Directors (If Executive Officer) $22,500 (50% of Director Retainer) Beginning in 2014, no director compensation will be paid to employee Directors. In addition, it is anticipated in 2014 a comprehensive review of the Director fees will occur. We believe the Company’s director compensation continues to be below the median for the Equity Compensation Awarded to Directors In 2013, non-employee directors received 3,000 RSUs and 1,000 SARs which vest in one year. In 2014, non-employee directors are expected to receive 3,000 RSUs and 1,000 SARs, annually, which vest in one year. The 2013 awards and 2014 expected awards will be issued from the 2007 Non-Employee Director Plan. Director Compensation Table (a) Name Brian Concannon Eugene R. Corasanti Joseph J. Corasanti(3) Bruce F. Daniels Jo Ann Golden Dirk M. Kuyper Stephen M. Mandia Stuart J. Schwartz Mark E. Tryniski Name Brian Concannon Bruce F. Daniels Jo Ann Golden Dirk M. Kuyper Stephen M. Mandia Stuart J. Schwartz Mark E. Tryniski Director Stock Ownership Requirements and Hedging Policy In order to give the directors a direct stake in the Company and to directly align their interests with those long-term interests of the shareholders, effective July 31, 2009, the Company adopted guidelines to encourage outright share ownership by directors. The ownership guidelines required directors to own 2,000 shares. As of December 31, 2013, The Company also prohibits its directors from holding any derivatives other than those issued by the Company. The intention of All directors were in compliance with these guidelines as assessed as of December 31, 2013. Vice Chairman Employment Agreement In addition to Prior to December 31, 2001, the Company had paid all premiums on certain split-dollar life insurance policies with ITEM 12. Security Ownership of Certain Beneficial Owners and The following table sets forth certain information with respect to Name of Beneficial Owner Brian Concannon(1) Eugene R. Corasanti(2) Joseph J. Corasanti(3) Bruce F. Daniels(4) Joseph G. Darling(5) Jo Ann Golden(6) Curt R. Hartman(7) Daniel S. Jonas(8) Dirk M. Kuyper(9) Jerome J. Lande(10) Stephen M. Mandia(11) Luke A. Pomilio(12) Stuart J. Schwartz(13) Robert D. Shallish, Jr.(14) Mark E. Tryniski(15) Directors and executive officers as a group (18 persons)(16) BlackRock, Inc.(17) 40 East 52nd Street New York, NY 10022 Dimensional Fund Advisors LP(18) Palisades West, Building One 6300 Bee Cave Road Austin, TX 78746 FMR, LLC(19) 245 Summer Street Boston, MA 02210 The Vanguard Group, Inc.(20) 100 Vanguard Blvd. Malvern, PA 19355 Coppersmith Capital Management, LLC(21) 1370 Sixth Ave, 25th Floor New York, New York 10019 Unless otherwise set forth above, the CONMED Corporation, 525 French Road, Utica, New York 13502 Shareholder approved plans include the ANNUAL REPORT ON 10-KTABLE OF CONTENTSPart IItem Number Page Item 10. PageItem 1.Item 1A.Item 2.Item 3.Item 4.Part IIItem 5.Item 6.Item 7.Item 7A.Item 8.Item 9.Item 9A.Item 9B.Part IIIItem 10.331 Item 11.Item 11. 7 Item 12.
Management and Related Stockholder Matters3328 Item 13.
Independence3331 Item 14. 3332 Signatures 33 Exhibits 34
ConsiderationsBase Salary Fixed cash amount Initially established based on scope of responsibilities, internal & external market; adjusted annually based on market and individual performance Recruit & retain executive Executive Bonus Plan Short-term incentive; cash based Based on achievement of corporate financial goals Promote achievement of short-term financial goals Equity Awards Stock Appreciation Rights, Restricted Stock Units, and/or Performance Share Units Based on role; internal & external market. Additional awards are given based upon individual performance. Align long-term interests of executives with shareholders, retain executive talent, and create shareholder value Retirement and Welfare Benefits 401(k); Benefits Restoration Plan; health and insurance benefits Benefits offered to broader workforce Recruit and retain qualified employees Actual Target %Achievement $ 850,000 $ 785,000 108.3 % $ 100,000 $ 105,000 95.2 % 101.8 % $ 35,939 6,489 2,137 8,626 8,750 3,206 1,443 13,399 263 22,288 (7,473 ) $ 50,754 $ 1.30 1.28 $ 1.83 1.81 Threshold Target Maximum $ 736,250 $ 775,000 $ 852,500 95 % 100 % 110 % 25 % 100 % 200 % $ 1.85 $ 1.95 $ 2.15 95 % 100 % 110 % 50 % 100 % 200 % Ownership Guideline 4x salary 3x salary 1x salary Dirk M. Kuyper (Chair) Bruce F. Daniels Jerome J. Lande Stephen M. Mandia Stuart J. Schwartz (b) (c) (d) (e) (f) (g) (h) (i) (j) Year Salary1
($) Bonus2
($) Stock
Awards3
($) Option/
SAR
Awards4
($) Non-Equity
Incentive Plan
Compensation5
($) Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings6
($) All Other
Compensation7
($) Total 2013 $ 805,853 $ 0 $ 823,250 $ 610,706 $ 405,412 $ 98,073 $ 184,074 $ 2,927,368 2012 $ 764,185 $ 0 $ 652,250 $ 460,981 $ 441,237 $ 153,107 $ 185,584 $ 2,657,344 2011 $ 725,012 $ 0 $ 690,750 $ 651,756 $ 410,165 $ 142,011 $ 166,247 $ 2,785,941 2013 $ 320,755 $ 0 $ 230,510 $ 146,570 $ 166,276 $ 0 $ 61,491 $ 925,602 2012 $ 311,454 $ 0 $ 156,540 $ 103,260 $ 195,970 $ 80,199 $ 62,053 $ 909,476 2011 $ 301,191 $ 0 $ 165,780 $ 145,993 $ 226,271 $ 103,070 $ 56,154 $ 998,459 2013 $ 371,858 $ 0 $ 131,720 $ 97,713 $ 192,576 $ 0 $ 49,133 $ 843,000 2012 $ 361,132 $ 0 $ 104,360 $ 73,757 $ 156,359 $ 4,087 $ 48,618 $ 748,313 2011 $ 351,400 $ 0 $ 776,820 $ 0 $ 353,034 $ 5,552 $ 137,535 $ 1,624,341 2013 $ 290,622 $ 0 $ 131,720 $ 97,713 $ 150,647 $ 0 $ 55,422 $ 726,124 2012 $ 280,146 $ 0 $ 104,360 $ 73,757 $ 176,496 $ 29,954 $ 57,092 $ 721,805 2011 $ 267,816 $ 0 $ 110,520 $ 104,281 $ 201,097 $ 41,295 $ 63,940 $ 788,949 2013 $ 316,871 $ 0 $ 331,800 $ 117,256 $ 163,974 $ 0 $ 51,595 $ 981,496 2012 $ 307,516 $ 0 $ 104,360 $ 73,757 $ 193,256 $ 39,773 $ 57,894 $ 776,556 2011 $ 293,444 $ 0 $ 240,520 $ 104,281 $ 220,997 $ 54,833 $ 50,463 $ 964,538 (1) Salary reflects actual salary earned and, for Mr. Corasanti, deferred compensation credited during 2011, 2012 and 2013. Salary levels are adjusted annually typically in May. Accordingly, salary levels listed in the Compensation Discussion and Analysis (the “CD&A”) may not match amounts actually paid during the course of the year. (2) Other than Non-Equity Incentive Plan Compensation, there were no bonuses earned during 2011, 2012 and 2013. (3) Amounts in this column reflect the grant date fair value of RSUs and PSUs in accordance with Compensation – Stock Compensation Topic 718 of FASB ASC. The assumptions made in the valuation of these awards are set forth in Note 7, (“Shareholders’ Equity”), to the Consolidated Financial Statements in Item 15 to the Company’s 2013 Annual Report on Form 10-K (available athttp://www.conmed.com). Mr. Darling was awarded PSUs during 2011. The amount included in the table represents the grant date fair value of such awards. (4) Amounts in this column reflect the grant date fair value of SARs in accordance with Compensation – Stock Compensation Topic 718 of FASB ASC. The assumptions made in the valuation of these awards are set forth in Note 7, (“Shareholders’ Equity”), to the Consolidated Financial Statements in Item 15 to the Company’s 2013 Annual Report on Form 10-K. (5) Non-Equity Incentive Plan Compensation represents earnings under the Company’s Executive Bonus Plan (as more fully described in the CD&A. For all NEOs, this is calculated as a percentage of their Base Compensation as defined in the CD&A). (6) Amounts in this column represent the increase in the actuarial value of defined benefit plans during 2011 and 2012 of the executive’s accumulated benefit under the CONMED Corporation Retirement Pension Plan. For 2013, the actuarial value decreased by $44,357, $19,546, $2,821, $26,431, and $35,096 for Mr. J. Corasanti, Mr. Shallish, Mr. Darling, Mr. Jonas and Mr. Pomilio, respectively. Actuarial value computations are based on the assumptions established in accordance with Compensation – Retirement Benefits Topic of the FASB ASC and discussed in Note 9, (“Employee Benefit Plans”), to the Consolidated Financial Statements in Item 15 to the Company’s 2013 Annual Report on Form 10-K. In addition, Mr. J. Corasanti also earns deferred compensation pursuant to his employment agreement, as more fully described in the CD&A. This table reflects only that interest earned on deferred compensation amounts that are considered to be above-market. This above-market interest amounted to $72,709, $102,838 and $98,073 for 2011, 2012 and 2013, respectively. (7) All Other Compensation consists of the following: (i) $17,285, $17,281, $11,744, $16,543 and $16,061 for J. Corasanti, R. Shallish, J. Darling, D. Jonas and L. Pomilio, respectively, of 2013 company contributions to employee 401(k) plan accounts on the same terms offered to all other employees, (ii) $54,746, $20,795, $19,389, $16,851 and $13,555 for J. Corasanti, R. Shallish, J. Darling, D. Jonas and L. Pomilio, respectively, of 2013 company contributions to the Benefits Restoration Plan (iii) payments relating to an automobile lease for Mr. J. Corasanti in 2013, (iv) payments for supplemental long-term care insurance policies for J. Corasanti, R. Shallish, D. Jonas and L. Pomilio (v) and director fees of $22,500 in 2013, respectively, for J. Corasanti’s position as a Director of the Company (this practice ended effective January 1, 2014). Beginning in 2012, each NEO was provided a perquisite allowance that is included in Other Compensation as further described in CD&A. The amount attributable to each perquisite or benefit for each NEO does not exceed the greater of $25,000 or 10% of the total amount of perquisites received by such NEOs, except as described below. With respect to Mr. J. Corasanti, All Other Compensation also includes a perquisite allowance of $38,400 for 2013 and reimbursements for certain life insurance policy premiums in the amount of $27,020 for 2013, as provided for in his Amended and Restated Employment Agreement, which is further described in the CD&A. All other compensation does not include the costs for health insurance, long-term disability insurance, life insurance and other benefits generally available to other employees on the same terms as those offered to the officers listed above. (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Estimated Future Payouts Under
Non-Equity Incentive Plan Awards1 Estimated Future Payouts Under
Equity Incentive Plan Awards Grant
Date Threshold
($) Target
($) Maximum
($) Threshold
(#) Target
(#) Maximum
(#) All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)2 All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)3 Exercise
or Base
Price of
Option
Awards
($/sh) Grant
Date Fair
Value of
Stock
and
Option
Awards
($)4 6/01/2013 — — — — — — — 62,500 $ 32.93 $ 610,706 6/01/2013 — — — — — — 25,000 — — $ 823,250 N/A $ 393,103 $ 393,103 $ 786,205 — — — — — — $ — 6/01/2013 — — — — — — — 15,000 $ 32.93 $ 146,570 6/01/2013 — — — — — — 7,000 — — $ 230,510 N/A $ 161,693 $ 161,693 $ 323,385 — — — — — — $ — 6/01/2013 — — — — — — — 10,000 $ 32.93 $ 97,713 6/01/2013 — — — — — — 4,000 — — $ 131,720 N/A $ 187,267 $ 187,267 $ 374,534 — — — — — — $ — 6/01/2013 — — — — — — — 10,000 $ 32.93 $ 97,713 6/01/2013 — — — — — — 4,000 — — $ 131,720 N/A $ 146,494 $ 146,494 $ 292,987 — — — — — — $ — 6/01/2013 — — — — — — — 12,000 $ 32.93 $ 117,256 6/01/2013 — — — — — — 5,000 — — $ 164,650 7/26/2013 — — — —�� — — 5,000 — — $ 167,150 N/A $ 159,454 $ 159,454 $ 318,907 — — — — — — $ — (1) Non-Equity Incentive Compensation represents earnings under the Company’s Executive Bonus Plan. The threshold and target compensation represents 50% of Base Compensation (as defined in CD&A) at December 31, 2013. The maximum compensation represents 100% of Base Compensation. During 2013, NEOs with corporate responsibility earned non-equity incentive compensation equal to 52% of salary as reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. As disclosed in CD&A, 80% of the bonus earned is payable in early 2014, the remaining 20% is dependent upon meeting 85% of the 2014 target. (2) The amounts shown in column (i) represent the total RSUs awarded to the named executive officers. Such awards vest annually over a period of five years and are valued at the market price of the stock on the date of grant. (3) The amounts shown in column (j) represent the total number of SARs awarded to the NEOs. These awards vest annually over a period of five years. (4) During 2013, NEOs earned RSUs and SARs as reported in the “Stock Awards” and “Option/SAR Awards” columns of the Summary Compensation Table. (b) (c) (d) (e) (f) (g) (h) (i) (j) Option Awards14 Stock Awards Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) Option
Exercise
Price
($) Option
Expiration
Date Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#) Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)13 Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Yet
Vested
(#) Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($) 62,500 — — $ 19.93 5/16/2016 — — — — 62,500 — — $ 29.92 5/17/2017 — — — — 62,500 — — $ 26.69 6/1/2018 — — — — — — — — — 5,000 (1) $ 212,500 — — — — — — — 4,000 (1) $ 170,000 — — 50,000 12,500 (1) — $ 16.46 6/1/2019 — — — — 32,000 8,000 (1) — $ 21.19 10/30/2019 — — — — — — — — — 10,000 (6) $ 425,000 — — 37,500 25,000 (2) — $ 19.26 6/1/2020 — — — — — — — — — 15,000 (7) $ 637,500 — — 25,000 37,500 (3) — $ 27.63 6/1/2021 — — — — — — — — — 20,000 (8) $ 850,000 — — 12,500 50,000 (4) — $ 26.09 6/1/2022 — — — — — — — — — 25,000 (9) $ 1,062,500 — — — 62,500 (5) — $ 32.93 6/1/2023 — — — — 15,000 — — $ 31.40 5/17/2015 — — — — 10,000 — — $ 29.92 5/17/2017 — — — — 10,000 — — $ 26.69 6/1/2018 — — — — — — — — — 800 (1) $ 34,000 — — — 2,000 (1) — $ 16.46 6/1/2019 — — — — — — — — — 2,400 (6) $ 102,000 — — — 5,600 (2) — $ 19.26 6/1/2020 — — — — — — — — — 3,600 (7) $ 153,000 — — 5,600 8,400 (3) — $ 27.63 6/1/2021 — — — — — — — — — 4,800 (8) $ 204,000 — — — 11,200 (4) — $ 26.09 6/1/2022 — — — — — — — — — 7,000 (9) $ 297,500 — — — 15,000 (5) — $ 32.93 6/1/2023 — — — — 10,000 — — $ 26.69 6/1/2018 — — — — — — — — — 800 (1) $ 34,000 — — 8,000 2,000 (1) — $ 16.46 6/1/2019 — — — — — — — — — 1,600 (6) $ 68,000 — — — — — — — 2,400 (7) $ 102,000 — — — — — — — 6,000 (10) $ 255,000 — — — — — — — 10,800 (11) $ 459,000 — — — — — — — 3,200 (8) $ 136,000 — — 2,000 8,000 (4) — $ 26.09 6/1/2022 — — — — — — — — — 4,000 (9) $ 170,000 — — — 10,000 (5) — $ 32.93 6/1/2023 — — — — — — — — — 800 (1) $ 34,000 — — — 2,000 (1) — $ 16.46 6/1/2019 — — — — — — — — — 1,600 (6) $ 68,000 — — — 4,000 (2) — $ 19.26 6/1/2020 — — — — — — — — — 2,400 (7) $ 102,000 — — — 6,000 (3) — $ 27.63 6/1/2021 — — — — — — — — — 3,200 (8) $ 136,000 — — — 8,000 (4) — $ 26.09 6/1/2022 — — — — — — — — — 4,000 (9) $ 170,000 — — — 10,000 (5) — $ 32.93 6/1/2023 — — — — (b) (c) (d) (e) (f) (g) (h) (i) (j) Option Awards14 Stock Awards Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) Option
Exercise
Price
($) Option
Expiration
Date Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#) Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)13 Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Yet
Vested
(#) Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($) 10,000 — — $ 29.92 5/17/2017 — — — — 10,000 — — $ 26.69 6/1/2018 — — — — — — — — — 800 (1) $ 34,000 — — 6,000 2,000 (1) — $ 16.46 6/1/2019 — — — — — — — — — 1,600 (6) $ 68,000 — — 6,000 4,000 (2) — $ 19.26 6/1/2020 — — — — — — — — — 2,400 (7) $ 102,000 — — — — — — — 3,000 (12) $ 127,500 — — 4,000 6,000 (3) — $ 27.63 6/1/2021 — — — — — — — — — 3,200 (8) $ 136,000 — — 2,000 8,000 (4) — $ 26.09 6/1/2022 — — — — — — — — — 5,000 (9) $ 212,500 — — — — — — — 5,000 (9) $ 212,500 — — — 12,000 (5) — $ 32.93 6/1/2023 — — — — (1) Scheduled to vest on June 1, 2014. (2) Scheduled to vest in equal installments of 12,500 shares per year for Mr. J. Corasanti, 2,800 shares per year for Mr. Shallish and 2,000 shares per year for Mr. Jonas and Mr. Pomilio on June 1, 2014 and June 1, 2015. (3) Scheduled to vest in equal installments of 12,500 shares per year for Mr. J. Corasanti, 2,800 shares per year for Mr. Shallish, and 2,000 shares per year for Mr. Jonas and Mr. Pomilio on June 1, 2014, June 1, 2015 and June 1, 2016. (4) Scheduled to vest in equal installments of 12,500 shares per year for Mr. J. Corasanti, 2,800 shares per year for Mr. Shallish, and 2,000 shares per year for Mr. Darling, Mr. Jonas and Mr. Pomilio on June 1, 2014, June 1, 2015, June 1, 2016 and June 1, 2017. (5) Scheduled to vest in equal installments of 12,500 shares per year for Mr. J. Corasanti, 3,000 shares per year for Mr. Shallish, 2,400 shares per year for Mr. Pomilio and 2,000 shares per year for Mr. Darling and Mr. Jonas beginning on June 1, 2014 and each June 1st thereafter until 2018. (6) Scheduled to vest in equal installments of 5,000 shares per year for Mr. J. Corasanti, 1,200 shares per year for Mr. Shallish and 800 shares per year for Mr. Darling, Mr. Jonas, and Mr. Pomilio on June 1, 2014 and June 1, 2015. (7) Scheduled to vest in equal installments of 5,000 shares per year for Mr. J. Corasanti, 1,200 shares per year for Mr. Shallish and 800 shares per year for Mr. Darling, Mr. Jonas, and Mr. Pomilio on June 1, 2014, June 1, 2015 and June 1, 2016. (8) Scheduled to vest in equal installments of 5,000 shares per year for Mr. J. Corasanti, 1,200 shares per year for Mr. Shallish and 800 shares per year for Mr. Darling, Mr. Jonas, and Mr. Pomilio on June 1, 2014, June 1, 2015, June 1, 2016 and June 1, 2017. (9) Scheduled to vest in equal installments of 5,000 shares per year for Mr. J. Corasanti, 1,400 shares per year for Mr. Shallish, 1,000 shares per year for Mr. Pomilio and 800 shares per year for Mr. Darling and Mr. Jonas on June 1, 2014 and each June 1st thereafter until 2018. (10) Scheduled to vest in equal installments of 2,000 shares per year on June 1, 2014, June 1, 2015 and June 1, 2016 for Mr. Darling. (11) Scheduled to vest in equal installments of 2,100 shares per year on June 1, 2014, June 1, 2015 and June 1, 2016. The remaining shares vest in equal installments of 2,250 shares per year on June 1, 2017 and June 1, 2018 for Mr. Darling. (12) Scheduled to vest in equal installments of 1,000 shares per year on June 1, 2014, June 1, 2015 and June 1, 2016 for Mr. Pomilio. (13) Value shown for unvested RSUs and PSUs is based on the December 31, 2013 year-end closing stock price on the NASDAQ of $42.50. (14) All outstanding option awards are SARs with the exception of Mr. Shallish’s 15,000 stock options due to expire on May 17, 2015. (b) (c) (d) (e) Option Awards1 Stock Awards3 Number of Shares
Acquired On Exercise
(#) Value Realized
on Exercise2($) Number of Shares
Acquired on Vesting
(#) Value Realized on
Vesting4 ($) 250,000 $ 1,186,061 29,000 $ 954,970 39,200 $ 435,087 5,200 $ 171,236 0 $ 0 8,800 $ 289,784 45,000 $ 212,708 4,000 $ 131,720 35,000 $ 266,222 5,000 $ 164,650 (1) Amount relates to stock option and SAR exercises during 2013. (2) Calculated by multiplying the number of shares purchased by the difference between the exercise price of the stock option or SAR and the market price of CONMED Corporation common stock on the date of exercise. (3) Amount relates to the RSUs, and in the case of Mr. Darling the PSUs, vested during 2013. (4) Calculated by multiplying the number of shares vested by the market price of the CONMED Corporation common stock on the date of issuance. (c) (d) (e) Number of
Years of
Credited
Service (#) Present Value of
Accumulated Benefit
($)1 Payments During the
Last Fiscal Year ($) 15 $ 248,378 $ 0 18 $ 284,630 $ 461,436 1 $ 25,158 $ 0 9 $ 148,002 $ 0 12 $ 196,519 $ 0 (1) Amounts in this column reflect the present value of accumulated benefits in accordance with Compensation – Retirement Benefits Topic 715 of FASB ASC. The assumptions made in the valuation of these awards are set forth in Note 9, (“Employee Benefit Plans”), to the Consolidated Financial Statements in Item 15 to the Company’s 2013 Annual Report on Form 10-K. (b) (c) (d) (e) (f) Executive
Contributions in
Last FY2
($) Registrant
Contributions
in Last FY3
($) Aggregate
Earnings in
Last FY
($) Aggregate
Withdrawals/
Distributions
($) Aggregate
Balance at
Last FYE
($) $ 71,416 $ 279,746 $ 283,579 $ 0 $ 3,772,855 $ 35,567 $ 20,795 $ 44,343 $ 0 $ 214,175 $ 18,445 $ 19,389 $ 39,232 $ 0 $ 215,036 $ 38,049 $ 16,851 $ 39,551 $ 0 $ 201,135 $ 118,676 $ 13,555 $ 53,422 $ 0 $ 736,543 (1) (2) Executive contributions related to the Benefit Restoration Plan were included in aggregate earnings in 2013. (3) Registrant contributions related to the Benefit Restoration Plan were included in earnings in 2013. Salary
Continuation
or Severance
($) Benefits or
Perquisites
($) Total
($) $ 4,251,355 (2) $ 1,054,739 (3) $ 5,306,094 (1) Mr. J. Corasanti is entitled to payments and benefits upon termination without just cause as defined in his employment agreement or upon his resignation under the circumstances described above. If Mr. J. Corasanti were terminated with just cause, he would be entitled to salary and benefits through the end of the month of termination, payment of deferred compensation as defined in his employment agreement and an additional pro rata amount of such deferred compensation for the year of termination. Mr. J. Corasanti is subject to atwo-year post-termination non-compete following a termination of employment for any reason and, during the term of his employment and at all times thereafter, a non-disclosure covenant. The table above does not include payments in respect of Mr. J. Corasanti’s deferred compensation, which is reported in the Non-Qualified Deferred Compensation Table, as Mr. J. Corasanti is fully vested in his deferred compensation benefits and would not receive any enhanced payments upon any termination of employment. (2) Amount represents a lump sum equal to three multiplied by the sum of salary and the average of bonus, deferred compensation, and incentive compensation earned over the past three years. (3) Amount includes the present value total of all vested life time benefits (including life and health insurance) and the present value of total perquisites for three years. Salary
Continuation
or Severance2
($) Benefits or
Perquisites3
($) Deferred
Compensation4
($) Accelerated
Option/SAR
Vesting5
($) Accelerated
RSU Vesting5
($) Section
280G
Gross-Up6
($) Total $ 4,251,355 $ 1,054,739 $ 0 $ 3,053,230 $ 3,357,500 $ 0 $ 11,716,824 $ 1,884,619 $ 116,926 $ 0 $ 634,474 $ 790,500 $ 1,057,171 $ 4,483,690 $ 2,535,738 $ 123,158 $ 0 $ 279,060 $ 1,224,000 $ 1,229,712 $ 5,391,668 $ 1,691,685 $ 88,931 $ 105,164 $ 461,240 $ 510,000 $ 869,462 $ 3,726,482 $ 1,858,521 $ 137,214 $ 0 $ 480,380 $ 892,500 $ 1,146,767 $ 4,515,382 (1) Upon a qualifying termination following a Change in Control, Mr. J. Corasanti’s employment agreement would provide more favorable payments and benefits than and, therefore, supersede, his Change in Control Severance Agreement. As a result, Mr. J. Corasanti would receive the same payments and benefits as reported above with respect to his potential termination without just cause according to his employment agreement, and, in addition, he would be eligible to receive a section 280G gross-up. (2) For Mr. J. Corasanti, amount represents a lump sum equal to three multiplied by the sum of salary and the average of bonus, deferred compensation, and incentive compensation earned over the past three years. For all other NEOs, amount represents highest annual executive bonus plan compensation earned over the past three completed fiscal years plus three multiplied by the sum of the highest salary earned over the past twelve months and highest annual executive bonus plan compensation earned over the past three completed fiscal years. (3) For Mr. J. Corasanti, amount includes the present value total of all vested life time benefits (including life and health insurance) and the present value of total perquisites for three years. For all other NEOs, amount includes the present value of medical, dental, disability, long-term care (as applicable), life insurance and total perquisites for three years. (4) The amount reported for Mr. Jonas is the value of the accelerated vesting of the Company’s contributions and total earnings under the Benefit Restoration Plan because he is not fully vested as of December 31, 2013 and, upon a Change in Control, his deferred compensation would automatically become fully vested. All other NEOs’ deferred compensation is disclosed under the Non-Qualified Deferred Compensation Table as they are fully vested as of December 31, 2013 and would not receive any accelerated or enhanced deferred compensation payments or benefits upon a change in control. (5) As provided to all participants in the equity award compensation plans, upon a change in control (defined generally as an acquisition of 25% or more of the outstanding voting shares or a change in the majority of the Board of Directors), the vesting date for all outstanding SARs, RSUs and PSUs will accelerate to the date of the change in control. The value shown for unvested SARs, represents the difference between the exercise price and December 31, 2013 year-end closing stock price on the NASDAQ of $42.50. Value shown for unvested RSUs and PSUs is based on the December 31, 2013 year-end closing stock price on the NASDAQ of $42.50. (6) Compensation and benefits in excess of three times an executive’s five-year average compensation may be subject to a non-deductible 20% excise tax under Section 280G of the Code. To assure that the actual economic value of change in control benefits is equivalent for all participants, Change in Control Severance Agreements provide for a gross-up of this tax to the extent that the amounts giving rise to the excise tax levied on the executive are greater than 10% of the “golden parachute” safe-harbor amount. Amounts in this column estimate the tax gross-up assuming a change in control date of December 31, 2013 at a stock price of $42.50 per share. The amount of Mr. J. Corasanti’s gross-up is reported as $0 after taking into account the value allocated to his non-compete covenant for purposes of Section 280G of the Code, and if the value of Mr. J. Corasanti’s non-compete covenant was not factored into these calculations, the resulting gross-up payment would be $3,592,052. (7) Mr. Darling is entitled to earnings upon a change in control of Linvatec Corporation as defined in his Executive Severance Agreement. If Linvatec Corporation is sold or all assets are transferred and Mr. Darling’s title of President and comparable responsibilities were taken away upon such change in control, or Mr. Darling were terminated upon the change in control, Mr. Darling is entitled to payment of his salary then in effect for eighteen months totaling $561,801 at December 31, 2013. Part IV(Paid Quarterly) Item 15. Lead Independent Director $60,000 1CONMED CORPORATION$45,000 Item 1.BusinessAudit Committee Chair $30,000 Audit Committee Member $15,000 Governance/ Compensation Chair $15,000 Governance/ Compensation Committee Member $7,500 Forward Looking StatementsThis Annual Report on Form 10-KFiscal Year Ended (b) (c) (d) (e) (f) (g) (h) Fees Earned or
Paid in Cash
($) Stock
Awards
($)(1) Option
Awards
($)(2) Non-Equity
Incentive Plan
Compensation
($) Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($) All Other
Compensation
($) Total
($) $ 26,250 $ 100,290 $ 10,119 $ 0 $ 0 $ 0 $ 136,659 $ 90,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 90,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 82,500 $ 98,790 $ 9,771 $ 0 $ 0 $ 0 $ 191,061 $ 60,000 $ 98,790 $ 9,771 $ 0 $ 0 $ 0 $ 168,561 $ 26,250 $ 100,290 $ 10,119 $ 0 $ 0 $ 0 $ 136,659 $ 67,500 $ 98,790 $ 9,771 $ 0 $ 0 $ 0 $ 176,061 $ 67,500 $ 98,790 $ 9,771 $ 0 $ 0 $ 0 $ 176,061 $ 82,500 $ 98,790 $ 9,771 $ 0 $ 0 $ 0 $ 191,061 (1) Amounts in this column reflect the grant date fair value of RSUs in accordance with Compensation – Stock Compensation Topic 718 of FASB ASC. The assumptions made in the valuation of these awards are set forth in Note 7, (“Shareholders’ Equity”), to the Consolidated Financial Statements in Item 15 to the Company’s 2013 Annual Report on Form 10-K (available athttp://www.conmed.com). (2) Amounts in this column reflect the grant date fair value of SARs in accordance with Compensation – Stock Compensation Topic 718 of FASB ASC. The assumptions made in the valuation of these awards are set forth in Note 7, (“Shareholders’ Equity”), to the Consolidated Financial Statements in Item 15 to the Company’s 2013 Annual Report on Form 10-K. (3) Mr. J. Corasanti’s director fees are included in his total compensation in the Summary Compensation Table and therefore excluded from the table above. (4) Below is a summary of the stock options & SARs and RSUs outstanding for non-employee Directors as of December 31, 2013. Option/SAR Awards
Outstanding (#) Stock Awards
Outstanding
(#) 1,000 3,000 4,000 3,200 1,500 3,200 1,000 3,000 16,000 3,200 9,500 3,200 11,500 3,200 (“Form 10-K”) contains certain forward-looking statements (as the Company amended the ownership guidelines to require directors to own four (4) times the annual retainer and the existing directors were given three (3) years to comply. Any new directors will be required to be in compliance with these guidelines within five (5) years of becoming subject to this policy. The following share types are included under these guidelines: shares directly owned, shares jointly owned, estimated net after tax shares of unvested RSUs, and shares held in saving plan accounts. These ownership guidelines also contain a holding period for equity-based awards until such termtime as the minimum share ownership is definedachieved. A complete copy of these guidelines is available on the Company’s website in the Private Securities Litigation Reform Actinvestor relations section.1995) and information relatingthis policy is to CONMED Corporation (“CONMED”,align the “Company”, “we” or “us” — referencesinterests of the Board of Directors with those of the holders of the Company’s common stock.“CONMED”,Mr. Eugene Corasanti’s role as Director of the “Company”, “we” or “us” shall be deemedCompany, the Company entered into an employment agreement with him effective January 1, 2007 pursuant to include our direct and indirect subsidiaries unless the context otherwise requires) which are based on the beliefs of our management,he also serves as well as assumptions made by and information currentlya Vice Chairman available to our management.When usedadvise the Chief Executive Officer and to perform such other duties as required by the CEO and/or Board of Directors. Mr. E. Corasanti’s salary is at least $104,000 per year, and he also receives such equity compensation as may be granted by the Compensation Committee of the Board of Directors. During 2013, Mr. E. Corasanti was granted 2,500 SARs and 5,000 RSUs with grant date fair values of $24,428 and $164,650, respectively. As of December 31, 2013 he had 5,500 options outstanding and 10,200 RSUs which have not yet vested. Starting in this Form 10-K,2007, Mr. E. Corasanti also began receiving the words “estimate,” “project,” “believe,” “anticipate,” “intend,” “expect”accrued deferred compensation benefit that he would otherwise have received had he retired as of December 31, 2006. The deferred compensation payout is being paid over ten years and similar expressions are intendedis valued at $3,051,603 as of December 31, 2013. In addition, Mr. E. Corasanti is entitled to identify forward-looking statements. These statements involve known and unknown risks, uncertaintiescertain benefits under his prior employment agreement, including health insurance, pension, disability and other factors, including those identified under the caption “Item 1A-Risk Factors” and elsewhere in this Form 10-K which may cause our actual results, performance or achievements, or industry results,benefits generally available to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:general economic and business conditions;changes in foreign exchange and interest rates;cyclical customer purchasing patterns due to budgetary and other constraints;changes in customer preferences;competition;changes in technology;the introduction and acceptance of new products;the ability to evaluate, finance and integrate acquired businesses, products and companies;changes in business strategy;the availability and cost of materials;the possibility that United States or foreign regulatory and/or administrative agencies may initiate enforcement actions against us or our distributors;future levels of indebtedness and capital spending;quality of our management and business abilities and the judgment of our personnel;the availability, terms and deployment of capital;the risk of litigation, especially patent litigationall Company employees, as well as the cost associated with patent and other litigation;the riskcontinuation of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues;changes in regulatory requirements; andvarious other factors referenced in this Form 10-K.See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Item 1-Business” and “Item 1A-Risk Factors” for a further discussion of these factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.GeneralCONMED Corporation was incorporated under the laws of the State of New York in 1970 by Eugene R. Corasanti, the Company’s founder and Chairman of the Board. CONMED is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and monitoring. The Company’s products are used by surgeons and physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery, and gastroenterology. Headquartered in Utica, New York, the Company’s 3,600 employees distribute its products worldwide from several manufacturing locations. We have historically used strategic business acquisitions and exclusive distribution relationships to diversify our product offerings, increase our market share in certain product lines, realize economies of scale and take advantage of growth opportunities in the healthcare field.We are committed to offering products with the highest standards of quality, technological excellence and customer service. Substantially all of our facilities have attained certification under the ISO international quality standards and other domestic and international quality accreditations.2Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are accessible free of charge through the Investor Relations section of our website (http://www.conmed.com) as soon as practicable after such materials have been electronically filed with, or furnished to, the United States Securities and Exchange Commission (the "SEC"). Our SEC filings are also available for reading and copying at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http:/www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.IndustryMarket growth for our products is primarily driven by:Favorable Demographics. The number of surgical procedures performed is increasing and we believe the long-term demographic trend of the aging of the population will lead to continued growth in surgical procedures, and technological advancements, which result in safer and less invasive (or non-invasive) surgical procedures. Additionally, as people are living longer, more active lives, they are engaging in contact sports and activitiesperquisites such as running, skiing, rollerblading, golfan automobile allowance, club memberships and tennis which result in injurieslife and health insurance benefits during Mr. E. Corasanti’s life and the life of his wife.greater frequency and at an earlier age than ever before. Sales of surgical products aggregated to approximately 90% of our total net revenues in 2013. See “Products.”Continued Pressure to Reduce Health Care Costs. In response to rising health care costs, managed care companies and other third-party payers have placed pressures on health care providers to reduce costs. As a result, health care providers have focused on the high cost areas such as surgery. To reduce costs, health care providers use minimally invasive techniques, which generally reduce patient trauma, recovery time and ultimately the length of hospitalization. Approximately 50% of our products are designed for use in minimally invasive surgical procedures. See “Products.” Health care providers are also increasingly purchasing single-use, disposable products, which reduce the costs associated with sterilizing surgical instruments and products following surgery. The single-use nature of disposable products lowers the risk of incorrectly sterilized instruments spreading infection into the patient and increasing the cost of post-operative care. Approximately 80% of our sales are derived from single-use disposable products.In the United States, the pressure on health care providers to contain costs has caused many health care providers to enter into comprehensive purchasing contracts with fewer suppliers, which offer a broader array of products at lower prices. In addition, many health care providers have aligned themselves with Group Purchasing Organizations (“GPOs”) or Integrated Health Networks (“IHNs”), whose stated purpose is to aggregate the purchasing volume of their members in order to negotiate competitive pricing with suppliers, including manufacturers of surgical products. We believe that these trends will favor entities which offer a diverse product portfolio. See “Business Strategy”.Increased Global Medical Spending. We believe that foreign markets offer significant growth opportunities for our products. We currently distribute our products through our own sales subsidiaries or through local dealers in over 100 foreign countries.Competitive StrengthsManagement believes that we hold a significant market share position in each of our key product areas, including Orthopedic Surgery, General Surgery and Surgical Visualization. We have established a leadership position in the marketplace by capitalizing on the following competitive strengths:•Brand Recognition. Our products are marketed under leading brand names, including CONMED®, CONMED Linvatec® and Hall Surgical®. These brand names are recognized by physicians and healthcare professionals for quality and service. It is our belief that brand recognition facilitates increased demand for our products in the marketplace, enables us to build upon the brand’s associated reputation for quality and service, and allows us to realize increased market acceptance of new branded products.Breadth of Product Offering. The breadth of our product lines in our key product areas enables us to meet a wide range of customer requirements and preferences. This has enhanced our ability to market our products to surgeons, hospitals, surgery centers, GPOs, IHNs and other customers, particularly as institutions seek to reduce costs and minimize the number of suppliers.3Successful Integration of Acquisitions. We seek to build growth platforms around our core markets through focused acquisitions of complementary businesses and product lines. These acquisitions have enabled us to diversify our product portfolio, expand our sales and marketing capabilities and strengthen our presence in key geographical markets.Strategic Marketing and Distribution Channels. We market our products domestically through five focused sales force groups consisting of approximately 275 employee sales representatives and 215 sales professionals employed by independent sales agent groups. Our dedicated sales professionals are highly knowledgeable in the applications and proceduresface amounts totaling $1,717,720 for the products they sell. Our sales representatives foster close professional relationships with physicians, surgeons, hospitals, outpatient surgery centers and physicians’ offices. Additionally, we maintain a global presence through sales subsidiaries and branches located in key international markets. We directly service hospital customers located in these markets through an employee-based international sales forcebenefit of approximately 185 sales representatives. We also maintain distributor relationships domestically and in numerous countries worldwide. See “Marketing.”Operational Improvements and Manufacturing. We are focused on continuously improving our supply chain effectiveness, strengthening our manufacturing processes and optimizing our plant network to increase operational efficiencies within the organization. Substantially all of our products are manufactured and assembled from components we produce. Our strategy has historically been to vertically integrate our manufacturing facilities in order to develop a competitive advantage. This integration provides us with cost efficient and flexible manufacturing operations which permit us to allocate capital more efficiently. Additionally, we attempt to exploit commercial synergies between operations, such as the procurement of common raw materials and components used in production.Technological Leadership. Research and development efforts are closely aligned with our key business objectives, namely developing and improving products and processes, applying innovative technology to the manufacture of products for new global markets and reducing the cost of producing core products. These efforts are evidenced by recent product introductions, such as the Y-Knot® Flex System for instability repairs, Y-Knot® RC anchors for rotator cuffs, the D4000 Resection System, the IM8000 2DHD Camera System, Hall 50™ Powered Instrument System, GS2000 50L Insufflator, EntriPort line of trocars, new D-Flex probes, and DetachaTip® III Multi-Use Endosurgery Instruments. Business StrategyOur principal objectives are to improve the quality of surgical outcomes and patient care through the development of innovative medical devices, the refinement of existing products and the development of new technologies which reduce risk, trauma, cost and procedure time. We believe that by meeting these objectives we will enhance our ability to anticipate and adapt to customer needs and market opportunities, and provide shareholders with superior investment returns. We intend to achieve future growth and earnings development through the following initiatives:Introduction of New Products and Product Enhancements. We continually pursue organic growth through the development of new products and enhancements to existing products. We seek to develop new technologies which improve the durability, performance and usability of existing products. In addition to our internal research and development efforts, we receive new ideas for products and technologies, particularly in procedure-specific areas, from surgeons, inventors and other healthcare professionals.Pursue Strategic Acquisitions. We pursue strategic acquisitions, distribution and similar arrangements in existing and new growth markets to achieve increased operating efficiencies, geographic diversification and market penetration. Targeted companies have historically included those with proven technologies and established brand names which provide potential sales, marketing and manufacturing synergies.Realize Manufacturing and Operating Efficiencies. We continually review our production systems for opportunities to reduce operating costs, consolidate product lines or identical process flows, reduce inventory requirements and optimize existing processes. Our vertically integrated manufacturing facilities allow for further opportunities to reduce overhead, increase operating efficiencies and capacity utilization.Geographic Diversification. We believe that significant growth opportunities exist for our surgical products outside the United States. Principal foreign markets for our products include Europe, Latin America and Asia/Pacific Rim. Critical elements of our future sales growth in these markets include leveraging our existing relationships with foreign surgeons, hospitals, third-party payers and foreign distributors, maintaining an appropriate presence in emerging market countries and continually evaluating our routes-to-market.4Active Participation In The Medical Community. We believe that excellent working relationships with physicians and others in the medical industry enable us to gain an understanding of new therapeutic and diagnostic alternatives, trends and emerging opportunities. Active participation allows us to quickly respond to the changing needs of physicians and patients. In addition, we are an active sponsor of medical education both in the United States and internationally, offering new and innovative surgical techniques as well as other medical education materials for use with our products.ProductsThe following table sets forth the percentage of net sales for each of our product lines during each of the three years ended December 31: Year Ended December 31, 2011 2012 2013 Orthopedic surgery 51 % 54 % 54 % General surgery 40 % 37 % 37 % Surgical visualization 9 % 9 % 9 % Consolidated net sales 100 % 100 % 100 % Net Sales (in thousands) $ 725,077 $ 767,140 $ 762,704 Orthopedic SurgeryA significant portion of our business is derived from sales in our orthopedic surgery product lines, including sports medicine, powered surgical instruments and sports biologics and tissue. These lines are marketed under a number of reputable brands, including Hall®, CONMED Linvatec®, Concept® and Shutt®.We offer a comprehensive range of devices and products to repair injuries which have occurred in the articulating joint areas of the body. Many of these injuries are the result of sports related events or similar traumas. Our sports medicine products include powered resection instruments, arthroscopes, reconstructive systems, tissue repair sets, metal and bioabsorbable implants as well as related disposable products and fluid management systems. It is our standard practice to place some of these products, such as shaver consoles and pumps, with certain customers at no charge in exchange for commitments to purchase disposable products over certain time periods. This capital equipment is loaned and subject to return if certain minimum single-use purchases are not met. Single-use products include products such as shaver blades, burs and pump tubing. We have benefited from the introduction of new arthroscopic products and technologies, such as bioabsorbable screws, “push-in” and “screw-in” suture anchors, and resection shavers.As a market leader in sports medicine, we compete with Smith & Nephew, plc, Arthrex, Inc., Stryker Corporation, ArthroCare Corporation, Johnson & Johnson: DePuy Mitek, Inc., and Biomet, Inc..Our powered instruments offering is sold principally under the Hall® Surgical brand name, for use in large and small bone orthopedic, arthroscopic, oral/maxillofacial, podiatric, plastic, ENT, neurological, spinal and cardiothoracic surgeries. Our newest product is the Hall 50™ Powered Instrument System, specifically designed to meet the requirements of most orthopedic applications. The modularity and versatility of the Hall 50™ Powered Instrument System allows a facility to purchase a single power system to perform total joint arthroplasty, trauma, arthroscopy, and some small bone procedures. As a market leader in powered instruments, our competition includes Stryker Corporation, Medtronic, (Midas Rex and Xomed divisions), Synvasive Technology, Inc., Synthes, Inc., MicroAire Surgical Instruments, LLC, and Zimmer Holdings, Inc.As more fully described in Note 4 to the Consolidated Financial Statements, on January 3, 2012, the Company entered into the Sports Medicine Joint Development and Distribution Agreement (the "JDDA") with Musculoskeletal Transplant Foundation (“MTF”) to obtain MTF's worldwide promotion rights with respect to allograft tissues within the field of sports medicine and related products. Under the terms of this agreement, we are now the exclusive worldwide promoter of these allograft tissues, which includes the reconstruction and/or replacement of tendon, ligament, cartilage or menisci, along with the correction of deformities within the extremities. Surgical Visualization5Our surgical visualization product line offers endoscopic imaging and capture devices for the complete spectrum of surgical needs including 2DHD and 3DHD vision technologies. The 3DHD vision system is an advanced three dimensional, or 3D, vision system which employs a flat screen monitor and passive glasses. It is used by surgeons during complex minimally invasive surgical procedures, with applications in gynecologic, urologic, bariatric, thoracic and general surgery. Competition includes Smith & Nephew, plc, Arthrex, Inc., Stryker Corporation, Olympus, Inc. and Karl Storz GmbH.General SurgeryOur general surgery product line offers a large range of products in the areas of advanced energy, endomechanical instrumentation, gastrointestinal, pulmonary and patient monitoring.CONMED is one of the medical device industry’s leading technology sources for advanced energy solutions for a range of surgical needs. We offer an extensive line of state-of-the-art electrosurgical generators, handpieces, smoke management systems, and accessories. Our competition includes Covidien Ltd.; Valley Labs, Medline Industries, Inc., ERBE Elektromedizin GmbH, and Megadyne.Our endomechanical instrumentation products offer a full line of unique instruments including trocars, clip appliers, scissors, and surgical staplers used in the minimally invasive laparoscopic and gynecological surgery. We offer a unique and premium uterine manipulator called VCARE® for use in increasing the efficiency of laparoscopic hysterectomies and other gynecologic laparoscopic procedures. This offering competes with such companies as Johnson & Johnson: Ethicon Endo-Surgery, Inc., Covidien Ltd; U.S. Surgical and Applied Medical Resources Corporation.Our gastrointestinal (GI) and pulmonary offering includes a comprehensive line of minimally invasive diagnostic and therapeutic products used in conjunction with procedures which require flexible endoscopy. This offering includes mucosal management devices, forceps, scope management accessories, bronchoscopy devices, dilatation, stricture management devices, hemostasis, biliary devices, and polypectomy. Our competition includes Boston Scientific Corporation - Endoscopy, Cook Medical, Inc., Olympus America, Inc. and STERIS Corporation - U.S. Endoscopy.Our patient monitoring offering includes a line of vital signs and cardiac monitoring products including pulse oximetry equipment & sensors, ECG electrodes and cables, cardiac defibrillation & pacing pads and blood pressure cuffs. We also offer a complete line of suction instruments and tubing for use in the operating room, as well as a line of IV products for use in the critical care areas of the hospital. This offering competition includes Covidien Ltd: Kendall and 3M Company.MarketingA significant portion of our products are distributed domestically directly to more than 6,000 hospitals and other healthcare institutions as well as through medical specialty distributors and surgeons. We are not dependent on any single customer and no single customer accounted for more than 10% of our net sales in 2011, 2012 and 2013.A significant portion of our U.S. sales are to customers affiliated with GPOs, IDNs and other large national or regional accounts, as well as to the Veterans Administration and other hospitals operated by the Federal government. For hospital inventory management purposes, some of our customers prefer to purchase our products through independent third-party medical product distributors.In order to provide a high level of expertise to the medical specialties we serve, our domestic sales force consists of approximately 275 employee sales representatives who are specially trained in our various product offerings. We also have215 sales representatives working for independent sales agent groups selling orthopedic products.Each employee sales representative is assigned a defined geographic area and compensated on a commission basis or through a combination of salary and commission. The sales force is supervised and supported by either area directors or district managers. Sales agent groups are used in the United States to sell our orthopedic products. These sales agent groups are paid a commission for sales made to customers while home office sales and marketing management provide the overall direction for sales of our products.Our health systems organization is responsible for interacting with large regional and national accounts (e.g. GPOs, IDNs, etc.). We have contracts with many such organizations and believe that the loss of any individual group purchasing contract will not adversely impact our business. In addition, all of our sales professionals are required to work closely with distributors where applicable and maintain close relationships with end-users.6Each of our dedicated sales professionals is highly knowledgeable in the applications and procedures for the products they sell. Our sales professionals provide surgeons and medical personnel with information relating to the technical features and benefits of our products.Maintaining and expanding our international presence is an important component of our long-term growth plan. Our products are sold in over 100 foreign countries. International sales efforts are coordinated through local country dealers or through direct in country sales. We distribute our products through sales subsidiaries and branches with offices located in Australia, Austria, Belgium, Canada, China, Denmark, Finland, France, Germany, Italy, Korea, the Netherlands, Poland, Spain, Sweden and the United Kingdom. In these countries, our sales are denominated in the local currency and amounted to approximately 36% of our total net sales in 2013. In the remaining countries where our products are sold through independent distributors, sales are denominated in United States dollars.We sell to a diversified base of customers around the world and, therefore, believe there is no material concentration of credit risk.ManufacturingWe manufacture substantially all of our products and assemble them from components, many of which we produce. Our strategy has historically been to vertically integrate our manufacturing facilities in order to develop a competitive advantage. This integration provides us with cost efficient and flexible manufacturing operations which permit us to allocate capital more efficiently. Additionally, we attempt to exploit commercial synergies between operations, such as the procurement of common raw materials and components used in production.Raw material costs constitute a substantial portion of our cost of production. We use numerous raw materials and components in the design, development and manufacturing of our products. Substantially all of our raw materials and select components used in the manufacturing process are procured from external suppliers. We work closely with multiple suppliers to ensure continuity of supply while maintaining high quality and reliability. As a consequence of best supply chain practices, new product development and acquisitions, we often form strategic partnerships with key suppliers. As a consequence of these supplier partnerships, components and raw materials may be sole sourced. Due to the strength of these suppliers and the variety of products we provide, the risk of supplier interruption does not pose an overall material adverse effect on our financial and operational performance. To date, this strategy has served us well, as we provide excellent service levels and product availability to our customers.All of our products are classified as medical devices subject to regulation by numerous agencies and legislative bodies, including the United States Food and Drug Administration (“FDA”) and comparable foreign counterparts. The FDA’s Quality System Regulations set forth standards for our product design and manufacturing processes, require the maintenance of certain records and provide for on-site inspections of our facilities by the FDA. In many of the foreign countries in which we manufacture and distribute our products we are subject to regulatory requirements affecting, among other things, product performance standards, packaging requirements, labeling requirements, import laws and onsite inspection by independent bodies with the authority to issue or not issue certifications we may require to be able to sell products in certain countries. Regulatory requirements affecting the Company vary from country to country. The timeframes and costs for regulatory submission and approval from foreign agencies or legislative bodies may vary from those required by the FDA. Certain requirements for approval from foreign agencies or legislative bodies may also differ from those of the FDA.We believe that our production and inventory management practices are characteristic of those in the medical device industry. Substantially all of our products are stocked in inventory and are not manufactured to order or to individual customer specifications. We schedule production and maintain adequate levels of safety stock based on a number of factors including, experience, knowledge of customer ordering patterns, demand, manufacturing lead times and optimal quantities required to maintain the highest possible service levels. Customer orders are generally processed for immediate shipment and backlog of firm orders is therefore not considered material to an understanding of our business.Research and DevelopmentNew and improved products play a critical role in our continued sales growth. Internal research and development efforts focus on the development of new products and product technological and design improvements aimed at complementing and expanding existing product lines. We continually seek to leverage new technologies which improve the durability, performance and usability of existing products. In addition, we maintain close working relationships with surgeons, inventors and operating room personnel who often make new product and technology disclosures, principally in procedure-specific areas. For clinical7and commercially promising disclosures, we seek to obtain rights to these ideas through negotiated agreements. Such agreements typically compensate the originator through payments based upon a percentage of licensed product net sales. Annual royalty expense approximated $2.9 million, $2.5 million and $2.3 million in 2011, 2012, and 2013, respectively.Amounts expended for Company research and development was approximately $28.7 million, $28.2 million and $25.8 million during 2011, 2012, and 2013, respectively.We have rights to intellectual property, including United States patents and foreign equivalent patents which cover a wide range of our products. We own a majority of these patents and have exclusive and non-exclusive licensing rights to the remainder. In addition, certain of these patents have currently been licensed to third parties on a non-exclusive basis. We believe that the development of new products and technological and design improvements to existing products will continue to be of primary importance in maintaining our competitive position.Government Regulation and Quality SystemsSubstantially all of our products are classified as class II medical devices subject to regulation by numerous agencies and legislative bodies, including the FDA and comparable foreign counterparts. Authorization to commercially market our products in the U.S. is granted by the FDA under a procedure referred to as 510(k) premarket notification. This process requires us to demonstrate that our new products or significantly modified products are substantially equivalent to a legally marketed device which was on the market prior to May 28, 1976 or is currently on the U.S. market and does not require premarket approval. We must continually meet certain FDA requirements to market our products in the United States. (Our products are classified as Class I, IIa, IIb and III in the European Union (EU) and subject to regulation by the Medical Device Directive.) Our FDA clearance is subject to continual review and future discovery of previously unknown events could result in restrictions being placed on a product’s marketing or notification from the FDA to halt the distribution of certain medical devices.Medical device regulations continue to evolve world-wide. Products marketed in the EU and other countries require preparation of technical files and design dossiers which demonstrate compliance with applicable international regulations. As government regulations continue to change, there is a risk that the distribution of some of our products may be interrupted or discontinued if they do not meet the country specific requirements.Our operations are supported by quality system/regulatory compliance personnel tasked with monitoring compliance to design controls, process controls and the other relevant government regulations for all of our design, manufacturing, distribution and servicing activities. We and substantially all of our products are subject to the provisions of the Federal Food, Drug and Cosmetic Act of 1938, as amended by the Medical Device Amendments of 1976, Safe Medical Device Act of 1990, Medical Device Modernization Act of 1997, Medical User Fee and Modernization Act of 2002 and similar international regulations, such as the European Union Medical Device Directives.As a manufacturer of medical devices, the FDA’s Quality System Regulations as specified in Title 21, Code of Federal Regulation (CFR) part 820, set forth requirements for our product design and manufacturing processes, require the maintenance of certain records, provide for on-site inspection of our facilities and continuing review by the FDA. Many of our products are also subject to industry-defined standards. Such industry-defined product standards are generally formulated by committees of the Association for the Advancement of Medical Instrumentation (AAMI), International Electrotechnical Commission (IEC) and the International Organization for Standardization (ISO). We believe that our products and processes presently meet applicable standards in all material respects.As noted above, our facilities are subject to periodic inspection by the FDA for, among other things, conformance to Quality System Regulation and Current Good Manufacturing Practice (“CGMP”) requirements. Following an inspection, the FDA typically provides its observations, if any, in the form of a Form 483 (Notice of Inspectional Observations) with specific observations concerning potential violation of regulations. Although we respond to all Form 483 observations and correct deficiencies expeditiously, there can be no assurance that the FDA will not take further action including issuing a warning letter, seizing product and imposing fines. During the third quarter of 2013, the FDA inspected our Centennial, CO manufacturing facility and issued a Form 483 with observations on September 20, 2013.Mr. E. Corasanti. The Company subsequently submitted responses to the Observations, and the FDA issued a Warning Letter on January 30, 2014 relating to the inspection and the responses to the Form 483 Observations. Accordingly, we are undertaking corrective actions that may involve additional costs for the Company. These remediation costs arehas not expected to be material, however there can be no assurance that the actions undertakenpaid or accrued premiums since fiscal year 2001. Premiums paid by the Company will ensure that the Company will not undertake recalls, voluntary or otherwise, nor can there be any assurance that a future inspection by the FDA will not result in an additional Form 483 or warning letter, or other regulatory actions which may include consent decrees or fines.8We market our products in several foreign countries and thereforeprior years are subject to regulations affecting, among other things, product standards, sterilization, packaging requirements, labeling requirements, import laws and onsite inspection by independent bodies with the authority to issue or not issue certifications we may require to be able to sell products in certain countries. Many of the regulations applicable to our devices and products in these countries are similar to those of the FDA. The member countries of the European Union have adopted the European Medical Device Directives, which create a single set of medical device regulations for all member countries. These regulations require companies that wish to manufacture and distribute medical devices in the European Union maintain quality system certification through European Union recognized Notified Bodies. These Notified Bodies authorize the use of the CE Mark allowing free movement of our products throughout the member countries. Requirements pertaining to our products vary widely from country to country, ranging from simple product registrations to detailed submissions such as those required by the FDA. We believe that our products and quality procedures currently meet applicable standards for the countries in which they are marketed.Our products may become subject to recall or market withdrawal regulations and we have made product recall decisions in the past. No product recall has had a material effect on our financial condition, however there can be no assurance that regulatory issues will not have a material adverse effect in the future.Any change in existing federal, state, foreign laws or regulations, or in the interpretation or enforcement thereof, or the promulgation or any additional laws or regulations may result in a material adverse effect on our financial condition, results of operations or cash flows.EmployeesAs of December 31, 2013, we had approximately 3,600 full-time employees, including approximately 2,200 in operations, 130 in research and development, and the remaining in sales, marketing and related administrative support. We believe that we have good relations with our employees and have never experienced a strike or similar work stoppage. None of our domestic employees are represented by a labor union.Item 1A. Risk FactorsAn investment in our securities, including our common stock, involves a high degree of risk. Investors should carefully consider the specific factors set forth below as well as the other information included or incorporated by reference in this Form 10-K. See “Forward Looking Statements”.Our financial performance is dependent on conditions in the healthcare industry and the broader economy.The results of our business are directly tied to the economic conditions in the healthcare industry and the broader economy as a whole. Significant volatility in the financial markets and foreign currency exchange rates and depressed economic conditions in both domestic and international markets, have presented significant business challenges since the second half of 2008. While we returned to revenue growth in 2010, 2011 and 2012, we experienced a sales decline in 2013. We are cautiously optimistic that the domestic economic environment is improving, however conditions in Europe and elsewhere may present significant business challenges for the Company. While there can be no assurance that improvement in the overall economic environment will be sustained, we will continue to monitor and manage the impact of the overall economic environment on the Company. Approximately 20% of our revenues are derived from the sale of capital products. The sales of such products are negatively impacted if hospitals and other healthcare providers are unable to secure the financing necessary to purchase these products or otherwise defer purchases.Our significant international operations subject us to foreign currency fluctuations and other risks associated with operating in foreign countries.A significant portion of our revenues are derived from foreign sales. Approximately 51% of our total 2013 consolidated net sales were to customers outside the United States. We have sales subsidiaries in a significant number of countries in Europe as well as Australia, Canada, China and Korea. In those countries in which we have a direct presence, our sales are denominated in the local currency and those sales denominated in local currency amounted to approximately 36% of our total net sales in 2013. The remaining 15% of sales to customers outside the United States was on an export basis and transacted in United States dollars.Because a significant portion of our operations consist of sales activities in foreign jurisdictions, our financial results may be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the markets in which we distribute products. While we have implemented a hedging strategy, our revenues may be unfavorably impacted from foreign9currency translation if the United States dollar strengthens as compared with currencies such as the Euro. Our international presence exposes us to certain other inherent risks, including:imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by international subsidiaries;imposition or increase of withholding and other taxes on remittances and other payments by international subsidiaries;trade barriers;political risks, including political instability;reliance on third parties to distribute our products;hyperinflation in certain foreign countries; andimposition or increase of investment and other restrictions by foreign governments.We cannot assure you that such risks will not have a material adverse effect on our business and results of operations.Our financial performance is subject to the risks inherent in our acquisition strategy, including the effects of increased borrowing and integration of newly acquired businesses or product lines.A key element of our business strategy has been to expand through acquisitions and we may seek to pursue additional acquisitions in the future. Our success is dependent in part upon our ability to integrate acquired companies or product lines into our existing operations. We may not have sufficient management and other resources to accomplish the integration of our past and future acquisitions and implementing our acquisition strategy may strain our relationship with customers, suppliers, distributors, manufacturing personnel or others. There can be no assurance that we will be able to identify and make acquisitions on acceptable terms or that we will be able to obtain financing for such acquisitions on acceptable terms. In addition, while we are generally entitled to customary indemnification from sellers of businesses for any difficulties that may have arisen prior to our acquisition of each business, acquisitions may involve exposure to unknown liabilities and the amount and time for claiming under these indemnification provisions is often limited. As a result, our financial performance is now and will continue to be subject to various risks associated with the acquisition of businesses, including the financial effects associated with any increased borrowing required to fund such acquisitions or with the integration of such businesses.Our financial performance may be adversely impacted by the healthcare reform legislation.The Patient Protection and Affordable Care Act and Health Care and Education Affordability Reconciliation Act were enacted into law in the U.S. in March 2010. Effective January 1, 2013, as part of this legislation, a 2.3% excise tax has been imposed upon sales within the U.S. of certain medical device products. In 2013, this excise tax has imposed an additional expense of approximately 0.8% of total global sales and we expect a similar impact in 2014. Other provisions of this legislation, including Medicare provisions aimed at improving quality and decreasing costs, comparative effectiveness research, an independent payment advisory board, and pilot programs to evaluate alternative payment methodologies, could meaningfully change the way health care is developed and delivered, and may adversely affect our business and results of operations. Further, we cannot predict what healthcare programs and regulations will be ultimately implemented at the federal or state level, or the effect of any future legislation or regulation in the U.S. or internationally. However, any changes that lower reimbursements to hospitals for surgical procedures or reduce medical procedure volumes could adversely affect our results of operations and cash flows.Failure to comply with regulatory requirements may result in recalls, fines or materially adverse implications.Substantially all of our products are classified as class II medical devices subject to regulation by numerous agencies and legislative bodies, including the FDA and comparable foreign counterparts. As a manufacturer of medical devices, our manufacturing processes and facilities are subject to on-site inspection and continuing review by the FDA for compliance with the Quality System Regulations. We received a warning letter from the FDA related to our Centennial, CO facility on January 30, 2014 and are currently undertaking corrective actions that will result in additional costs to the Company. These remediation costs are not expected to be material, however there can be no assurance that the actions undertakentreated by the Company will ensure thatas a loan to Mr. E. Corasanti, and at December 31, 2013, the aggregate amount due the Company from Mr. E. Corasanti related to these split-dollar life insurance policies is $281,272. This amount (and loans, if any, for future premiums) will not undertake recalls, voluntary or otherwise, nor can there be any assurance that a future inspection by the FDA will not result in an additional Form 483 or warning letter, or other regulatory actions which may include consent decrees or fines. Manufacturing and sales of our products outside the United States are also subject to foreign regulatory requirements which vary from country to country. Moreover, we are generally required to obtain regulatory clearance or approval prior to marketing a new product. The time required to obtain approvals from foreign countries may be longer or shorter than that required for FDA clearance, and requirements for foreign approvals may differ from FDA requirements. Failure to comply with applicable domestic and/or foreign regulatory requirements may result in:fines or other enforcement actions;10recall or seizure of products;total or partial suspension of production;loss of certification;withdrawal of existing product approvals or clearances;refusal to approve or clear new applications or notices;increased quality control costs; orcriminal prosecution.Failure to comply with Quality System Regulations and applicable foreign regulations could result in a material adverse effect on our business, financial condition or results of operations.If we are not able to manufacture products in compliance with regulatory standards, we may decide to cease manufacturing of those products and may be subject to product recall.In additionrepaid to the Quality System Regulations, many of our products are also subject to industry-defined standards. We may not be able to comply with these regulationsCompany on Mr. E. Corasanti’s death and standards due to deficiencies in component parts or our manufacturing processes. If we are not able to comply with the Quality System Regulations or industry-defined standards, we may not be able to fill customer orders and we may decide to cease production of non-compliant products. Failure to produce products could affect our profit margins and could lead to loss of customers.Our products are subject to product recall and we have made product recalls in the past. Although no recall has had a material adverse effect on our business or financial condition, we cannot assure you that regulatory issues will not have a material adverse effect on our business, financial condition or results of operations in the future or that product recalls will not harm our reputation and our customer relationships.The highly competitive market for our products may create adverse pricing pressures.The market for our products is highly competitive and our customers have numerous alternatives of supply. Many of our competitors offer a range of products in areas other than those in which we compete, which may make such competitors more attractive to surgeons, hospitals, group purchasing organizations and others. In addition, several of our competitors are large, technically competent firms with substantial assets. Competitive pricing pressures or the introduction of new products by our competitors could have an adverse effect on our revenues. See “Products” for a further discussion of these competitive forces.Factors which may influence our customers’ choice of competitor products include:•changes in surgeon preferences;•increases or decreases in healthcare spending related to medical devices;•our inability to supply products to them as a result of product recall, market withdrawal or back-order;•the introduction by competitors of new products or new features to existing products;•the introduction by competitors of alternative surgical technology; and•advances in surgical procedures, discoveries or developments in the healthcare industry.We use a variety of raw materials in our businesses, and significant shortages or price increases could increase our operating costs and adversely impact the competitive positions of our products.Our reliance on certain suppliers and commodity markets to secure raw materials used in our products exposes us to volatility in the prices and availability of raw materials. In some instances, we participate in commodity markets that may be subject to allocations by suppliers. A disruption in deliveries from our suppliers, price increases, or decreased availability of raw materials or commodities, could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs. We believe that our supply management practices are based on an appropriate balancingbalance of the foreseeable risks and the costs of alternative practices. Nonetheless, price increases or the unavailability of some raw materials may have an adverse effect on our results of operations or financial condition.Cost reduction efforts in the healthcare industry could put pressures on our prices and margins.In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs. Such efforts include national healthcare reform, trends towards managed care, cuts in Medicare, consolidation of healthcare distribution companies and collective purchasing arrangements by GPOs and IHNs. Demand and prices for our products may be adversely affected by such trends.11We may not be able to keep pace with technological change or to successfully develop new products with wide market acceptance, which could cause us to lose business to competitors.The market for our products is characterized by rapidly changing technology. Our future financial performance will depend in part on our ability to develop and manufacture new products on a cost-effective basis, to introduce them to the market on a timely basis, and to have them accepted by surgeons.We may not be able to keep pace with technology or to develop viable new products. Factors which may result in delays of new product introductions or cancellation of our plans to manufacture and market new products include:capital constraints;research and development delays;delays in securing regulatory approvals; orchanges in the competitive landscape, including the emergence of alternative products or solutions which reduce or eliminate the markets for pending products.Our new products may fail to achieve expected levels of market acceptance.New product introductions may fail to achieve market acceptance. The degree of market acceptance for any of our products will depend upon a number of factors, including:our ability to develop and introduce new products and product enhancements in the time frames we currently estimate;our ability to successfully implement new technologies;the market’s readiness to accept new products;having adequate financial and technological resources for future product development and promotion;the efficacy of our products; andthe prices of our products compared to the prices of our competitors’ products.If our new products do not achieve market acceptance, we may be unable to recover our investments and may lose business to competitors.In addition, some of the companies with which we now compete, or may compete in the future, have or may have more extensive research, marketing and manufacturing capabilities and significantly greater technical and personnel resources than we do, and may be better positioned to continue to improve their technology in order to compete in an evolving industry. See “Products” for a further discussion of these competitive forces.Our senior credit agreement contains covenants which may limit our flexibility or prevent us from taking actions.Our senior credit agreement contains, and future credit facilities are expected to contain, certain restrictive covenants which will affect, and in many respects significantly limit or prohibit, among other things, our ability to:•incur indebtedness;•make investments;•engage in transactions with affiliates;•pay dividends or make other distributions on, or redeem or repurchase, capital stock;•sell assets; and•pursue acquisitions.These covenants, unless waived, may prevent us from pursuing acquisitions, significantly limit our operating and financial flexibility and limit our ability to respond to changes in our business or competitive activities. Our ability to comply with such provisions may be affected by events beyond our control. In the event of any default under our credit agreement, the credit agreement lenders may elect to declare all amounts borrowed under our credit agreement, together with accrued interest, to be due and payable. If we were unable to repay such borrowings, the credit agreement lenders could proceed against collateral securing the credit agreement which consists of substantially all of our property and assets. Our credit agreement also contains a material adverse effect clause which may limit our ability to access additional funding under our credit agreement should a material adverse change in our business occur.Our leverage and debt service requirements may require us to adopt alternative business strategies.12As of December 31, 2013, we had $215.6 million of debt outstanding, representing 21% of total capitalization. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.The degree to which we are leveraged could have important consequences to investors, including but not limited to the following:a portion of our cash flow from operations must be dedicated to debt service and will not be available for operations, capital expenditures, acquisitions, dividends and other purposes;our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be limited or impaired, or may be at higher interest rates;we may be at a competitive disadvantage when compared to competitors that are less leveraged;we may be hindered in our ability to adjust rapidly to market conditions;our degree of leverage could make us more vulnerable in the event of a downturn in general economic conditions or other adverse circumstances applicable to us; andour interest expense could increase if interest rates in general increase because a portion of our borrowings, including our borrowings under our credit agreement, are and will continue to be at variable rates of interest.We may not be able to generate sufficient cash to service our indebtedness, which could require us to reduce our expenditures, sell assets, restructure our indebtedness or seek additional equity capital.Our ability to satisfy our obligations will depend upon our future operating performance, whichpolicy will be affected by prevailing economic conditionspaid to his estate or beneficiaries.financial, businessManagement and other factors, many of which are beyond our control. We may not have sufficient cash flow available to enable us to meet our obligations. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as foregoing acquisitions, reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital. We cannot assure you that any of these strategies could be implemented on terms acceptable to us, if at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for a discussion of our indebtedness and its implications.We rely on a third party to obtain, process and distribute sports medicine allograft tissue. If such tissue cannot be obtained, is not accepted by the market or is not accepted under numerous government regulations, our results of operations could be negatively impacted.As described in Note 4 to the Consolidated Financial Statements, on January 3, 2012, we entered into an agreement with Muskuloskeletal Transplant Foundation ("MTF") to obtain MTF's worldwide promotional, marketing and distribution rights with respect to allograft tissues within the field of sports medicine. The supply of human tissue is dependent on donors and MTF has numerous relationships with donor groups. Likewise, the supply of tissues available for use as allografts depends on the continued successful processing of donated tissues by MTF at its processing facilities. We cannot be certain, however, that the supply of human tissue will continue to be available at current levels or will be of sufficiently high standards to meet the high processing standards maintained for such tissues by MTF, or in volumes sufficient to meet our customers' needs, or that MTF will be able to continue to process tissues to its high standards in volumes sufficient to keep pace with demand. We expect that the Company's share of revenue streams related to MTF's sports medicine allograft product line would decline in proportion to any decline or disruption in the supply of processed tissues.The FDA and several states have statutory authority to regulate allograft processing and allograft-based materials. The FDA could identify deficiencies in future inspections of MTF or MTF's suppliers or promulgate future regulatory rulings that could disrupt our business, reducing profitability. If we infringe third parties’ patents, or if we lose our patents or they are held to be invalid, we could become subject to liability and our competitive position could be harmed.Much of the technology used in the markets in which we compete is covered by patents. We have numerous U.S. patents and corresponding foreign patents on products expiring at various dates from 2014 through 2031 and have additional patent applications pending. See “Research and Development” for a further description of our patents. The loss of our patents could reduce the value of the related products and any related competitive advantage. Competitors may also be able to design around our patents and to compete effectively with our products. In addition, the cost of enforcing our patents against third parties and defending our products against patent infringement actions by others could be substantial. We cannot assure you that:pending patent applications will result in issued patents;patents issued to or licensed by us will not be challenged by competitors;13our patents will be found to be valid or sufficiently broad to protect our technology or provide us with a competitive advantage; orwe will be successful in defending against pending or future patent infringement claims asserted against our products.Ordering patterns of our customers may change resulting in reductions in sales.Our hospital and surgery center customers purchase our products in quantities sufficient to meet their anticipated demand. Likewise, our healthcare distributor customers purchase our products for ultimate resale to healthcare providers in quantities sufficient to meet the anticipated requirements of the distributors’ customers. Should inventories of our products owned by our hospital, surgery center and distributor customers grow to levels higher than their requirements, our customers may reduce the ordering of products from us. This could result in reduced sales during a financial accounting period.We can be sued for producing defective products and our insurance coverage may be insufficient to cover the nature and amount of any product liability claims.The nature of our products as medical devices and today’s litigious environment should be regarded as potential risks which could significantly and adversely affect our financial condition and results of operations. The insurance we maintain to protect against claims associated with the use of our products have deductibles and may not adequately cover the amount or nature of any claim asserted against us. We are also exposed to the risk that our insurers may become insolvent or that premiums may increase substantially. See “Legal Proceedings” for a further discussion of the risk of product liability actions and our insurance coverage.Damage to our physical properties as a result of windstorm, earthquake, fire or other natural or man-made disaster may cause a financial loss and a loss of customers.Although we maintain insurance coverage for physical damage to our property and the resultant losses that could occur during a business interruption, we are required to pay deductibles and our insurance coverage is limited to certain caps. For example, our deductible for windstorm damage to our Florida property amounts to 2% of any loss.Further, while insurance reimburses us for our lost gross earnings during a business interruption, if we are unable to supply our customers with our products for an extended period of time, there can be no assurance that we will regain the customers’ business once the product supply is returned to normal.14Item 2. PropertiesFacilitiesour principal operating facilities. We believe that our facilities are generally well maintained, are suitable to support our business and adequate for present and anticipated needs.LocationSquare FeetOwn or LeaseLease ExpirationUtica, NY500,000Own—Largo, FL278,000Own—Centennial, CO87,500Own—Chihuahua, Mexico207,720LeaseSeptember 2019Lithia Springs, GA188,400LeaseDecember 2019Brussels, Belgium45,531LeaseJune 2015Mississauga, Canada22,378LeaseDecember 2016Westborough, MA18,210LeaseSeptember 2015Frenchs Forest, Australia16,909LeaseJuly 2015Seoul, Korea15,554LeaseJanuary 2017Anaheim, CA14,037LeaseSeptember 2015Frankfurt, Germany13,606LeaseMarch 2023Milan, Italy13,024LeaseMarch 2017Westborough, MA10,230LeaseApril 2016Swindon, Wiltshire, UK8,562LeaseDecember 2015Askim, Sweden8,353LeaseMay 2016Rungis Cedex, France7,406LeaseDecember 2016Montreal, Canada7,232LeaseMarch 2016Copenhagen, Denmark5,899LeaseApril 2014Shepshed, Leicestershire, UK5,770LeaseOctober 2015Barcelona, Spain5,382LeaseDecember 2018Edison, NJ4,015LeaseDecember 2014New York, NY3,473LeaseSeptember 2022Beijing, China3,456LeaseJune 2014Warsaw, Poland3,222LeaseFebruary 2018Espoo, Finland3,078LeaseOpen EndedSan Mateo, CA3,068LeaseDecember 2015Shanghai, China2,269LeaseFebruary 2015Innsbruck, Austria1,820LeaseJune 2020Item 3. Legal ProceedingsFrom time to time, we are a defendant in certain lawsuits alleging product liability, patent infringement, or other claims incurred in the ordinary coursebeneficial ownership of business. Likewise, from time to time,the Company’s Common Stock as of April 22, 2014, by each shareholder known by the Company may receive a subpoena from a government agency such asto be the Securitiesbeneficial owner of more than 5% of its outstanding Common Stock, by each director and Exchange Commission, Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the Department of Labor, the Treasury Department, or other federal and state agencies or foreign governments or government agencies. These subpoenas may or may not be routine inquiries, or may begin as routine inquiries and over time develop into enforcement actions of various types. The product liability claims are generally coverednominee director, by various insurance policies, subject to certain deductible amounts, maximum policy limits and certain exclusions in the respective policies or as required as a matter of law. In some cases we may be entitled to indemnification by third parties. We establish reserves sufficient to cover probable losses associated with claims. We do not expect that the resolution of any pending claims or investigations will have a material adverse effect on our financial condition, results of operations or cash flows. There can be no assurance, however, that future claims or investigations, or the costs associated with responding to such claims or investigations, especially claims and investigations not covered by insurance, will not have a material adverse effect on our financial condition, results of operations or cash flows.Manufacturers of medical products may face exposure to significant product liability claims. To date, we have not experienced any product liability claims that have been material to our financial statements or condition, but any such claims arising in the future could have a material adverse effect on our business or results of operations. We currently maintain commercial15product liability insurance of $25 million per incident and $25 million in the aggregate annually, which we believe is adequate. This coverage is on a claims-made basis. There can be no assurance that claims will not exceed insurance coverage, that the carriers will be solvent or that such insurance will be available to us in the future at a reasonable cost.Our operations are subject, and in the past have been subject, to a number of environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater remediation and employee health and safety. In some jurisdictions environmental requirements may be expected to become more stringent in the future. In the United States certain environmental laws can impose liability for the entire cost of site restoration upon each of the parties that may have contributed to conditions atNEOs and by all directors and executive officers as a group. Amount and Nature
of Beneficial Ownership Percent of Class 4,000 * 97,045 * 560,998 2.00 10,600 * 40,425 * 16,693 * 1,000 * 21,397 * 5,000 * 1,631,800 5.83 38,381 * 75,097 * 20,100 * 105,090 * 27,500 * 2,790,391 9.97 2,843,769 10.16 2,418,335 8.64 1,864,600 6.66 1,680,206 6.00 1,630,800 5.83 site regardlessaddress of fault or the lawfulnesseach of the party’s activities. While we do not believeabove listed shareholders is c/o* Less than 1% (1) Includes 1,000 SARs exercisable within 60 days, and 3,000 RSUs vesting within 60 days. (2) Includes 4,000 options and SARs exercisable within 60 days, and 7,200 RSUs vesting within 60 days. Also includes 8,787 shares owned beneficially by the wife of Eugene R. Corasanti. Eugene R. Corasanti is the father of Joseph J. Corasanti. (3) Includes 415,000 options and SARs, exercisable within 60 days, and 29,000 RSUs vesting within 60 days. Also includes 750 shares owned beneficially by the wife and 2,100 shares owned beneficially by the children of Joseph J. Corasanti. Joseph J. Corasanti is the son of Eugene R. Corasanti. (4) Includes 4,000 options and SARs exercisable within 60 days and 3,200 RSUs vesting within 60 days. (5) Includes 26,000 SARs exercisable within 60 days and 8,100 RSUs and PSUs vesting within 60 days. (6) Includes 1,500 options and SARs exercisable within 60 days and 3,200 RSUs vesting within 60 days. (7) Includes 1,000 RSUs vesting within 60 days. (8) Includes 10,000 options and SARs exercisable within 60 days and 4,000 RSUs vesting within 60 days. (9) Includes 1,000 SARs exercisable within 60 days, and 3,000 RSUs vesting within 60 days. (10) Includes 1,000 RSUs vesting within 60 days and 1,630,800 shares that Mr. Lande is deemed to indirectly beneficially own as a Managing Member of Coppersmith Capital Management, LLC based on his shared voting power and shared dispositive power with respect to such shares. (Refer to footnote 21). (11) Includes 16,000 options and SARs exercisable within 60 days and 3,200 RSUs vesting within 60 days. (12) Includes 48,400 options and SARs exercisable within 60 days and 6,200 RSUs vesting within 60 days. (13) Includes 9,500 options and SARs exercisable within 60 days and 3,200 RSUs vesting within 60 days. (14) Includes 54,000 options and SARs exercisable within 60 days and 5,800 RSUs vesting within 60 days. (15) Includes 11,500 SARs exercisable within 60 days and 3,200 RSUs vesting within 60 days. (16) Includes 682,900 options and SARs exercisable within 60 days and 95,610 RSUs and PSUs vesting within 60 days held by the Directors, NEOs and the executive officers of the Company. Such 778,510 shares are equal to approximately 2.78% of the Common Stock outstanding. As of April 22, 2014 the Company’s directors and executive officers as a group (18 persons) are the beneficial owners of 2,011,881 shares which is approximately 7.19% of the Common Stock outstanding. (17) An Amendment to Schedule 13G filed with the SEC by BlackRock, Inc. on April 6, 2014 indicates beneficial ownership of 2,843,769 shares of Common Stock by virtue of having sole voting power over 2,748,414 shares of Common Stock and sole power to dispose of 2,843,769 shares of Common Stock in its role as investment advisor for certain funds. (18) An Amendment to Schedule 13G filed with the SEC by Dimensional Fund Advisors LP on February 10, 2014 indicates beneficial ownership of 2,418,335 shares of Common Stock by virtue of having sole power to vote over 2,392,100 shares and sole power to dispose of 2,418,335 shares of Common Stock. (19) A Schedule 13G filed with the SEC by FMR LLC on February 14, 2014 indicates beneficial ownership of 1,864,600 shares of Common Stock by virtue of having sole power to dispose 1,864,600 shares of Common Stock. (20) An Amendment to Schedule 13G filed with the SEC by The Vanguard Group, Inc. on February 12, 2014 indicates beneficial ownership of 1,680,206 shares of Common Stock by virtue of having sole voting power over 39,474 shares of Common Stock, sole power to dispose of 1,642,332 shares of Common Stock and shared power to dispose of 37,874 shares of Common Stock. (21) A Schedule 13D filed with the SEC by Coppersmith Capital Management, LLC on February 27, 2014 indicates beneficial ownership of 1,630,800 shares of Common Stock by virtue of having sole voting power over 1,630,800 shares and having sole power to dispose 1,630,800 shares of Common Stock. present costs of environmental complianceAmended and remediation are material, there can be no assurance that future compliance or remedial obligations would not have a material adverse effect on our financial condition, results of operations or cash flows.In September 2012, Bonutti Skeletal Innovations, LLC filed a complaint inRestated Long-Term Incentive Plan, the United States District Court for the Middle District of Florida against CONMEDAmended and certain of its subsidiaries. The Complaint asserts that select CONMED products infringe patents allegedly owned by Bonutti Skeletal Innovations. On the same day that it sued CONMED, Bonutti Skeletal Innovations sued several other orthopedic companies. The Company believes that the products in question do not infringe the patents-in-suit and intends to vigorously defend the claims. A range of potential losses cannot be estimated at this time.During the third quarter of 2013, the FDA inspected our Centennial, CO manufacturing facility and issued a Form 483 with observations on September 20, 2013. The Company subsequently submitted responses to the Observations,Restated 2007 Non-Employee Director Equity Compensation Plan and the FDA issued a Warning Letter on January 30, 2014 relating to the inspection and the responses to the Form 483 Observations. Accordingly, we are undertaking corrective actions that may involve additional costs for the Company. These remediation costs are not expected to be material, however there can be no assurance that the actions undertaken by the Company will ensure that the Company will not undertake recalls, voluntary or otherwise, nor can there be any assurance that a future inspection by the FDA will not result in an additional Form 483 or warning letter, or other regulatory actions which may include consent decrees or fines.Item 4. Mine Safety DisclosuresNot applicable.PART IIItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock, par value $.01 per share, is traded on the NASDAQ2006 Stock Market under the symbol “CNMD”. At January 31, 2014, there were 729 registered holders of our common stock and approximately 4,984 accounts held in “street name”.The following table sets forth quarterly high and low sales prices for the years ended December 31, 2012 and 2013, as reported by the NASDAQ Stock Market. 2012 Period High Low First Quarter $ 30.47 $ 26.00 Second Quarter 30.42 26.03 Third Quarter 29.25 25.85 Fourth Quarter 29.33 25.71 2013 Period High Low First Quarter $ 34.29 $ 28.03 Second Quarter 34.04 30.42 Third Quarter 33.96 31.07 Fourth Quarter 42.50 33.25 16Our Board of Directors has authorized a share repurchase program as noted below; also see Note 7 to the Consolidated Financial Statements. The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended December 31, 2013:ISSUER PURCHASES OF EQUITY SECURITIESPeriod (a) Total Number of Shares Purchased (d) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program October 1, 2013 to October 31, 2013 — $ — $ 60,128,968 November 1, 2013 to November 30, 2013 — $ — — 60,128,968 December 1, 2013 to December 31, 2013 146,905 $ 39.67 146,905 54,301,615 Total 146,905 146,905 1Average price paid per share includes cash paid for commissions.2Our Board of Directors authorized a $200.0 million share repurchase program. There is no expiration date governing the period over which the Company can make its share repurchases under the share repurchase program.On February 29, 2012, the Board of Directors adopted a cash dividend policy and declared an initial quarterly dividend of $0.15 per share. On October 28, 2013, the Board of Directors increased the quarterly dividend to $0.20 per share. The fourth quarter dividend for 2013 was paid on January 6, 2014 to shareholders of record as of December 16, 2013. The total dividend payable at December 31, 2013 was $5.5 million and is included in other current liabilities in the consolidated balance sheet. Future decisions as to the payment of dividends will be at the discretion of the Board of Directors, subject to conditions then existing, including our financial requirements and condition and the limitation and payment of cash dividends contained in debt agreements.Equity Compensation Plan Information Plan category Equity compensation plans approved by security holders 1,606,739 $25.55 1,145,915 Equity compensation plans not approved by security holders — — — Total 1,606,739 $25.55 1,145,915 17Performance GraphThe performance graph below compares the yearly percentage change in the Company’s Common Stock with the cumulative total return of the NASDAQ Composite Index and the cumulative total return of the Standard & Poor’s Health Care Equipment Index. In each case, the cumulative total return assumes reinvestment of dividends into the same class of equity securities at the frequency with which dividends are paid on such securities during the applicable fiscal year.18
Equity Compensation Plan Information Plan category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a) Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c) 1,606,739 $ 25.55 1,145,915 — — — 1,606,739 $ 25.55 1,145,915
Board of Directors Interlocks and Insider Certain Relationships and Related The Company’s Board of Directors, which is presently composed of Brian Concannon, Eugene R. Corasanti, Joseph J. Corasanti, Bruce F. Daniels, Jo Ann Golden, Curt R. Hartman, Dirk M. Kuyper, Jerome J. Lande, Stephen M. Mandia, Stuart J. Schwartz, and Mark E. Tryniski, establishes the compensation plans and specific compensation levels for Joseph J. Corasanti directly (with Messrs. E. Corasanti and J. Corasanti abstaining) and for other executive officers through the Compensation Committee, and administers the Company’s equity incentive plans through the Compensation Committee. Eugene R. Corasanti serves as a director of the Company. Joseph J. Corasanti, the President and Chief Executive Officer of the Company, also serves as a director of the Company, an officer of several of the Company’s subsidiaries and is the son of Eugene R. Corasanti. The Company employs the following persons who are related to certain officers of the Company in Employee Name and Position Officer(s) and/or Director(s) toItem 6. Selected Financial DataThe following table sets forth selected historical financial data for the years ended December 31, 2009, 2010, 2011, 2012 and 2013. The financial data set forth below should be read in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Form 10-K and the Financial Statements of the Company and the notes thereto.FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA Years Ended December 31, 2009 2010 2011 2012 2013 (in thousands, except per share data) Statements of Operations Data (1): Net sales $ 694,739 $ 713,723 $ 725,077 $ 767,140 $ 762,704 Cost of sales (2) 357,407 348,339 350,143 361,297 350,287 Gross profit 337,332 365,384 374,934 405,843 412,417 Selling and administrative 266,310 276,463 276,615 302,469 310,730 Research and development 31,837 29,652 28,651 28,214 25,831 Impairment of goodwill (3) — — 60,302 — — Medical device excise tax — — — — 5,949 Other expense (4) 10,916 2,176 1,092 9,950 13,399 Income from operations 28,269 57,093 8,274 65,210 56,508 (Gain) loss on early extinguishment of debt (5) (1,083 ) 79 — — 263 Amortization of debt discount 4,111 4,244 3,903 — — Interest expense 7,086 7,113 6,676 5,730 5,613 Income (loss) before income taxes 18,155 45,657 (2,305 ) 59,480 50,632 Provision (benefit) for income taxes 6,018 15,311 (3,057 ) 18,999 14,693 Net income $ 12,137 $ 30,346 $ 752 $ 40,481 $ 35,939 Per Share Data Basic earnings per share $ 0.42 $ 1.06 $ .03 $ 1.43 $ 1.30 Diluted earnings per share $ 0.42 $ 1.05 $ .03 $ 1.41 $ 1.28 Dividends per share of common stock $ — $ — $ — $ 0.60 $ 0.65 Weighted Average Number of Common Shares In Calculating: Basic earnings per share 29,074 28,715 28,246 28,301 27,722 Diluted earnings per share 29,142 28,911 28,633 28,653 28,114 Other Financial Data: Depreciation and amortization $ 41,283 $ 41,807 $ 42,687 $ 46,616 $ 47,867 Capital expenditures 21,444 14,732 17,552 21,532 18,445 Balance Sheet Data (at period end): Cash and cash equivalents $ 10,098 $ 12,417 $ 26,048 $ 23,720 $ 54,443 Total assets 958,413 985,773 935,594 1,078,849 1,090,508 Long-term obligations 302,791 219,344 231,339 346,637 372,924 Total shareholders’ equity 576,515 586,563 573,071 606,998 606,319 19(1)Results of operations of acquired businesses have been recorded in the financial statements since the date of acquisition.(2)In 2009, 2010, 2011, 2012 and 2013, we incurred charges related to the restructuring of certain of our operations of $12.7 million, $2.4 million, $3.5 million, $7.1 million and $6.5 million, respectively; in 2010 and 2013 we incurred charges of $2.5 million and $2.1 million, respectively, related to the termination of a product offering. See additional discussion in Note 15 to the Consolidated Financial Statements.(3)During 2011, we recorded a $60.3 million charge for the impairment of goodwill related to the legacy CONMED Patient Care reporting unit. Refer to Note 4 to the Consolidated Financial Statements for further details.(4)Other expense includes the following: 2009 2010 2011 2012 2013 New plant/facility consolidation $ 2,726 $ — $ — $ — $ — Net pension gain (1,882 ) — — — — Product recall 5,992 — — — — Administrative consolidation costs 4,080 2,176 792 6,497 8,750 Costs associated with purchase of a distributor — — 300 704 — Costs associated with legal arbitration and patent dispute — — — 1,555 3,206 Pension settlement expense — — — — 1,443 Costs associated with purchase of a business — — — 1,194 — Other expense $ 10,916 $ 2,176 $ 1,092 $ 9,950 $ 13,399 See additional discussion in Note 11 to the Consolidated Financial Statements.(5)Includes in 2010 and 2013, a charge of $0.1 million and $0.3 million, respectively, related to a loss on the early extinguishment of debt. Includes in 2009, a gain of $1.1 million on the early extinguishment of debt. See additional discussion in Note 5 to the Consolidated Financial Statements.20Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion should be read in conjunction with Selected Financial Data (Item 6), and our Consolidated Financial Statements and related notes contained elsewhere in this report.Overview of CONMED CorporationCONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and monitoring. The Company’s products are used by surgeons and physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery, and gastroenterology. During 2011 and 2012, we undertook a variety of restructuring initiatives aimed at improving efficiency and internal effectiveness. These initiatives included changes in management lines of reporting and culminated in the implementation of a functional organizational structure. Under the new structure, we are now organized by function rather than by operating segment. Executives reporting in to the CEO include those responsible for operations and supply chain management, research and development, sales, marketing and certain corporate functions. Our chief operating decision maker (the CEO) evaluates the various global product portfolios on a net sales basis and evaluates profitability, investment and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources. As a result, we have discontinued accounting and reporting for our businesses as five separate, operating segments. Effective January 1, 2013, we are accounting and reporting for our business as a single segment entity engaged in the development, manufacturing and sale on a global basis of surgical devices and related equipment.As part of this reporting structure change, we also restructured our product lines. Orthopedic surgery consists of sports medicine instrumentation and small bone, large bone and specialty powered surgical instruments and service fees related to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. Surgical visualization consists of 2D and 3D video systems for use in minimally invasive orthopedic and general surgery. These product lines as a percentage of consolidated net sales are as follows: 2011 2012 2013 Orthopedic surgery 51 % 54 % 54 % General surgery 40 37 37 Surgical visualization 9 9 9 Consolidated net sales 100 % 100 % 100 % A significant amount of our products are used in surgical procedures with approximately 80% of our revenues derived from the sale of disposable products. Our capital equipment offerings also facilitate the ongoing sale of related disposable products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to customers and through distributors. International sales approximated 50%, 50% and 51% in 2011, 2012 and 2013, respectively.Business Environment and OpportunitiesThe aging of the worldwide population along with lifestyle changes, continued cost containment pressures on healthcare systems and the desire of clinicians and administrators to use less invasive (or noninvasive) procedures are important trends which are driving the long-term growth in our industry. We believe that with our broad product offering of high quality surgical and patient care products, we can capitalize on this growth for the benefit of the Company and our shareholders.In order to further our growth prospects, we have historically used strategic business acquisitions and exclusive distribution relationships to continue to diversify our product offerings, increase our market share and realize economies of scale.We have a variety of research and development initiatives focused in each of our principal product lines as continued innovation and commercialization of new proprietary products and processes are essential elements of our long-term growth strategy. Our reputation as an innovator is exemplified by recent new product introductions such as the Y-Knot® Flex System for instability repairs featuring the smallest double-loaded (1.8mm) anchors available and curved, flexible instrumentation to help21surgeons achieve ideal anchor placement and the Y-Knot® RC anchors for rotator cuffs are the world’s only self-punching all-suture anchors which helps simplify techniques while its small size is designed to improve placement options; the new D4000 Resection System featuring an intuitive touchscreen display and direct pump integration for a seamless clinical experience; the IM8000 2DHD Camera System can be used in multi-specialty procedures and includes a new autoclavable camera head featuring proprietary CMOS technology for clear, crisp imagery and a new LS8000 LED light source providing improved light sensitivity for clearer visualization; the new Hall 50™ Powered Instrument System can be used in total joint replacements featuring lighter, ergonomically-designed handpieces to provide a comfortable, high-performance clinical experience while the new Hall UL-approved autoclavable lithium batteries deliver dependable, long-lasting power and the unique, multi-tray system also provides hospitals with new levels of sterilization convenience; the new GS2000 50L Insufflator features the market’s fastest flow rate and a dual-tank shuttle valve system to help provide clear and consistent laparoscopic visualization; the EntriPort line of trocars help deliver effective sealing and clear visualization in a wide range of sizes optimal for nearly every minimally invasive abdominal surgical application; our new D-Flex probes were designed for use with the da Vinci® Surgical System and enable non-contact hemostasis with argon gas and our DetachaTip® III Multi-Use Endosurgery Instruments offer the optimal blend of performance and cost efficiency - combining precise, reliable, and comfortable performance with dramatically reduced procedural costs.Business ChallengesSignificant volatility in the financial markets and foreign currency exchange rates as well as depressed economic conditions in both domestic and international markets, have presented significant business challenges since the second half of 2008. While we returned to revenue growth in 2010, 2011 and 2012, we experienced a sales decline during 2013. We are cautiously optimistic that the domestic economic environment is improving, however conditions in Europe and elsewhere may present significant business challenges for the Company. While there can be no assurance that improvement in the overall economic environment will be sustained, we will continue to monitor and manage the impact of the overall economic environment on the Company.Over the past few years we successfully completed certain of our operational restructuring plans whereby we consolidated manufacturing and distribution centers as well as restructured certain of our administrative functions. We continue to restructure both operations and administrative functions as necessary throughout the organization. However, we cannot be certain such activities will be completed in the estimated time period or that planned cost savings will be achieved.Our facilities are subject to periodic inspection by the United States Food and Drug Administration (“FDA”) and foreign regulatory agencies or notified bodies for, among other things, conformance to Quality System Regulation and Current Good Manufacturing Practice (“CGMP”) requirements and foreign or international standards. We are committed to the principles and strategies of systems-based quality management for improved CGMP compliance, operational performance and efficiencies through our Company-wide quality systems initiatives. However, there can be no assurance that our actions will ensure that we will not receive a warning letter or be the subject of other regulatory action, which may include consent decrees or fines, that we will not conduct product recalls or that we will not experience temporary or extended periods during which we may not be able to sell products in foreign countries. During the third quarter of 2013, the FDA inspected our Centennial, CO manufacturing facility and issued a Form 483 with observations on September 20, 2013. The Company subsequently submitted responses to the Observations, and the FDA issued a Warning Letter on January 30, 2014 relating to the inspection and the responses to the Form 483 Observations. Accordingly, we are undertaking corrective actions that may involve additional costs for the Company. These remediation costs are not expected to be material, however there can be no assurance that the actions undertaken by the Company will ensure that the Company will not undertake recalls, voluntary or otherwise, nor can there be any assurance that a future inspection by the FDA will not result in an additional Form 483 or warning letter, or other regulatory actions which may include consent decrees or fines.Critical Accounting PoliciesPreparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Consolidated Financial Statements describes the significant accounting policies used in preparation of the Consolidated Financial Statements. The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of CONMED Corporation.Revenue RecognitionRevenue is recognized when title has been transferred to the customer which is at the time of shipment. The following policies apply to our major categories of revenue transactions:22Sales to customers are evidenced by firm purchase orders. Title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms. Payment by the customer is due under fixed payment terms and collectability is reasonably assured.We place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years. In these circumstances, no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met. Revenue is recognized upon the sale and shipment of the related single-use products. The cost of the equipment is amortized over its estimated useful life.We recognize revenues related to the promotion and marketing of sports medicine allograft tissue in accordance with the contractual terms of our agreement with Musculoskeletal Transplant Foundation (“MTF”) on a net basis as our role is limited to that of an agent earning a commission or fee. MTF records revenue when the tissue is shipped to the customer. Our services are completed at this time and net revenues for the “Service Fee” for our promotional and marketing efforts are then recognized based on a percentage of the net amounts billed by MTF to its customers. The timing of revenue recognition is determined through review of the net billings made by MTF each month. Our net commission Service Fee is based on the contractual terms of our agreement and is currently 50%. This percentage can vary over the term of the agreement but is contractually determinable. Our Service Fee revenues are recorded net of amortization of the acquired assets, which are being expensed over the expected useful life of 25 years.Product returns are only accepted at the discretion of the Company and in accordance with our “Returned Goods Policy”. Historically the level of product returns has not been significant. We accrue for sales returns, rebates and allowances based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.Our terms of sale to customers generally do not include any obligations to perform future services. Limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data.Amounts billed to customers related to shipping and handling have been included in net sales. Shipping and handling costs included in selling and administrative expense were $13.0 million, $12.8 million and $12.6 million for 2011, 2012 and 2013, respectively.We sell to a diversified base of customers around the world and, therefore, believe there is no material concentration of credit risk.We assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment. Historically, losses on accounts receivable have not been material. Management believes that the allowance for doubtful accounts of $1.4 million at December 31, 2013 is adequate to provide for probable losses resulting from accounts receivable.Inventory ValuationWe write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of current carrying costs. The markets in which we operate are highly competitive, with new products and surgical procedures introduced on an on-going basis. Such marketplace changes may result in our products becoming obsolete. We make estimates regarding the future recoverability of the costs of our products and record a provision for excess and obsolete inventories based on historical experience, expiration of sterilization dates and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write-downs may be required. Goodwill and Intangible AssetsWe have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Effective January 1, 2013, we are reporting our business as a single operating segment, and goodwill as a single reporting unit. Changes in our structure are further discussed in Note 8 to the Consolidated Financial Statements. Customer relationships, trademarks, tradenames, patents, and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses. Promotional, marketing and distribution rights represent intangible23assets created under our Sports Medicine Joint Development and Distribution Agreement (the "JDDA") with Musculoskeletal Transplant Foundation (“MTF”). We have accumulated goodwill of $248.4 million and other intangible assets of $319.4 million as of December 31, 2013.In accordance with FASB guidance, goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to at least annual impairment testing. It is our policy to perform our annual impairment testing in the fourth quarter. The identification and measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows and other valuation techniques. Future cash flows may be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities. During 2013, we completed our goodwill impairment testing with data as of October 1, 2013. We performed a Step 1 impairment test in accordance with ASC 350 utilizing the market capitalization approach to determine whether the fair value of a reporting unit is less than its carrying amount. Based upon our assessment, we believe the fair value continues to exceed carrying value by 99%.During 2011, we estimated the fair value of the legacy CONMED Patient Care reporting unit (refer to Note 8 for discussion regarding the change in operating segments) utilizing both a market-based approach and an income approach. Under the income approach, we utilized a discounted cash flow valuation methodology and measured the goodwill impairment in accordance with ASC 350. The first step of the impairment test determined the carrying value exceeded fair value and therefore we proceeded to Step 2. Under Step 2, we calculated the amount of impairment loss by measuring the amount the carrying value of goodwill exceeded the implied fair value of the goodwill. We determined the goodwill of our legacy CONMED Patient Care reporting unit was impaired as a result of lower future earnings due to pricing pressures in a number of our product lines and consequently we recorded a goodwill impairment charge of $60.3 million to reduce the carrying amount of the reporting unit's goodwill to its implied fair value.Intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. An impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value.Customer relationship assets arose principally as a result of the 1997 acquisition of Linvatec Corporation. These assets represent the acquisition date fair value of existing customer relationships based on the after-tax income expected to be derived during their estimated remaining useful life. The useful lives of these customer relationships were not and are not limited by contract or any economic, regulatory or other known factors. The estimated useful life of the Linvatec customer relationship assets was determined as of the date of acquisition as a result of a study of the observed pattern of historical revenue attrition during the 5 years immediately preceding the acquisition of Linvatec Corporation. This observed attrition pattern was then applied to the existing customer relationships to derive the future expected useful life of the customer relationships. This analysis indicated an annual attrition rate of 2.6%. Assuming an exponential attrition pattern, this equated to an average remaining useful life of approximately 38 years for the Linvatec customer relationship assets. Customer relationship intangible assets arising as a result of other business acquisitions are being amortized over a weighted average life of 15 years. The weighted average life for customer relationship assets in aggregate is 33 years.We evaluate the remaining useful life of our customer relationship intangible assets each reporting period in order to determine whether events and circumstances warrant a revision to the remaining period of amortization. In order to further evaluate the remaining useful life of our customer relationship intangible assets, we perform an analysis and assessment of actual customer attrition and activity as events and circumstances warrant. This assessment includes a comparison of customer activity since the acquisition date and review of customer attrition rates. In the event that our analysis of actual customer attrition rates indicates a level of attrition that is in excess of that which was originally contemplated, we would change the estimated useful life of the related customer relationship asset with the remaining carrying amount amortized prospectively over the revised remaining useful life.We test our customer relationship assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors specific to our customer relationship assets which might lead to an impairment charge include a significant increase in the annual customer attrition rate or otherwise significant loss of customers, significant decreases in sales or current-period operating or cash flow losses or a projection or forecast of losses. We do not believe that there have been events or changes in circumstances which would indicate the carrying amount of our customer relationship assets might not be recoverable.24For all other indefinite lived intangible assets, we perform a qualitative impairment test in accordance with ASC 350. Based upon this assessment, we have determined that it is unlikely that our indefinite lived intangible assets are impaired.See Note 4 to the Consolidated Financial Statements for further discussion of goodwill and other intangible assets.Pension PlanWe sponsor a defined benefit pension plan (the “pension plan”) that was frozen in 2009. It covered substantially all our United States based employees at the time it was frozen. Major assumptions used in accounting for the plan include the discount rate, expected return on plan assets, rate of increase in employee compensation levels and expected mortality. Assumptions are determined based on Company data and appropriate market indicators, and are evaluated annually as of the plan’s measurement date. A change in any of these assumptions would have an effect on net periodic pension costs reported in the consolidated financial statements.The weighted-average discount rate used to measure pension liabilities and costs is set by reference to the Citigroup Pension Liability Index. However, this index gives only an indication of the appropriate discount rate because the cash flows of the bonds comprising the index do not match precisely the projected benefit payment stream of the plan. For this reason, we also consider the individual characteristics of the plan, such as projected cash flow patterns and payment durations, when setting the discount rate. The rates used in determining 2013 and 2014 pension expense are 3.90% and 4.75%, respectively.We have used an expected rate of return on pension plan assets of 8.0% for purposes of determining the net periodic pension benefit cost. In determining the expected return on pension plan assets, we consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, we consult with financial and investment management professionals in developing appropriate targeted rates of return.Pension expense in 2014 is not expected to be material. Pension expense was $2.6 million in 2013, including $1.4 million in pension settlement expenses resulting from a higher level of lump sum withdrawals from pension plan participants during 2013. In addition, we do not expect to make any contributions to the pension plan for the 2014 plan year.In performing a sensitivity analysis on our pension plan expense, we do not believe a 0.25% increase or decrease in discount rate or investment return would have a material impact on our pension expense.See Note 9 to the Consolidated Financial Statements for further discussion.Stock-based CompensationAll share-based payments to employees, including grants of employee stock options, restricted stock units, performance share units and stock appreciation rights are recognized in the financial statements based at their fair values. Compensation expense is generally recognized using a straight-line method over the vesting period. Compensation expense for performance share units is recognized using the graded vesting method.Income TaxesThe recorded future tax benefit arising from deductible temporary differences and tax carryforwards is approximately $33.0 million at December 31, 2013. Management believes that earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits.The Company is subject to taxation in the United States and various states and foreign jurisdictions. Taxing authority examinations can involve complex issues and may require an extended period of time to resolve. Our Federal income tax returns have been examined by the Internal Revenue Service (“IRS”) for calendar years ending through 2012. Tax years subsequent to 2012 are subject to future examination.Consolidated Results of OperationsThe following table presents, as a percentage of net sales, certain categories included in our consolidated statements of comprehensive income for the periods indicated:25 Year Ended December 31, 2011 2012 2013 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 48.3 47.1 45.9 Gross margin 51.7 52.9 54.1 Selling and administrative expense 38.1 39.4 40.7 Research and development expense 4.0 3.7 3.4 Impairment of goodwill 8.3 — — Medical device excise tax — — 0.8 Other expense 0.2 1.3 1.8 Income from operations 1.1 8.5 7.4 Loss on early extinguishment of debt — — 0.0 Amortization of debt discount 0.5 — — Interest expense 0.9 0.7 0.7 Income (loss) before income taxes (0.3 ) 7.8 6.7 Provision (benefit) for income taxes (0.4 ) 2.5 1.9 Net income 0.1 % 5.3 % 4.8 % 2013 Compared to 2012Sales for 2013 were $762.7 million, a decrease of $4.4 million (-0.6%) compared to sales of $767.1 million in 2012 with the decreases occurring in our orthopedic surgery and visualization product lines. In local currency, excluding the effects of the hedging program, sales increased 0.2%. Sales of capital equipment decreased $2.2 million (-1.4%) to $153.7 million in 2013 from $155.9 million in 2012; sales of single-use products decreased $2.2 million (-0.4%) to $609.0 million in 2013 from $611.2 million in 2012. In local currency, excluding the effects of the hedging program, sales of capital equipment decreased 0.8% while single-use increased 0.4%.Orthopedic surgery sales decreased $3.7 million (-0.9%) in 2013 to $410.2 million from $413.9 million in 2012 mainly due to lower sales in our resection product offerings and large bone burs and blades. In local currency, excluding the effects of the hedging program, sales increased 0.1%.General surgery sales remained relatively flat with a $0.1 million (0.0%) increase in 2013 to $286.7 million from $286.6 million in 2012 mainly due to increased sales in our endomechanical, gastrointestinal and pulmonary product offerings offset by decreased sales in our advanced energy and patient monitoring product offerings. In local currency, excluding the effects of the hedging program, sales increased 0.5%.Surgical visualization sales decreased $0.8 million (-1.2%) in 2013 to $65.8 million from $66.6 million in 2012 mainly due to lower video system product sales. In local currency, excluding the effects of the hedging program, sales decreased -0.9%.Cost of sales decreased to $350.3 million in 2013 as compared to $361.3 million in 2012. Gross profit margins increased 1.2 percentage points to 54.1% in 2013 as compared to 52.9% in 2012. The increase in gross profit margins of 1.2 percentage points is primarily a result of the lower costs resulting from the restructuring initiatives we have completed throughout our operation.Selling and administrative expense increased to $310.7 million in 2013 compared to $302.5 million in 2012. Selling and administrative expense as a percentage of net sales increased to 40.7% in 2013 from 39.4% in 2012. This increase of 1.3 percentage points is attributable to higher benefit costs, lower overall sales, and higher selling and marketing expenses during the period.Research and development expense was $25.8 million in 2013 compared to $28.2 million in 2012. As a percentage of net sales, research and development expense decreased to 3.4% in 2013 compared to 3.7% in 2012. The decrease of 0.3 percentage points is mainly the result of the timing of projects.In accordance with the Patient Protection and Affordable Care Act and Health Care and Education Affordability Reconciliation Act, the Company was required in 2013 to begin paying a 2.3% excise tax imposed upon sales within the U.S. of certain medical device products. The medical device excise tax expense totaled $5.9 million in 2013.26As discussed in Note 11 to the Consolidated Financial Statements, other expense in 2013 consisted of an $8.8 million charge related to administrative consolidation expenses, $3.2 million in legal costs associated with a patent infringement claim and a $1.4 million pension settlement expense as further described in Note 10. Other expense in 2012 consisted of a $6.5 million charge related to administrative consolidation expenses, a $0.7 million charge related to the purchase of the Company's former distributor for the Nordic region of Europe, $1.6 million in costs associated with a contractual dispute with a former distributor and $1.2 million in costs associated with the purchase of Viking Systems, Inc..As discussed in Note 5 to the Consolidated Financial Statements, we entered into an amended and restated senior credit agreement on January 17, 2013. In connection with the refinancing, we recorded a $0.3 million loss on the early extinguishment of debt related to the write-off of unamortized deferred financing costs under the then existing senior credit agreement.Interest expense was $5.6 million in 2013 compared to $5.7 million in 2012. The decrease in interest expense is due to lower weighted average interest rates on higher weighted average borrowings outstanding in 2013 as compared to the same period a year ago. The weighted average interest rates on our borrowings decreased to 2.39% in 2013 as compared to 3.03% in 2012.A provision for income taxes was recorded at an effective rate of 29.0% in 2013 and 31.9% in 2012 as compared to the Federal statutory rate of 35.0%. The effective tax rate is lower than that recorded in the same period a year ago as a result of a greater proportion of earnings in foreign jurisdictions where the corporate tax rate and deduction for notional interest on equity allowed against taxable profits in Europe result in effective tax rates lower than the statutory rate, tax benefits recorded in the third quarter of 2013 as a result of taxing authority determinations, and tax benefits related to business tax provisions, including the research and development credit ($0.8 million), that were enacted in the first quarter of 2013, retroactive to January 1, 2012. A reconciliation of the United States statutory income tax rate to our effective tax rate is included in Note 6 to the Consolidated Financial Statements.2012 Compared to 2011Sales for 2012 were $767.1 million, an increase of $42.0 million (5.8%) compared to sales of $725.1 million in 2011 with the increases in our orthopedic surgery and surgical visualization product lines. The distribution agreement with Musculoskeletal Transplant Foundation ("MTF") accounted for a 3.9% annual sales increase. In local currency, excluding the effects of the hedging program, sales increased 5.7%. Sales of capital equipment decreased $6.1 million (-3.8%) to $155.9 million in 2012 from $162.0 million in 2011; sales of single-use products increased $48.1 million (8.5%) to $611.2 million in 2012 from $563.1 million in 2011. In local currency, excluding the effects of the hedging program, sales of capital equipment decreased 3.7% while single-use products increased 8.4%. We believe the overall decline in capital sales is driven by capital purchasing constraints in hospitals due to depressed economic conditions.Orthopedic surgery sales increased $42.7 million (11.5%) in 2012 to $413.9 million from $371.2 million in 2011 mainly due to the distribution agreement with MTF, increased sales of our procedure specific, large bone burs and blades and small bone handpiece product offerings. In local currency, excluding the effects of the hedging program sales increased 11.4%.General surgery sales decreased $0.8 million (-0.3%) in 2012 to $286.6 million from $287.4 million in 2011 mainly due to lower sales in our patient monitoring products and advanced energy products offset by increases in our gastrointestinal and pulmonary products. In local currency, excluding the effects of the hedging program, sales decreased -0.4%.Surgical visualization sales remained relatively flat, with a $0.1 million (0.2%) increase in 2012 to $66.6 million from $66.5 million in 2011 due to higher video systems sales. In local currency, excluding the effects of the hedging program, sales increased 0.7% .Cost of sales increased to $361.3 million in 2012 as compared to $350.1 million in 2011. Gross profit margins increased 1.2 percentage points to 52.9% in 2012 as compared to 51.7% in 2011. The increase in gross profit margins of 1.2 percentage points is primarily a result of the distribution agreement we entered into during 2012 with MTF as further described in Note 4 to the Consolidated Financial Statements (1.5 percentage points) and product mix offset by the impact of unfavorable foreign exchange rates on sales and higher restructuring charges than the same period a year ago.Selling and administrative expense increased to $302.5 million in 2012 compared to $276.6 million in 2011. Selling and administrative expense as a percentage of net sales increased to 39.4% in 2012 from 38.1% in 2011. This increase of 1.3 percentage points is primarily attributable to higher selling expenses mainly related to our MTF distribution agreement and acquisition of our27former distributor for the Nordic region of Europe.Research and development expense was $28.2 million in 2012 compared to $28.7 million in 2011. As a percentage of net sales, research and development expense decreased to 3.7% in 2012 compared to 4.0% in 2011. The decrease of 0.3 percentage points is mainly a result of relatively flat spending on increased sales in 2012.During 2011, we recorded a $60.3 million charge for the impairment of goodwill related to our legacy Patient Care reporting unit. Refer to Note 4 to the Consolidated Financial Statements for further details.As discussed in Note 11 to the Consolidated Financial Statements, other expense in 2012 consisted of a $6.5 million charge related to administrative consolidation expenses, a $0.7 million charge related to the purchase of the Company's former distributor for the Nordic region of Europe, $1.6 million in costs associated with a contractual dispute with a former distributor and $1.2 million in costs associated with the purchase of Viking Systems, Inc.. Other expense in 2011 consisted of a $0.8 million charge related to the consolidation of administrative functions and a $0.3 million charge related to the purchase of the Company's former distributor for the Nordic region of Europe.Amortization of debt discount was $3.9 million in 2011. The debt discount on the Notes was amortized through November 2011.Interest expense was $5.7 million in 2012 compared to $6.7 million in 2011. The decrease in interest expense is due to lower weighted average interests rates on higher weighted average borrowings outstanding in 2012 as compared to the same period a year ago. The weighted average interest rates on our borrowings decreased to 3.03% in 2012 as compared to 3.66% in 2011.A provision for income taxes was recorded at an effective rate of 31.9% in 2012 and -132.6% in 2011 as compared to the Federal statutory rate of 35.0%. Income tax expense recorded in 2012 was higher than recorded in the same period a year ago as a result of increased pre-tax earnings, offset by higher earnings in foreign jurisdictions where the tax rates are lower than the statutory federal rate and tax benefits recorded in 2012 as a result of determinations received from multiple taxing authorities. A reconciliation of the United States statutory income tax rate to our effective tax rate is included in Note 6 to the Consolidated Financial Statements.Liquidity and Capital ResourcesOur liquidity needs arise primarily from capital investments, working capital requirements and payments on indebtedness under the amended and restated senior credit agreement, described below. We have historically met these liquidity requirements with funds generated from operations and borrowings under our revolving credit facility. In addition, we have historically used term borrowings, including borrowings under the amended and restated senior credit agreement and borrowings under separate loan facilities, in the case of real property purchases, to finance our acquisitions. We also have the ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering. We believe that our cash on hand, cash from operating activities and proceeds from our amended and restated senior credit agreement provide us with sufficient financial resources to meet our anticipated capital requirements and obligations as they come due.We had total cash on hand at December 31, 2013 of $54.4 million, of which approximately $45.2 million was held by our foreign subsidiaries outside the United States with unremitted earnings.During the fourth quarter of 2011, we repatriated $16.2 million of foreign earnings to the United States. We do not currently intend to repatriate additional funds held outside of the United States in the foreseeable future. If we were to repatriate these funds, we would be required to accrue and pay taxes on such amounts.Operating cash flowsOur net working capital position was $260.9 million at December 31, 2013. Net cash provided by operating activities was $103.0 million in 2011, $95.2 million in 2012 and $80.9 million in 2013 generated on net income of $0.8 million in 2011, $40.5 million in 2012 and $35.9 million in 2013. The decrease in cash provided by operating activities is primarily the result of the payments related to the medical device excise tax that became effective January 1, 2013 and changes in working capital accounts in 2013.Investing cash flows28Net cash used in investing activities during 2013, consisted primarily of capital expenditures. Capital expenditures were $17.6 million, $21.5 million and $18.4 million in 2011, 2012 and 2013, respectively. Capital expenditures are expected to approximate $20.0 million in 2014. The decrease in the cash used in investing activities during 2013 is the result of $64.1 million in payments related to the distribution and development agreement with MTF and purchase of Viking Systems, Inc. for $22.5 million during 2012.Financing cash flowsFinancing activities in 2013 resulted in a use of cash of $31.3 million compared to proceeds of cash of $11.4 million in 2012. During 2013, we repurchased common stock totaling $50.6 million compared to only $3.9 million in 2012. We also had a $34.0 million payment associated with the distribution and development agreement with MTF. Finally, we made $16.7 million in dividend payments in 2013 compared to $12.9 million in 2012; 2012 included only three quarters of payments as this was the first year we paid dividends. This increased use of cash in 2013 was offset by $17.3 million in proceeds from the issuance of common stock under our equity compensation plans and employee stock purchase plan during 2013 compared to only $10.2 million in 2012 as a result of increases in exercises in 2013. 2012 also consisted of $53.6 million in repayments of term borrowings under our then outstanding senior credit agreement.On January 17, 2013, we entered into an amended and restated $350.0 million senior credit agreement (the "amended and restated senior credit agreement"). The amended and restated senior credit agreement consists of a $350.0 million revolving credit facility expiring on January 17, 2018. In connection with the refinancing, we recorded a $0.3 million loss on the early extinguishment of debt related to the write-off of unamortized deferred financing costs under the then existing senior credit agreement. Interest rates are at LIBOR plus 1.625% (1.795% at December 31, 2013) or an alternative base rate. For those borrowings where we elect to use the alternative base rate, the base rate will be the greater of the Prime Rate, the Federal Funds Rate in effect on such date plus 0.50%, or the one month Eurocurrency rate plus 1%, plus an additional margin of 0.625%. As described in Note 4, we entered into a distribution and development agreement with MTF on January 3, 2012 and used cash on hand and available borrowings under our revolving credit facility to fund the up front payment of $63.0 million and contingent payment made on January 3, 2013 of $34.0 million. We expect to fund the remaining $50.0 million in contingent payments, including the $16.7 million paid on January 3, 2014, through cash on hand and available borrowings under our revolving credit facility as these payments come due over the next three years.There were $208.0 million in borrowings outstanding under the revolving credit facility as of December 31, 2013. Our available borrowings on the revolving credit facility at December 31, 2013 were $134.2 million with approximately $7.8 million of the facility set aside for outstanding letters of credit. The amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios, and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and restrictions as of December 31, 2013. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.We have a mortgage note outstanding in connection with the Largo, Florida property and facilities bearing interest at 8.25% per annum with semiannual payments of principal and interest through June 2019. The principal balance outstanding on the mortgage note aggregated $7.6 million at December 31, 2013. The mortgage note is collateralized by the Largo, Florida property and facilities.Our Board of Directors has authorized a $200.0 million share repurchase program. Through December 31, 2013, we have repurchased a total of 5.7 million shares of common stock aggregating $145.7 million under this authorization and have $54.3 million remaining available for share repurchases. The repurchase program calls for shares to be purchased in the open market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any time. We repurchased $50.6 million under the share repurchase program in 2013. We have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility.Management believes that cash flow from operations, including cash and cash equivalents on hand and available borrowing capacity under our amended and restated senior credit agreement, will be adequate to meet our anticipated operating working capital requirements, debt service, funding of capital expenditures and common stock repurchases in the foreseeable future. See “Item 1. Business – Forward Looking Statements.”Restructuring29During 2011, 2012 and 2013, we continued our operational restructuring plan which includes the transfer of additional production lines from manufacturing facilities located in the United States to our manufacturing facility in Chihuahua, Mexico and the consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities. During the first quarter of 2013, we began the consolidation of our Westborough, Massachusetts operations into our Largo, Florida and Chihuahua, Mexico facilities. For the years ending December 31, 2011, 2012 and 2013, we charged $3.5 million, $7.1 million, and $6.5 million, respectively, to cost of goods sold related to our restructuring plan. These costs include severance and other charges associated with the transfer of production to Mexico and consolidation of our Finland and Westborough, Massachusetts operations. We expect this phase of our plan to be substantially completed in the first quarter of 2014.As part of our ongoing restructuring, the Company discontinued a patient monitoring product offering and incurred $2.1 million in costs which were charged to cost of goods sold during the year ending December 31, 2013.During 2011, 2012 and 2013, we consolidated certain administrative functions throughout the Company and incurred $0.8 million, $6.5 million, and $8.8 million, respectively, in related costs consisting principally of severance charges. These costs were charged to other expense.We have recorded an accrual in current liabilities of $3.1 million at December 31, 2013 mainly related to severance and lease impairment costs associated with the restructuring. We expect this phase of our plan and related cash payments to be substantially completed in 2014.We plan to continue to restructure both operations and administrative functions as necessary throughout the organization. As the restructuring plan progresses, we will incur additional charges, including employee termination and other exit costs. We estimate restructuring costs associated with the Finland and Westborough, Massachusetts consolidations and other legal costs related to a patent dispute will approximate $4.0 million to $5.0 million in 2014 and will be charged to cost of goods sold and other expense.During February 2014, the Company announced a new phase of the restructuring plan to consolidate our Centennial, Colorado manufacturing operations into other existing CONMED manufacturing facilities. We expect this plan to be completed over the next 24 months and are in the process of determining the total costs expected to be incurred.Refer to Note 15 to the Consolidated Financial Statements for further discussions regarding restructuring.Contractual ObligationsThe following table summarizes our contractual obligations for the next five years and thereafter (amounts in thousands) as of December 31, 2013. Purchase obligations represent purchase orders for goods and services placed in the ordinary course of business. There were no capital lease obligations as of December 31, 2013. Payments Due by Period Total Long-term debt $ 215,575 $ 1,140 $ 2,573 $ 211,026 $ 836 Contingent consideration 50,000 16,667 33,333 — — Purchase obligations 40,130 39,996 134 — — Operating lease obligations 28,529 6,723 9,926 6,874 5,006 Total contractual obligations $ 334,234 $ 64,526 $ 45,966 $ 217,900 $ 5,842 In addition to the above contractual obligations, we are required to make periodic interest payments on our long-term debt obligations (see additional discussion under Item 7A. “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” and Note 5 to the Consolidated Financial Statements). The above table also does not include unrecognized tax benefits of approximately $0.6 million, the timing and certainty of recognition for which is not known. (See Note 6 to the Consolidated Financial Statements).Stock-based Compensation30We have reserved shares of common stock for issuance to employees and directors under three shareholder-approved share-based compensation plans (the "Plans"). The Plans provide for grants of options, stock appreciation rights (“SARs”), dividend equivalent rights, restricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and other equity-based and equity-related awards. The exercise price on all outstanding options and SARs is equal to the quoted fair market value of the stock at the date of grant. RSUs and PSUs are valued at the market value of the underlying stock on the date of grant. Stock options, SARs, RSUs and PSUs are non-transferable other than on death and generally become exercisable over a five year period from date of grant. Stock options and SARs expire ten years from date of grant. SARs are only settled in shares of the Company’s stock. (See Note 7 to the Consolidated Financial Statements).New Accounting PronouncementsSee Note 14 to the Consolidated Financial Statements for a discussion of new accounting pronouncements.Item 7A. Quantitative and Qualitative Disclosures About Market RiskMarket risk is the potential loss arising from adverse changes in market rates and prices such as commodity prices, foreign currency exchange rates and interest rates. In the normal course of business, we are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. We manage our exposure to these and other market risks through regular operating and financing activities and as necessary through the use of derivative financial instruments.Foreign currency riskApproximately 51% of our total 2013 consolidated net sales were to customers outside the United States. We have sales subsidiaries in a significant number of countries in Europe as well as Australia, Canada, China and Korea. In those countries in which we have a direct presence, our sales are denominated in the local currency amounting to approximately 36% of our total net sales in 2013. The remaining 15% of sales to customers outside the United States was on an export basis and transacted in United States dollars.Because a significant portion of our operations consist of sales activities in foreign jurisdictions, our financial results may be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the markets in which we distribute products. During 2013, foreign currency exchange rates, including the effects of the hedging program, caused sales to decrease by approximately $2.3 million and income before income taxes to decrease by approximately $1.5 million, compared to sales and income before income taxes in 2012.We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts. We account for these forward contracts as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in accumulated other comprehensive loss. These changes in fair value will be recognized into earnings as a component of sales or cost of sales when the forecasted transaction occurs. The notional contract amounts for forward contracts outstanding at December 31, 2013 which have been accounted for as cash flow hedges totaled $132.4 million. Net realized gains (losses) recognized for forward contracts accounted for as cash flow hedges approximated -$4.7 million, $3.8 million and $0.2 million for the years ended December 31, 2011, 2012, and 2013 respectively. Net unrealized losses on forward contracts outstanding which have been accounted for as cash flow hedges and which have been included in other comprehensive income totaled $1.4 million at December 31, 2013. It is expected these unrealized losses will be recognized in the consolidated statement of comprehensive income in 2014 and 2015.We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts as hedges and have not applied hedge accounting to them. The notional contract amounts for forward contracts outstanding at December 31, 2013 which have not been designated as hedges totaled $42.0 million. Net realized gains (losses) recognized in connection with those forward contracts not accounted for as hedges approximated $0.0 million, -$2.1 million and -$0.3 million for the years ended December 31, 2011, 2012, and 2013, respectively, offsetting gains (losses) on our intercompany receivables of -$0.3 million, $0.8 million and -$0.8 million for the years ended December 31, 2011, 2012, and 2013, respectively. These gains and losses have been recorded in selling and administrative expense in the consolidated statements of comprehensive income.We record these forward foreign exchange contracts at fair value; the net fair value for forward foreign exchange contracts outstanding at December 31, 2013 was $2.2 million and is included in other current liabilities in the Consolidated Balance Sheets.Refer to Note 13 in the Consolidated Financial Statements for further discussion.31Interest rate riskAt December 31, 2013, we had approximately $208.0 million of variable rate long-term debt outstanding under our senior credit agreement. Assuming no repayments, if market interest rates for similar borrowings averaged 1.0% more in 2014 than they did in 2013, interest expense would increase, and income before income taxes would decrease by $2.1 million. Comparatively, if market interest rates for similar borrowings average 1.0% less in 2014 than they did in 2013, our interest expense would decrease, and income before income taxes would increase by $2.1 million.Item 8. Financial Statements and Supplementary DataOur 2013 Financial Statements are included elsewhere herein.Item 9. Changes In and Disagreements with Accountants on Accounting and Financial DisclosuresThere were no changes in or disagreement with accountants on accounting and financial disclosure.Item 9A. Controls and ProceduresAs of the end of the period covered by this report, an evaluation was carried out by CONMED Corporation’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fourth quarter of the year ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in Part IV, Item 15 of the Annual Report on Form 10-K.Item 9B. Other InformationNot applicable.32PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required by this item is incorporated herein by reference to the sections captioned “Proposal One: Election of Directors” and “Directors, Executive Officers, Other Company Officers and Nominees for the Board of Directors” in CONMED Corporation’s definitive Proxy Statement or other informational filing to be filed with the Securities and Exchange Commission on or about April 10, 2014.Item 11. Executive CompensationThe information required by this item is incorporated herein by reference to the sections captioned “Compensation Discussion and Analysis”, “Summary Compensation Table”, “Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal Year-End”, “Option Exercises and Stock Vested”, “Pension Benefits”, “Non-Qualified Deferred Compensation”, “Potential Payments on Termination or Change-in-Control”, “Director Compensation” and “Board of Directors Interlocks and Insider Participation; Certain Relationships and Related Transactions” in CONMED Corporation’s definitive Proxy Statement or other informational filing to be filed with the Securities and Exchange Commission on or about April 10, 2014.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated herein by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in CONMED Corporation’s definitive Proxy Statement or other informational filing to be filed with the Securities and Exchange Commission on or about April 10, 2014.ItemITEM 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporatedherein by reference to the section captioned “BoardParticipation; Participation:Transactions”TransactionsCONMED Corporation’s definitive Proxy Statement the manner indicated below. Employees who are related to officers and/or other informational filing to be filed with the Securities and Exchange Commission on or about April 10, 2014.Item 14. Principal Accounting Fees and ServicesThe information required by this itemdirectors whose total compensation is incorporatedherein by reference to the section captioned “Principal Accounting Fees and Services” in CONMED Corporation’s definitive Proxy Statement or other informational filing to be filed with the Securities and Exchange Commission on or about April 10, 2014.33PART IVItem 15. Exhibits, Financial Statement Schedules
whom Employee is RelatedRelationship of Employee to
OfficerDavid Corasanti, Marketing Manager Eugene R. Corasanti Son Joseph J. Corasanti Brother Index to Financial Statements(a)(1)List of Financial StatementsPage in Form 10-KAlan Rust, Corporate Distribution Director Management’s Report on Internal Control Over Financial Reporting40William W. Abraham Report of Independent Registered Public Accounting Firm41Consolidated Balance Sheets at December 31, 2012 and 201342Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2011, 2012 and 201343Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2011, 2012 and 201344Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2012 and 201346Notes to Consolidated Financial Statements48(2)List of Financial Statement SchedulesValuation and Qualifying Accounts (Schedule II)75All other schedules have been omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto.(3)List of ExhibitsThe exhibits listed on the accompanying Exhibit Index on page 37 below are filed as part of this Form 10-K.Son-in-law 34
Compensation for the above-referenced employees, consisting solely of salary and bonus, ranged from $132,000 to $187,000 during 2013.
In March 2003, the Audit Committee adopted a written charter specifying that it would pre-approve all transactions in which the Company is a participant and in which a related person has or will have a direct or indirect material interest, including without limitation any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships. The charter requirement was incorporated into a policy in November 2003 under which requests for pre-approvals can be submitted to the Chair of the Audit Committee for pre-approval, with the Chair to report any such pre-approvals at the next scheduled meeting of the Audit Committee. Under the policy, such related-person transactions must be approved or ratified by the Audit Committee. Further, any related-party transaction in which the projected spending is over $50,000 requires management to secure competitive bids to ensure that any proposal is reasonable with respect to costs. The Committee may also determine that the approval or ratification of such transaction should be considered by all of the disinterested members of the Board. Related persons include any of our directors or executive officers and their family members.
In considering whether to approve or ratify any related-person transaction, the chair or Committee, as applicable, may consider all factors that they deem relevant to the transaction, including, but not limited to: the size of the transaction and the amount payable to or receivable from a related person; the nature of the interest of the related person in the transaction; the Company’s prior dealings, if any, with the related party; whether the transaction may involve a conflict of interest; and whether the transaction involves the provision of goods or services to the Company that are available from unaffiliated third parties and, if so, whether the transaction is on terms and made under circumstances that are at least as favorable to the Company as would be available in comparable transactions with or involving unaffiliated third parties.
To identify related-person transactions, at least once a year all directors and executive officers of the Company are required to complete questionnaires seeking, among other things, disclosure with respect to such transactions of which such director or executive officer may be aware.
Director Independence
The Board of Directors has determined that Messrs. Concannon, Daniels, Hartman, Kuyper, Lande, Mandia and Tryniski, and Ms. Golden and Dr. Schwartz, have no material relationship with the Company and are independent under the standards of the NASDAQ Stock Market. The independent directors meet in executive session after at least two Board meetings each year.
The Audit Committee is responsible for the audit fee negotiations associated with the retention of PricewaterhouseCoopers LLP. The aggregate fees and expenses billed by PricewaterhouseCoopers LLP for professional services rendered for the audit of the Company’s annual financial statements for the years ended December 31, 2012 and December 31, 2013, for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for those years, for the audit of the Company’s internal control over financial reporting as of December 31, 2012 and December 31, 2013, and all other audit related, tax consulting and other fees and expenses, are set forth in the table below. Fee Summary Audit Fees: Audit of Annual Financial Statements and Interim Reviews Audit of Internal Control over Financial Reporting SEC Registration Statements Total Audit Fees Audit Related Fees: Advisory Services Tax Fees: Tax Compliance and Consulting Services All Other Fees: Research Service License Total Fees and Expenses The Audit Committee has adopted procedures requiring prior approval of particular engagements for services rendered by the Company’s independent registered public accounting firm. Consistent with applicable laws, the Audit Committee has delegated its authority to pre-approve work by the independent registered public accounting firm and related party transactions to the Chairman of the Audit Committee, who is required to disclose any such pre-approvals at the Audit Committee’s next meeting. All fee amounts set forth in the table above were pre-approved. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the 2012 2013 $ 1,277,500 $ 1,557,200
Included
above
Included
above
$ 0 $ 0 $ 1,277,500 $ 1,557,200 $ 0 $ 0 $ 283,100 $ 507,700 $ 1,800 $ 1,800 $ 1,562,400 $ 2,066,700 registrantRegistrant has duly caused this reportAmendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 to be signed on its behalf by the undersigned, thereunto duly authorized on the date indicated below.
April 25, 2014
/s/ Robert D. Shallish, Jr. |
Executive |
Exhibit No. Description of Exhibit Page NumberSignature Title Date/s/ EUGENE R. CORASANTIChairman of the BoardEugene R. Corasantiof DirectorsFebruary 24, 2014/s/ JOSEPH J. CORASANTIPresident, Chief ExecutiveJoseph J. CorasantiOfficer and DirectorFebruary 24, 2014/s/ ROBERT D. SHALLISH, JR.Executive Vice President-FinanceRobert D. Shallish, Jr.and Chief Financial Officer (Principal Financial Officer)February 24, 2014/s/ LUKE A. POMILIOExecutive Vice President-Luke A. PomilioController and Corporate General Manager (Principal Accounting Officer)February 24, 2014/s/ BRIAN CONCANNONBrian ConcannonDirectorFebruary 24, 2014/s/ BRUCE F. DANIELSBruce F. DanielsDirectorFebruary 24, 2014/s/ JO ANN GOLDENJo Ann GoldenDirectorFebruary 24, 2014/s/ DIRK M. KUYPERDirk M. KuyperDirectorFebruary 24, 2014/s/ STEPHEN M. MANDIAStephen M. MandiaDirectorFebruary 24, 2014/s/ STUART J. SCHWARTZStuart J. SchwartzDirectorFebruary 24, 2014/s/ MARK E. TRYNISKIMark E. TryniskiDirectorFebruary 24, 201436Exhibit IndexExhibit No.31.1 Description3.1-Amended and Restated By-Laws, as adopted by the Board of Directors on April 29, 2011 (Incorporated by reference to the Company’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on May 2, 2011).3.2-1999 Amendment to Certificate of Incorporation and Restated Certificate of Incorporation of CONMED Corporation (Incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999).4.1-See Exhibit 3.1.4.2-See Exhibit 3.2.4.3-Guarantee and Collateral Agreement, dated August 28, 2002, made by CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).4.4-First Amendment to Guarantee and Collateral Agreement, dated June 30, 2003, made by CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank and the several banks and other financial institutions or entities from time to time parties thereto (Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).4.5-Second Amendment to Guarantee and Collateral Agreement, dated April 13, 2006, made by CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank and the several banks and other financial institutions or entities from time to time parties thereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 19, 2006).4.6-Third Amendment to Guarantee and Collateral Agreement, dated as of January 17, 2013, made by CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated by reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 2012).10.1+-Employment Agreement between the Company and Eugene R. Corasanti, dated October 31, 2006 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2006).10.2+-Amended and Restated Employment Agreement, dated October 30, 2009, by and between CONMED Corporation and Joseph J. Corasanti, Esq. (Incorporated by reference to the Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).10.3-Amended and Restated Employee Stock Option Plan (including form of Stock Option Agreement) (Incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996).10.4-Stock Option Plan for Non-Employee Directors of CONMED Corporation (Incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996).3710.5-Amendment to Stock Option Plan for Non-employee Directors of CONMED Corporation (Incorporated by reference to the Company’s Definitive Proxy Statement for the 2002 Annual Meeting filed with the Securities and Exchange Commission on April 17, 2002).10.6-Amended and Restated 1999 Long Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 on November 3, 2009).10.7-2002 Employee Stock Purchase Plan (Incorporated by reference to the Company’s Definitive Proxy Statement for the 2002 Annual Meeting filed with the Securities and Exchange Commission on April 17, 2002).10.8-Amendment to CONMED Corporation 2002 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005).10.9-2006 Stock Incentive Plan (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 on August 8, 2006).10.10-Amended and Restated 2007 Non-Employee Director Equity Compensation Plan of CONMED Corporation (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 on August 3, 2010).10.11-Amended and Restated Long Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 on July 27, 2012).10.12-Amended and Restated Credit Agreement, dated January 17, 2013, among CONMED Corporation, JP Morgan Chase Bank and the several banks and other financial institutions or entities from time to time parties thereto (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 18, 2013).10.13-Change in Control Severance Agreement for Joseph J. Corasanti (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).10.14-Change in Control Severance Agreement for Robert D. Shallish, Jr. (Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).10.15-Change in Control Severance Agreement for Daniel S. Jonas (Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).10.16-Change in Control Severance Agreement for Luke A. Pomilio (Incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).10.17-Executive Severance Agreement for Joseph G. Darling (Incorporated by reference to Exhibit 10.28 of the Company's Annual Report on Form 10-K for the year ended December 31, 2008).10.18-Change in Control Severance Agreement for Joseph G. Darling (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010). 3810.19-Sports Medicine Joint Development and Distribution Agreement by and between Musculoskeletal Transplant Foundation, Inc. and CONMED Corporation dated as of January 3, 2012 (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated January 3, 2012).14-Code of Ethics. The CONMED code of ethics may be accessed via the Company’s website at http://www.CONMED.com/conmed_investor_template.php21*-Subsidiaries of the Registrant.23*-Consent of Independent Registered Public Accounting Firm.31.1*-Certification of Joseph J. Corasanti pursuant to Rule 13a-14(a) andor Rule 15d-14(a), of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002 E-1 31.2*-Exhibit 31.2 Certification of Robert D. Shallish, Jr. pursuant to Rule 13a-14(a) andor Rule 15d-14(a), of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002 32.1*-Certifications of Joseph J. Corasanti and Robert D. Shallish, Jr. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101*The following materials from CONMED Corporation's Annual Report on Form 10-K for the year ended December 31, 2013 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Comprehensive Income for the three years ended December 31, 2013, (ii) Consolidated Balance Sheets at December 31, 2013 and 2012, (iii) Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2013 (iv) Consolidated Statements of Cash Flows for the three years ended December 31, 2013, (v) Notes to the Consolidated Financial Statements for the year ended December 31, 2013 and (vi) Schedule II - Valuation and Qualifying Accounts. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.*Filed herewith+Management contract or compensatory plan or arrangement.E-239MANAGEMENT’S REPORT ON INTERNAL CONTROLOVER FINANCIAL REPORTINGThe management of CONMED Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management assessed the effectiveness of CONMED’s internal control over financial reporting as of December 31, 2013. In making its assessment, management utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework”, released in 1992. Management has concluded that based on its assessment, CONMED’s internal control over financial reporting was effective as of December 31, 2013. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein./s/ Joseph J. CorasantiJoseph J. CorasantiPresident andChief Executive Officer/s/ Robert D. Shallish, Jr.Robert D. Shallish, Jr.Executive Vice President-Finance andChief Financial Officer40REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders of CONMED CorporationIn our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of CONMED Corporation and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLPAlbany, New YorkFebruary 24, 201441CONMED CORPORATIONCONSOLIDATED BALANCE SHEETSDecember 31, 2012 and 2013(In thousands except share and per share amounts) 2012 2013 ASSETS Current assets: Cash and cash equivalents $ 23,720 $ 54,443 Accounts receivable, less allowance for doubtful accounts of $1,203 in 2012 and $1,384 in 2013 139,124 140,426 Inventories 156,228 143,211 Income taxes receivable 2,897 3,805 Deferred income taxes 11,931 13,202 Prepaid expenses and other current assets 14,993 17,045 Total current assets 348,893 372,132 Property, plant and equipment, net 139,041 138,985 Deferred income taxes 1,057 1,183 Goodwill 248,502 248,428 Other intangible assets, net 334,185 319,440 Other assets 7,171 10,340 Total assets $ 1,078,849 $ 1,090,508 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,050 $ 1,140 Accounts payable 23,622 27,448 Accrued compensation and benefits 33,511 33,426 Income taxes payable 2,706 2,116 Other current liabilities 64,325 47,135 Total current liabilities 125,214 111,265 Long-term debt 160,802 214,435 Deferred income taxes 99,199 113,199 Other long-term liabilities 86,636 45,290 Total liabilities 471,851 484,189 Commitments and contingencies Shareholders' equity: Preferred stock, par value $.01 per share; authorized 500,000 shares, none issued or outstanding — — Common stock, par value $.01 per share; 100,000,000 authorized; 31,299,194 issued in 2012 and 2013, respectively 313 313 Paid-in capital 324,322 326,436 Retained earnings 377,907 395,889 Accumulated other comprehensive loss (27,581 ) (17,572 ) Less: Treasury stock, at cost; 2,925,801 and 3,718,332 shares in 2012 and 2013, respectively (67,963 ) (98,747 ) Total shareholders' equity 606,998 606,319 Total liabilities and shareholders' equity $ 1,078,849 $ 1,090,508 The accompanying notes are an integral part of the consolidated financial statements.42CONMED CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEYears Ended December 31, 2011, 2012 and 2013(In thousands except per share amounts) 2011 2012 2013 Net sales $ 725,077 $ 767,140 $ 762,704 Cost of sales 350,143 361,297 350,287 Gross profit 374,934 405,843 412,417 Selling and administrative expense 276,615 302,469 310,730 Research and development expense 28,651 28,214 25,831 Impairment of goodwill 60,302 — — Medical device excise tax — — 5,949 Other expense 1,092 9,950 13,399 366,660 340,633 355,909 Income from operations 8,274 65,210 56,508 Loss on early extinguishment of debt — — 263 Amortization of debt discount 3,903 — — Interest expense 6,676 5,730 5,613 Income (loss) before income taxes (2,305 ) 59,480 50,632 Provision (benefit) for income taxes (3,057 ) 18,999 14,693 Net income $ 752 $ 40,481 $ 35,939 Per share data: Basic $ 0.03 $ 1.43 $ 1.30 Diluted $ 0.03 $ 1.41 $ 1.28 Dividends per share of common stock $ — $ 0.60 $ 0.65 Other comprehensive income (loss), before tax: Foreign currency translation adjustments $ (1,937 ) $ 1,995 $ (1,193 ) Pension liability (20,250 ) 1,387 18,175 Cash flow hedging gain (loss) 6,690 (6,507 ) (404 ) Other comprehensive income (loss), before tax (14,745 ) 37,356 52,517 Provision (benefit) for income taxes related to items of other comprehensive income (5,010 ) (1,892 ) 6,569 Comprehensive income (loss) $ (9,735 ) $ 39,248 $ 45,948 The accompanying notes are an integral part of the consolidated financial statements.43CONMED CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYYears Ended December 31, 2011, 2012 and 2013(In thousands) Common Stock Shares Amount Balance at December 31, 2010 31,299 $ 313 $ 319,406 $ 354,020 $ (15,861 ) $ (71,315 ) $ 586,563 Common stock issued under employee plans (3,849 ) (333 ) 9,009 4,827 Repurchase of treasury stock (15,021 ) (15,021 ) Tax benefit arising from common stock issued under employee plans 1,197 1,197 Stock-based compensation 5,240 5,240 Comprehensive income (loss): (1,937 ) Pension liability (net of income tax benefit of $7,482) (12,768 ) Cash flow hedging gain (net of income tax expense of $2,472) 4,218 Net income 752 Total comprehensive income (loss) (9,735 ) Balance at December 31, 2011 31,299 $ 313 $ 321,994 $ 354,439 $ (26,348 ) $ (77,327 ) $ 573,071 Common stock issued under employee plans (4,377 ) 13,287 8,910 Repurchase of treasury stock (3,923 ) (3,923 ) Tax benefit arising from common stock issued under employee plans 1,052 1,052 Stock based compensation 5,653 5,653 Dividend on common stock (17,013 ) (17,013 ) 44 Common Stock Shares Amount Comprehensive income (loss): 1,995 Pension liability (net of income tax expense of $512) 875 Cash flow hedging loss (net of income tax benefit of $2,404) (4,103 ) Net income 40,481 Total comprehensive income (loss) 39,248 Balance at December 31, 2012 31,299 $ 313 $ 324,322 $ 377,907 $ (27,581 ) $ (67,963 ) $ 606,998 Common stock issued under employee plans (4,576 ) 19,772 15,196 Repurchase of treasury stock (50,556 ) (50,556 ) Tax benefit arising from common stock issued under employee plans 1,097 1,097 Stock based compensation 5,593 5,593 Dividends on common stock (17,957 ) (17,957 ) Comprehensive income (loss): (1,193 ) Pension liability (net of income tax expense of $6,718) 11,457 Cash flow hedging loss (net of income tax benefit of $149) (255 ) Net income 35,939 Total comprehensive income (loss) 45,948 Balance at December 31, 2013 31,299 $ 313 $ 326,436 $ 395,889 $ (17,572 ) $ (98,747 ) $ 606,319 The accompanying notes are an integral part of the consolidated financial statements.45CONMED CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSYears Ended December 31, 2011, 2012 and 2013(In thousands) 2011 2012 2013 Cash flows from operating activities: Net income $ 752 $ 40,481 $ 35,939 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 18,519 18,635 18,653 Amortization of debt discount 3,903 — — Amortization, all other 20,265 27,981 29,214 Stock-based compensation 5,240 5,653 5,593 Deferred income taxes (13,098 ) 12,946 7,218 Income tax benefit of stock option exercises 1,197 1,052 1,097 Excess tax benefit from stock option exercises (1,363 ) (1,206 ) (1,518 ) Loss on early extinguishment of debt — — 263 Impairment of goodwill 60,302 — — Increase (decrease) in cash flows from changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 8,464 1,687 (798 ) Inventories (7,850 ) 3,810 (1,817 ) Accounts payable 2,649 259 4,223 Income taxes 4,838 (6,497 ) (1,098 ) Accrued compensation and benefits 1,673 767 (71 ) Other assets (4,243 ) (1,210 ) (5,222 ) Other liabilities 1,745 (9,159 ) (10,727 ) 102,241 54,718 45,010 Net cash provided by operating activities 102,993 95,199 80,949 Cash flows from investing activities: Payments related to business acquisitions and distribution agreements, net of cash acquired (4,191 ) (86,253 ) — Proceeds from sale of property — 1,836 — Purchases of property, plant and equipment (17,552 ) (21,532 ) (18,445 ) Net cash used in investing activities (21,743 ) (105,949 ) (18,445 ) Cash flows from financing activities: Net proceeds from common stock issued under employee plans 6,117 10,165 17,264 Repurchase of common stock (15,021 ) (3,923 ) (50,556 ) Excess tax benefit from stock option exercises 1,363 1,206 1,518 Payments on senior credit agreement (1,350 ) (53,588 ) — Proceeds of senior credit agreement 58,000 73,000 55,000 Payments related to distribution agreement — — (34,000 ) Payments on mortgage notes (894 ) (969 ) (1,050 ) Payments on senior subordinated notes (111,766 ) (100 ) (227 ) Payments related to issuance of debt — — (1,725 ) Dividends paid on common stock — (12,862 ) (16,696 ) Other, net (3,148 ) (1,576 ) (824 ) Net cash provided by (used in) financing activities (66,699 ) 11,353 (31,296 ) 46Effect of exchange rate changes on cash and cash equivalents (920 ) (2,931 ) (485 ) Net increase (decrease) in cash and cash equivalents 13,631 (2,328 ) 30,723 Cash and cash equivalents at beginning of year 12,417 26,048 23,720 Cash and cash equivalents at end of year $ 26,048 $ 23,720 $ 54,443 Non-cash financing activities: Dividends payable $ — $ 4,256 $ 5,545 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 5,797 $ 5,038 $ 5,143 Income taxes 4,760 10,953 6,837 The accompanying notes are an integral part of the consolidated financial statements.47CONMED CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands except per share amounts)Note 1 — Operations and Significant Accounting PoliciesOrganization and operationsCONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and monitoring. The Company’s products are used by surgeons and physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery, and gastroenterology.Principles of consolidationThe consolidated financial statements include the accounts of CONMED Corporation and its controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated.Income taxes receivable and income taxes payable at December 31, 2012 have been revised by $2.7 million to conform to the current year presentation which presents these balances net by jurisdiction.We have reclassified the promotional, marketing and distribution rights totaling $143.4 million at December 31, 2012 from Other Assets to Other Intangible Assets to conform to current year presentation.Use of estimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments which affect the reported amounts of assets, liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, rebates and sales allowances, inventory allowances, purchased in-process research and development, pension benefits, goodwill and intangible assets, contingencies and other accruals. We base our estimates on historical experience and on various other assumptions which are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effect of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.Cash and cash equivalentsWe consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.InventoriesInventories are valued at the lower of cost or market. Cost is determined on the FIFO (first-in, first-out) method of accounting.We write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of current carrying costs. We make estimates regarding the future recoverability of the costs of our products and record a provision for excess and obsolete inventories based on historical experience, expiration of sterilization dates and expected future trends. Property, plant and equipmentProperty, plant and equipment are stated at cost and depreciated using the straight-line method over the following estimated useful lives:48Building and improvements12 to 40 yearsLeasehold improvementsShorter of life of asset or life of leaseMachinery and equipment2 to 15 yearsGoodwill and other intangible assetsWe have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Effective January 1, 2013, we are reporting our business as a single operating segment, and goodwill as a single reporting unit. Changes in our structure are further discussed in Note 8 to the Consolidated Financial Statements. Customer relationships, trademarks, tradenames, patents, and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses. Promotional, marketing and distribution rights represent intangible assets created under our Sports Medicine Joint Development and Distribution Agreement (the "JDDA") with Musculoskeletal Transplant Foundation (“MTF”). We have accumulated goodwill of $248.4 million and other intangible assets of $319.4 million as of December 31, 2013.In accordance with FASB guidance, goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to at least annual impairment testing. It is our policy to perform our annual impairment testing in the fourth quarter. The identification and measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows and other valuation techniques. Future cash flows may be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities. During 2013, we completed our goodwill impairment testing with data as of October 1, 2013. We performed a Step 1 impairment test in accordance with ASC 350 utilizing the market capitalization approach to determine whether the fair value of a reporting unit is less than its carrying amount. Based upon our assessment, we believe the fair value continues to exceed carrying value by 99%.During 2011, we estimated the fair value of the legacy CONMED Patient Care reporting unit (refer to Note 8 for discussion regarding the change in operating segments) utilizing both a market-based approach and an income approach. Under the income approach, we utilized a discounted cash flow valuation methodology and measured the goodwill impairment in accordance with ASC 350. The first step of the impairment test determined the carrying value exceeded fair value and therefore we proceeded to Step 2. Under Step 2, we calculated the amount of impairment loss by measuring the amount the carrying value of goodwill exceeded the implied fair value of the goodwill. We determined the goodwill of our legacy CONMED Patient Care reporting unit was impaired as a result of lower future earnings due to pricing pressures in a number of our product lines and consequently we recorded a goodwill impairment charge of $60.3 million to reduce the carrying amount of the reporting unit's goodwill to its implied fair value.Intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. An impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value.Customer relationship assets arose principally as a result of the 1997 acquisition of Linvatec Corporation. These assets represent the acquisition date fair value of existing customer relationships based on the after-tax income expected to be derived during their estimated remaining useful life. The useful lives of these customer relationships were not and are not limited by contract or any economic, regulatory or other known factors. The estimated useful life of the Linvatec customer relationship assets was determined as of the date of acquisition as a result of a study of the observed pattern of historical revenue attrition during the 5 years immediately preceding the acquisition of Linvatec Corporation. This observed attrition pattern was then applied to the existing customer relationships to derive the future expected useful life of the customer relationships. This analysis indicated an annual attrition rate of 2.6%. Assuming an exponential attrition pattern, this equated to an average remaining useful life of approximately 38 years for the Linvatec customer relationship assets. Customer relationship intangible assets arising as a result of other business acquisitions are being amortized over a weighted average life of 15 years. The weighted average life for customer relationship assets in aggregate is 33 years.We evaluate the remaining useful life of our customer relationship intangible assets each reporting period in order to determine whether events and circumstances warrant a revision to the remaining period of amortization. In order to further evaluate49the remaining useful life of our customer relationship intangible assets, we perform an analysis and assessment of actual customer attrition and activity as events and circumstances warrant. This assessment includes a comparison of customer activity since the acquisition date and review of customer attrition rates. In the event that our analysis of actual customer attrition rates indicates a level of attrition that is in excess of that which was originally contemplated, we would change the estimated useful life of the related customer relationship asset with the remaining carrying amount amortized prospectively over the revised remaining useful life.We test our customer relationship assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors specific to our customer relationship assets which might lead to an impairment charge include a significant increase in the annual customer attrition rate or otherwise significant loss of customers, significant decreases in sales or current-period operating or cash flow losses or a projection or forecast of losses. We do not believe that there have been events or changes in circumstances which would indicate the carrying amount of our customer relationship assets might not be recoverable.For all other indefinite lived intangible assets, we perform a qualitative impairment test in accordance with ASC 350. Based upon this assessment, we have determined that it is unlikely that our indefinite lived intangible assets are impaired.Other long-lived assetsWe review asset carrying amounts for impairment (consisting of intangible assets subject to amortization and property, plant and equipment) whenever events or circumstances indicate that such carrying amounts may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value to its current fair value.Translation of foreign currency financial statementsAssets and liabilities of foreign subsidiaries have been translated into United States dollars at the applicable rates of exchange in effect at the end of the period reported. Revenues and expenses have been translated at the applicable weighted average rates of exchange in effect during the period reported. Translation adjustments are reflected in accumulated other comprehensive loss. Transaction gains and losses are included in net income.Foreign exchange and hedging activityWe manage our foreign currency transaction risks through the use of forward contracts to hedge forecasted cash flows associated with foreign currency transaction exposures. We account for these forward contracts as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in accumulated other comprehensive loss. These changes in fair value will be reclassified into earnings as a component of sales or cost of sales when the forecasted transaction occurs.We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts as hedges and have not applied hedge accounting to them. We record these forward contracts at fair value with resulting gains and losses included in selling and administrative expense in the consolidated statements of comprehensive income.Income taxesDeferred income tax assets and liabilities are based on the difference between the financial statement and tax basis of assets and liabilities and operating loss and tax credit carryforwards as measured by the enacted tax rates that are anticipated to be in effect in the respective jurisdictions when these differences reverse. The deferred income tax provision generally represents the net change in the assets and liabilities for deferred income taxes. A valuation allowance is established when it is necessary to reduce deferred income tax assets to amounts for which realization is likely. In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets may be impacted by changes to tax laws, changes to statutory tax rates and ongoing and future taxable income levels.Deferred income taxes are not provided on the unremitted earnings of subsidiaries outside of the United States when it is expected that these earnings are permanently reinvested. Such earnings may become taxable upon a repatriation of assets from a subsidiary or the sale or liquidation of a subsidiary. Deferred income taxes are provided when the Company no longer considers50subsidiary earnings to be permanently invested, such as in situations where the Company’s subsidiaries plan to make future dividend distributions.Revenue recognitionRevenue is recognized when title has been transferred to the customer which is at the time of shipment. The following policies apply to our major categories of revenue transactions:Sales to customers are evidenced by firm purchase orders. Title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms. Payment by the customer is due under fixed payment terms and collectability is reasonably assured.We place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years. In these circumstances, no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met. Revenue is recognized upon the sale and shipment of the related single-use products. The cost of the equipment is amortized over its estimated useful life.We recognize revenues related to the promotion and marketing of sports medicine allograft tissue in accordance with the contractual terms of our agreement with Musculoskeletal Transplant Foundation (“MTF”) on a net basis as our role is limited to that of an agent earning a commission or fee. MTF records revenue when the tissue is shipped to the customer. Our services are completed at this time and net revenues for the “Service Fee” for our promotional and marketing efforts are then recognized based on a percentage of the net amounts billed by MTF to its customers. The timing of revenue recognition is determined through review of the net billings made by MTF each month. Our net commission Service Fee is based on the contractual terms of our agreement and is currently 50%. This percentage can vary over the term of the agreement but is contractually determinable. Our Service Fee revenues are recorded net of amortization of the acquired assets, which are being expensed over the expected useful life of 25 years.Product returns are only accepted at the discretion of the Company and in accordance with our “Returned Goods Policy”. Historically the level of product returns has not been significant. We accrue for sales returns, rebates and allowances based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.Our terms of sale to customers generally do not include any obligations to perform future services. Limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data.Amounts billed to customers related to shipping and handling have been included in net sales. Shipping and handling costs included in selling and administrative expense were $13.0 million, $12.8 million and $12.6 million for 2011, 2012 and 2013, respectively.We sell to a diversified base of customers around the world and, therefore, believe there is no material concentration of credit risk.We assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment. Historically, losses on accounts receivable have not been material. Management believes that the allowance for doubtful accounts of $1.4 million at December 31, 2013 is adequate to provide for probable losses resulting from accounts receivable.Earnings and dividends per shareBasic earnings per share (“basic EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding resulting from employee stock options, restricted stock units, performance share units and stock appreciation rights (“SARs”) during the period. The following table sets forth the computation of basic and diluted earnings per share at December 31, 2011, 2012 and 2013, respectively: 51 2011 2012 2013 Net income $ 752 $ 40,481 $ 35,939 Basic-weighted average shares outstanding 28,246 28,301 27,722 Effect of dilutive potential securities 387 352 392 Diluted-weighted average shares outstanding 28,633 28,653 28,114 Basic EPS $ 0.03 $ 1.43 $ 1.30 Diluted EPS $ 0.03 $ 1.41 $ 1.28 The shares used in the calculation of diluted EPS exclude options to purchase shares where the exercise price was greater than the average market price of common shares for the year. Such shares aggregated approximately 0.7 million, 0.4 million and 0.0 million at December 31, 2011, 2012 and 2013, respectively. On February 29, 2012, the Board of Directors adopted a cash dividend policy and declared an initial quarterly dividend of $0.15 per share. On October 28, 2013, the Board of Directors increased the quarterly dividend to $0.20 per share. The fourth quarter dividend for 2013 was paid on January 6, 2014 to shareholders of record as of December 16, 2013. The total dividend payable at December 31, 2013 was $5.5 million and is included in other current liabilities in the consolidated balance sheet.Stock-based compensationAll share-based payments to employees, including grants of employee stock options, restricted stock units, performance share units and stock appreciation rights are recognized in the financial statements based at their fair values. Compensation expense is generally recognized using a straight-line method over the vesting period. Compensation expense for performance share units is recognized using the graded vesting method.We issue shares under our stock based compensation plans out of treasury stock whereby treasury stock is reduced by the weighted average cost of such treasury stock. To the extent there is a difference between the cost of the treasury stock and the exercise price of shares issued under stock based compensation plans, we record gains to paid in capital; losses are recorded to paid in capital to the extent any gain was previously recorded, otherwise the loss is recorded to retained earnings.Accumulated other comprehensive lossAccumulated other comprehensive loss consists of the following:52 Balance, December 31, 2012 $ (1,130 ) $ (30,375 ) $ 3,924 $ (27,581 ) Other comprehensive income before reclassifications (158 ) 8,618 (1,193 ) 7,267 (153 ) 4,502 — 4,349 Tax expense (benefit) 56 (1,663 ) — (1,607 ) Total amounts reclassified from other accumulated comprehensive income (97 ) 2,839 — 2,742 Net current-period other comprehensive income (255 ) 11,457 (1,193 ) 10,009 Balance, December 31, 2013 $ (1,385 ) $ (18,918 ) $ 2,731 $ (17,572 ) (a) All amounts are net of tax.(b) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income components are included in sales or cost of sales and as a component of net periodic pension cost, respectively. Refer to Note 13 and Note 9, respectively, for further details.Note 2 — InventoriesInventories consist of the following at December 31,: 2012 2013 Raw materials $ 45,115 $ 39,029 Work in process 14,229 14,736 Finished goods 96,884 89,446 $ 156,228 $ 143,211 Note 3 — Property, Plant and EquipmentProperty, plant and equipment consist of the following at December 31,: 2012 2013 Land $ 4,243 $ 4,243 Building and improvements 92,775 95,397 Machinery and equipment 176,102 180,064 Construction in progress 5,508 8,750 278,628 288,454 Less: Accumulated depreciation (139,587 ) (149,469 ) $ 139,041 $ 138,985 We lease various manufacturing facilities, office facilities and equipment under operating leases. Rental expense on these operating leases was approximately $6,221, $6,416, and $6,713 for the years ended December 31, 2011, 2012 and 2013, respectively. The aggregate future minimum lease commitments for operating leases at December 31, 2013 are as follows:532014 $ 6,723 2015 5,782 2016 4,144 2017 3,492 2018 3,382 Thereafter 5,006 Note 4 – Goodwill and Other Intangible AssetsThe changes in the net carrying amount of goodwill for the years ended December 31, are as follows: 2012 2013 Balance as of January 1, $ 234,815 $ 248,502 Goodwill resulting from business acquisitions 13,702 — Foreign currency translation (15 ) (74 ) Balance as of December 31, $ 248,502 $ 248,428 During 2013, we finalized the allocation of purchase price related to our 2012 acquisition of Viking Systems, Inc.. We recorded a deferred tax asset of $8.3 million relating to the acquired net operating losses, which resulted in a corresponding reduction to goodwill. This is reflected in the 2012 amounts above. There have been no other changes in the consideration paid, working capital, or other acquired assets and liabilities, other than those described above, since December 31, 2012.During the fourth quarter of 2011 we performed our annual goodwill impairment testing. We estimated the fair value of our legacy CONMED Patient Care reporting unit (refer to Note 8 for discussion regarding the change in operating segments) utilizing both a market-based approach and an income approach. Under the income approach, we utilized a discounted cash flow valuation methodology and measured the goodwill impairment in accordance with ASC 350. The first step of the impairment test determined the carrying value exceeded fair value and therefore we proceeded to Step 2. Under Step 2, we calculated the amount of impairment loss by measuring the amount the carrying value of goodwill exceeded the implied fair value of the goodwill. We determined the goodwill of our legacy CONMED Patient Care reporting unit was impaired as a result of lower future earnings due to pricing pressures in a number of our product lines and consequently we recorded a goodwill impairment charge of $60.3 million to reduce the carrying amount of the unit's goodwill to its implied fair value.Total accumulated impairment losses aggregated $106,991 at December 31, 2012 and 2013, respectively.Other intangible assets consist of the following:54 December 31, 2012 December 31, 2013 Amortized intangible assets: Customer relationships $ 135,690 $ (50,083 ) $ 135,690 $ (54,982 ) Promotional, marketing & distribution rights 149,376 (6,000 ) 149,376 (12,000 ) Patents and other intangible assets 56,212 (37,554 ) 53,903 (39,091 ) Trademarks and tradenames 86,544 — 86,544 — $ 427,822 $ (93,637 ) $ 425,513 $ (106,073 ) Customer relationships, trademarks, tradenames, patents and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses. Promotional, marketing and distribution rights represent intangible assets created under our Sports Medicine Joint Development and Distribution Agreement (the "JDDA") with Musculoskeletal Transplant Foundation (“MTF”).On January 3, 2012, the Company entered into the JDDA with MTF to obtain MTF's worldwide promotion rights with respect to allograft tissues within the field of sports medicine and related products. The initial consideration from the Company included a $63.0 million up-front payment for the rights and certain assets, with an additional $84.0 million contingently payable over a four year period depending on MTF meeting supply targets for tissue. On January 3, 2013 and January 3, 2014, we paid $34.0 million and $16.7 million, respectively, of the additional consideration; $16.7 million of the additional consideration is due within the next fiscal year with the remainder due in equal installments in each year thereafter. The $50.0 million related to the remaining contingent obligation as of December 31, 2013 is accrued in other current and other long term liabilities as we believe it is probable MTF will meet the supply targets.Trademarks and tradenames were recognized principally in connection with the 1997 acquisition of Linvatec Corporation. We continue to market products, release new product and product extensions and maintain and promote these trademarks and tradenames in the marketplace through legal registration and such methods as advertising, medical education and trade shows. It is our belief that these trademarks and tradenames will generate cash flow for an indefinite period of time. Therefore, our trademarks and tradenames intangible assets are not amortized.Amortization expense related to intangible assets which are subject to amortization is included as a reduction of revenue (for amortization related to our promotional, marketing and distribution rights) and in selling and administrative expense (for all other intangible assets) in the consolidated statements of comprehensive income. The weighted average amortization period for intangible assets which are amortized is 27 years. Customer relationships are being amortized over a weighted average life of 33 years. Promotional, marketing and distribution rights are being amortized over a weighted average life of 25 years. Patents and other intangible assets are being amortized over a weighted average life of 15 years. Amortization expense for the year ending December 31, 2013 and estimated amortization expense related to intangible assets for each of the five succeeding years is as follows:55 Amortization included in expense Amortization recorded as a reduction of revenue Total 2013 $ 7,721 $ 6,000 $ 13,721 2014 7,031 6,000 $ 13,031 2015 6,642 6,000 $ 12,642 2016 6,539 6,000 $ 12,539 2017 6,527 6,000 $ 12,527 2018 6,470 6,000 $ 12,470 Note 5 — Long Term DebtLong-term debt consists of the following at December 31,: 2012 2013 Revolving line of credit $ 153,000 $ 208,000 2.50% convertible senior subordinated notes 227 — Mortgage notes 8,625 7,575 Total long-term debt 161,852 215,575 Less: Current portion 1,050 1,140 $ 160,802 $ 214,435 On January 17, 2013, we entered into an amended and restated $350.0 million senior credit agreement (the "amended and restated senior credit agreement"). The amended and restated senior credit agreement consists of a $350.0 million revolving credit facility expiring on January 17, 2018. In connection with the refinancing, we recorded a $0.3 million loss on the early extinguishment of debt related to write-off of unamortized deferred financing costs under the then existing senior credit agreement. There were $208.0 million in borrowings outstanding on the revolving credit facility as of December 31, 2013. Our available borrowings on the revolving credit facility at December 31, 2013 were $134.2 million with approximately $7.8 million of the facility set aside for outstanding letters of credit. As described in Note 4, we entered into a distribution and development agreement with Musculoskeletal Transplant Foundation (“MTF”) on January 3, 2012 and used cash on hand and available borrowings under our revolving credit facility to fund the up front payment of $63.0 million and contingent payment made on January 3, 2013 of $34.0 million.Interest rates on the amended and restated senior credit agreement are at LIBOR plus 1.625% (1.795% at December 31, 2013) or an alternative base rate. For those borrowings where we elect to use the alternative base rate, the base rate will be the greater of the Prime Rate, the Federal Funds Rate in effect on such date plus 0.50%, or the one month Eurocurrency rate plus 1%, plus an additional margin of 0.625%.The amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The amended and restated senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios (the most restrictive of which is the senior leverage ratio), and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.We have a mortgage note outstanding in connection with the Largo, Florida property and facilities bearing interest at 8.25% per annum with semiannual payments of principal and interest through June 2019. The principal balance outstanding on56the mortgage note aggregated $7.6 million at December 31, 2013. The mortgage note is collateralized by the Largo, Florida property and facilities. The scheduled maturities of long-term debt outstanding at December 31, 2013 are as follows:2014 $ 1,140 2015 1,234 2016 1,339 2017 1,452 2018 209,574 Thereafter 836 Note 6 — Income TaxesThe provision (benefit) for income taxes for the years ended December 31, 2011, 2012 and 2013 consists of the following: 2011 2012 2013 Current tax expense (benefit): Federal $ 3,021 $ 503 $ (2,274 ) State 1,596 374 502 Foreign 5,424 5,176 9,247 10,041 6,053 7,475 Deferred income tax expense (benefit) (13,098 ) 12,946 7,218 Provision (benefit) for income taxes $ (3,057 ) $ 18,999 $ 14,693 A reconciliation between income taxes computed at the statutory federal rate and the provision for income taxes for the years ended December 31, 2011, 2012 and 2013 follows:57 2011 2012 2013 Tax provision (benefit) at statutory rate based on income before income taxes (35.0 )% 35.0 % 35.0 % State income taxes, net of federal tax benefit 22.7 1.5 1.8 Stock-based compensation (1.6 ) (0.2 ) (0.5 ) Foreign income taxes 1.4 (4.0 ) (3.1 ) Impact of repatriation of foreign earnings (57.5 ) — — Research & development credit (32.3 ) — (2.8 ) Settlement of taxing authority examinations (6.5 ) (0.8 ) (2.0 ) European permanent deduction — — (2.4 ) Non deductible/non-taxable items (13.3 ) 1.3 2.9 Other, net (10.5 ) (0.9 ) 0.1 (132.6 )% 31.9 % 29.0 % The tax effects of the significant temporary differences which comprise the deferred income tax assets and liabilities at December 31, 2012 and 2013 are as follows: 2012 2013 Assets: Inventory $ 4,370 $ 3,445 Net operating losses 7,716 6,450 Capitalized research and development 2,730 2,286 Deferred compensation 2,905 3,025 Accounts receivable 2,759 2,642 Employee benefits 5,725 5,601 Accrued pension 8,081 (173 ) Research and development credit 3,378 5,027 Other 4,335 4,365 Foreign tax credit — 332 41,999 33,000 Liabilities: Goodwill and intangible assets 111,770 114,075 Depreciation 13,070 13,486 State taxes 2,992 3,914 Contingent interest 378 339 128,210 131,814 Net liability $ (86,211 ) $ (98,814 ) 58Income (loss) before income taxes consists of the following U.S. and foreign income: 2011 2012 2013 U.S. income (loss) $ (20,521 ) $ 33,121 $ 20,106 Foreign income 18,216 26,359 30,526 Total income (loss) $ (2,305 ) $ 59,480 $ 50,632 The amount of Federal net operating loss carryforward is $18.4 million and begins to expire in 2025. The amount of Federal Research and Development credit carryforward available is $5.0 million. These credits begin to expire in 2027. The amount of Foreign Tax Credit Carryforward is $0.3 million and begins to expire in 2022.Deferred tax amounts include approximately $3.3 million of future tax benefits associated with state tax credits which have an indefinite carryforward period.As a result of the contingent interest deferred tax liability realized upon the convertible notes repurchase during the fourth quarter of 2011, the Company reevaluated our unremitted foreign earnings and tax credit carryforwards. Based upon this assessment, we repatriated $16.2 million of foreign earnings to the United States. The Company recorded a net tax benefit of $1.3 million in 2011 to recognize the tax liabilities and related foreign tax credit benefits associated with the repatriation. It is our intention to permanently reinvest the remaining amount of unremitted foreign earnings.U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. The amount of such temporary differences totaled $80.1 million as of December 31, 2013. It is not practicable given the complexities of the hypothetical foreign tax credit calculation to determine the tax liability on this temporary difference.The Company is subject to taxation in the United States and various states and foreign jurisdictions. Taxing authority examinations can involve complex issues and may require an extended period of time to resolve. Our Federal income tax returns have been examined by the Internal Revenue Service (“IRS”) for calendar years ending through 2012.We recognize tax liabilities in accordance with the provisions for accounting for uncertainty in income taxes. Such guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.The following table summarizes the activity related to our unrecognized tax benefits for the years ending December 31,: 2011 2012 2013 Balance as of January 1, $ 1,330 $ 2,343 $ 1,587 Increases for positions taken in prior periods 283 30 70 Increases for positions taken in current periods 789 1,129 1,132 Decreases in unrecorded tax positions related to settlement with the taxing authorities — (1,857 ) (1,010 ) Decreases in unrecorded tax positions related to lapse of statute of limitations (59 ) (58 ) (90 ) Balance as of December 31, $ 2,343 $ 1,587 $ 1,689 59If the total unrecognized tax benefits of $1.7 million at December 31, 2013 were recognized, it would reduce our annual effective tax rate. The amount of interest accrued in 2013 related to these unrecognized tax benefits was not material and is included in the provision for income taxes in the consolidated statements of comprehensive income. It is reasonably possible that the amount of unrecognized tax benefits, each of which are individually insignificant, could change in the next 12 months as a result of the anticipated completion of taxing authority examinations and lapse of statute of limitations. The range of change in unrecognized tax benefits is estimated between $0.0 million and $1.2 million.Note 7 – Shareholders’ EquityOur shareholders have authorized 500,000 shares of preferred stock, par value $.01 per share, which may be issued in one or more series by the Board of Directors without further action by the shareholders. As of December 31, 2012 and 2013, no preferred stock had been issued.Our Board of Directors has authorized a $200.0 million share repurchase program. Through December 31, 2013, we have repurchased a total of 5.7 million shares of common stock aggregating $145.7 million under this authorization and have $54.3 million remaining available for share repurchases. The repurchase program calls for shares to be purchased in the open market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any time. During 2013, we repurchased 1.6 million shares for an aggregate cost of $50.6 million. During 2012, we repurchased 0.1 million shares for an aggregated cost of $3.9 million. During 2011, we repurchased 0.7 million shares for an aggregate cost of $15.0 million.We have reserved 7.0 million shares of common stock for issuance to employees and directors under three shareholder-approved share-based compensation plans (the "Plans") of which approximately 1.1 million shares remain available for grant at December 31, 2013. The exercise price on all outstanding options and stock appreciation rights (“SARs”) is equal to the quoted fair market value of the stock at the date of grant. Restricted stock units (“RSUs”) and performance stock units (“PSUs”) are valued at the market value of the underlying stock on the date of grant. Stock options, SARs, RSUs and PSUs are non-transferable other than on death and generally become exercisable over a five year period from date of grant. Stock options and SARs expire ten years from date of grant. SARs are only settled in shares of the Company’s stock. The issuance of shares pursuant to the exercise of stock options and SARs and vesting of RSUs and PSUs are from the Company’s treasury stock.Total pre-tax stock-based compensation expense recognized in the consolidated statements of comprehensive income was $5.2 million, $5.7 million and $5.6 million for the years ended December 31, 2011, 2012 and 2013, respectively. This amount is included in selling and administrative expenses on the consolidated statements of comprehensive income. Tax related benefits of $1.9 million, $2.1 million and $2.1 million were also recognized for the years ended December 31, 2011, 2012 and 2013, respectively. Cash received from the exercise of stock options was $5.6 million, $9.6 million and $16.7 million for the years ended December 31, 2011, 2012 and 2013, respectively, and is reflected in cash flows from financing activities in the consolidated statements of cash flows.The Company uses the Black-Scholes option pricing model to estimate the fair value of options and SARs at the date of grant. Use of a valuation model requires management to make certain assumptions with respect to select model inputs. Expected volatilities are based upon historical volatility of the Company’s stock over a period equal to the expected life of each option and SAR grant. The risk free interest rate is based on the option and SAR grant date for a traded U.S. Treasury bond with a maturity date closest to the expected life. The expected annual dividend yield is based on the Company's anticipated cash dividend payouts. The expected life represents the period of time that the options and SARs are expected to be outstanding based on a study of historical data of option holder exercise and termination behavior.The following table illustrates the assumptions used in estimating fair value in the years ended December 31, 2011, 2012 and 2013. 2011 2012 2013 Fair value of options & SARs $ 10.43 $ 7.38 $ 9.77 Expected stock price volatility 35.52 % 35.84 % 35.88 % Risk-free interest rate 1.59 % 0.62 % 1.04 % Expected annual dividend yield — % 2.00 % 1.79 % Expected life of options & SARs (years) 6.3 6.4 6.3 60The following table illustrates the stock option and SAR activity for the year ended December 31, 2013. Outstanding at December 31, 2012 1,769 $ 25.35 Granted 164 $ 32.94 Forfeited (9 ) $ 25.96 Exercised (794 ) $ 26.62 Outstanding at December 31, 2013 1,130 $ 25.55 Exercisable at December 31, 2013 659 $ 24.40 The weighted average remaining contractual term for stock options and SARs outstanding and exercisable at December 31, 2013 was 6.0 years and 4.5 years, respectively. The aggregate intrinsic value of stock options and SARs outstanding and exercisable at December 31, 2013 was $19.2 million and $11.9 million, respectively. The aggregate intrinsic value of stock options and SARs exercised during the years ended December 31, 2011, 2012 and 2013 was $2.0 million, $3.3 million and $4.7 million, respectively.The following table illustrates the RSU and PSU activity for the year ended December 31, 2013. Outstanding at December 31, 2012 521 $ 24.25 Granted 211 $ 33.02 Vested (168 ) $ 23.76 Forfeited (88 ) $ 30.55 Outstanding at December 31, 2013 476 $ 27.14 The weighted average fair value of awards of RSUs and PSUs granted in the years ended December 31, 2011, 2012 and 2013 was $27.48, $26.18 and $33.02, respectively.The total fair value of shares vested was $3.6 million, $4.4 million and $7.1 million for the years ended December 31, 2011, 2012 and 2013, respectively.As of December 31, 2013, there was $13.1 million of total unrecognized compensation cost related to nonvested stock options, SARs, RSUs and PSUs granted under the Plan which is expected to be recognized over a weighted average period of 3.4 years.We offer to our employees a shareholder-approved Employee Stock Purchase Plan (the “Employee Plan”), under which we have reserved 1.0 million shares of common stock for issuance to our employees. The Employee Plan provides employees with the opportunity to invest from 1% to 10% of their annual salary to purchase shares of CONMED common stock through the exercise of stock options granted by the Company at a purchase price equal to 95% of the fair market value of the common stock on the exercise date. During 2013, we issued approximately 18,000 shares of common stock under the Employee Plan. No stock-based compensation expense has been recognized in the accompanying consolidated financial statements as a result of common stock issuances under the Employee Plan.Note 8 — Business Segments and Geographic AreasDuring 2011 and 2012, we undertook a variety of restructuring initiatives aimed at improving efficiency and internal effectiveness. These initiatives included changes in management lines of reporting and culminated in the implementation of a functional organizational structure. Under the new structure, we are now organized by function rather than by operating segment.61Executives reporting in to the CEO include those responsible for operations and supply chain management, research and development, sales, marketing and certain corporate functions. Our chief operating decision maker (the CEO) evaluates the various global product portfolios on a net sales basis and evaluates profitability, investment and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources. As a result, we have discontinued accounting and reporting for our businesses as five separate, operating segments. Effective January 1, 2013, we are accounting and reporting for our business as a single segment entity engaged in the development, manufacturing and sale on a global basis of surgical devices and related equipment.As part of this reporting structure change, we also restructured our product lines. Orthopedic surgery consists of sports medicine instrumentation and small bone, large bone and specialty powered surgical instruments and service fees related to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. Surgical visualization consists of 2D and 3D video systems for use in minimally invasive orthopedic and general surgery. These product lines' net sales are as follows: 2011 2012 2013 Orthopedic surgery $ 371,245 $ 413,891 $ 410,171 General surgery 287,350 286,606 286,747 Surgical visualization 66,482 66,643 65,786 Consolidated net sales $ 725,077 $ 767,140 $ 762,704 Net sales information for geographic areas consists of the following: 2011 2012 2013 United States $ 364,588 $ 382,256 $ 375,473 Canada 65,794 73,746 73,457 United Kingdom 32,106 31,653 28,471 Japan 34,178 33,997 36,705 Australia 40,122 40,835 38,752 All other countries 188,289 204,653 209,846 Total $ 725,077 $ 767,140 $ 762,704 Sales are attributed to countries based on the location of the customer. There were no significant investments in long-lived assets located outside the United States at December 31, 2012 and 2013. No single customer represented over 10% of our consolidated net sales for the years ended December 31, 2011, 2012 and 2013.Note 9 — Employee Benefit PlansWe sponsor an employee savings plan (“401(k) plan”) covering substantially all of our Untied States based employees. We also sponsor a defined benefit pension plan (the “pension plan”) that was frozen in 2009. It covered substantially all our United States based employees at the time it was frozen.Total employer contributions to the 401(k) plan were $6.3 million, $6.7 million and $7.3 million during the years ended December 31, 2011, 2012 and 2013, respectively.We use a December 31, measurement date for our pension plan. Gains and losses are amortized on a straight-line basis over the average remaining service period of active participants. The following table provides a reconciliation of the projected benefit obligation, plan assets and funded status of the pension plan at December 31,:62 2012 2013 Accumulated Benefit Obligation $ 85,363 $ 75,946 Change in benefit obligation Projected benefit obligation at beginning of year $ 82,289 $ 85,363 Service cost 277 253 Interest cost 3,429 3,315 Actuarial (gain) loss 2,790 (8,082 ) Benefits paid (1,059 ) (1,250 ) Settlement (2,363 ) (3,653 ) Projected benefit obligation at end of year $ 85,363 $ 75,946 Change in plan assets Fair value of plan assets at beginning of year $ 51,822 $ 62,763 Actual gain on plan assets 5,866 11,082 Employer contributions 8,497 7,500 Benefits paid (1,059 ) (1,250 ) Settlement (2,363 ) (3,653 ) Fair value of plan assets at end of year $ 62,763 $ 76,442 Funded status $ (22,600 ) $ 496 Amounts recognized in the consolidated balance sheets consist of the following at December 31,: 2012 2013 Other assets/(Other long-term liabilities) $ (22,600 ) $ 496 Accumulated other comprehensive loss (48,176 ) (30,001 ) The following actuarial assumptions were used to determine our accumulated and projected benefit obligations as of December 31,: 2012 2013 Discount rate 3.90 % 4.75 % Expected return on plan assets 8.00 % 8.00 % Accumulated other comprehensive loss for the years ended December 31, 2012 and 2013 consists of net actuarial losses of $48,176 and $30,001, respectively, not yet recognized in net periodic pension cost (before income taxes).Other changes in plan assets and benefit obligations recognized in other comprehensive income in 2013 are as follows:Current year actuarial gain $ 13,673 Settlement loss/amortization of actuarial loss 4,502 Total recognized in other comprehensive loss $ 18,175 The estimated portion of net actuarial loss in accumulated other comprehensive loss that is expected to be recognized as a component of net periodic pension cost in 2014 is $1.7 million.Net periodic pension cost for the years ended December 31, consists of the following:63 2011 2012 2013 Service cost $ 281 $ 277 $ 253 Interest cost on projected benefit obligation 3,519 3,429 3,315 Return on plan assets (4,378 ) (4,566 ) (5,491 ) Amortization of loss 1,578 2,876 3,059 Settlement expense — — 1,443 Net periodic pension cost $ 1,000 $ 2,016 $ 2,579 The following actuarial assumptions were used to determine our net periodic pension benefit cost for the years ended December 31,: 2011 2012 2013 Discount rate 5.41 % 4.30 % 3.90 % Expected return on plan assets 8.00 % 8.00 % 8.00 % In determining the expected return on pension plan assets, we consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, we consult with financial and investment management professionals in developing appropriate targeted rates of return.Asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk and providing adequate liquidity to meet immediate and future benefit payment requirements.The allocation of pension plan assets by category is as follows at December 31,: 2012 2013 2013 Equity securities 76 % 79 % 75 % Debt securities 24 21 25 Total 100 % 100 % 100 % As of December 31, 2013, the Plan held 27,562 shares of our common stock, which had a fair value of $1.2 million. We believe that our long-term asset allocation on average will approximate the targeted allocation. We regularly review our actual asset allocation and periodically rebalance the pension plan’s investments to our targeted allocation when deemed appropriate.The following table sets forth the fair value of Plan assets as of December 31,: 2012 2013 Common Stock $ 25,124 $ 31,412 Money Market Fund 5,209 7,018 Mutual Funds 22,810 28,726 Fixed Income Securities 9,620 9,286 Total Assets at Fair Value $ 62,763 $ 76,442 FASB guidance, defines fair value, establishes a framework for measuring fair value and related disclosure requirements. A valuation hierarchy was established for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, including64interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2012 and 2013:Common Stock:Common stock is valued at the closing price reported on the common stock’s respective stock exchange and is classified within level 1 of the valuation hierarchy.Money Market Fund:These investments are public investment vehicles valued using $1 for the Net Asset Value (NAV). The money market fund is classified within level 2 of the valuation hierarchy.Mutual Funds:These investments are public investment vehicles valued using the NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in an active market and is classified within level 1 of the valuation hierarchy.Fixed Income Securities:Valued at the closing price reported on the active market on which the individual securities are traded and are classified within level 1 of the valuation hierarchy.The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.The following table sets forth by level, within the fair value hierarchy, the Plan's assets at fair value as of December 31, 2012 and December 31, 2013:December 31, 2012 Level 1 Level 2 Total Common Stock $ 25,124 $ — $ 25,124 Money Market Fund — 5,209 5,209 Mutual Funds 22,810 — 22,810 Fixed Income Securities 9,620 — 9,620 $ 57,554 $ 5,209 $ 62,763 December 31, 2013 Level 1 Level 2 Total Common Stock $ 31,412 $ — $ 31,412 Money Market Fund — 7,018 7,018 Mutual Funds 28,726 — 28,726 Fixed Income Securities 9,286 — 9,286 $ 69,424 $ 7,018 $ 76,442 We do not expect to make any contributions to our pension plan for the 2014 Plan year.The following table summarizes the benefits expected to be paid by our pension plan in each of the next five years and in aggregate for the following five years. The expected benefit payments are estimated based on the same assumptions used to measure the Company’s projected benefit obligation at December 31, 2013 and reflect the impact of expected future employee service.652014 $5,332 2015 3,140 2016 3,100 2017 3,351 2018 3,973 2019-2023 23,943 Note 10 — Legal Matters and ContingenciesFrom time to time, we are a defendant in certain lawsuits alleging product liability, patent infringement, or other claims incurred in the ordinary course of business. Likewise, from time to time, the Company may receive a subpoena from a government agency such as the Securities and Exchange Commission, Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the Department of Labor, the Treasury Department, or other federal and state agencies or foreign governments or government agencies. These subpoenas may or may not be routine inquiries, or may begin as routine inquiries and over time develop into enforcement actions of various types. The product liability claims are generally covered by various insurance policies, subject to certain deductible amounts, maximum policy limits and certain exclusions in the respective policies or as required as a matter of law. In some cases we may be entitled to indemnification by third parties. We establish reserves sufficient to cover probable losses associated with claims. We do not expect that the resolution of any pending claims or investigations will have a material adverse effect on our financial condition, results of operations or cash flows. There can be no assurance, however, that future claims or investigations, or the costs associated with responding to such claims or investigations, especially claims and investigations not covered by insurance, will not have a material adverse effect on our financial condition, results of operations or cash flows.Manufacturers of medical products may face exposure to significant product liability claims. To date, we have not experienced any product liability claims that have been material to our financial statements or condition, but any such claims arising in the future could have a material adverse effect on our business or results of operations. We currently maintain commercial product liability insurance of $25 million per incident and $25 million in the aggregate annually, which we believe is adequate. This coverage is on a claims-made basis. There can be no assurance that claims will not exceed insurance coverage, that the carriers will be solvent or that such insurance will be available to us in the future at a reasonable cost.Our operations are subject, and in the past have been subject, to a number of environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater remediation and employee health and safety. In some jurisdictions environmental requirements may be expected to become more stringent in the future. In the United States certain environmental laws can impose liability for the entire cost of site restoration upon each of the parties that may have contributed to conditions at the site regardless of fault or the lawfulness of the party’s activities. While we do not believe that the present costs of environmental compliance and remediation are material, there can be no assurance that future compliance or remedial obligations would not have a material adverse effect on our financial condition, results of operations or cash flows.In September 2012, Bonutti Skeletal Innovations, LLC filed a complaint in the United States District Court for the Middle District of Florida against CONMED and certain of its subsidiaries. The Complaint asserts that select CONMED products infringe patents allegedly owned by Bonutti Skeletal Innovations. On the same day that it sued CONMED, Bonutti Skeletal Innovations sued several other orthopedic companies. The Company believes that the products in question do not infringe the patents-in-suit and intends to vigorously defend the claims. A range of potential losses cannot be estimated at this time.During the third quarter of 2013, the FDA inspected our Centennial, CO manufacturing facility and issued a Form 483 with observations on September 20, 2013. The Company subsequently submitted responses to the Observations, and the FDA issued a Warning Letter on January 30, 2014 relating to the inspection and the responses to the Form 483 Observations. Accordingly, we are undertaking corrective actions that may involve additional costs for the Company. These remediation costs are not expected to be material, however there can be no assurance that the actions undertaken by the Company will ensure that the Company will not undertake recalls, voluntary or otherwise, nor can there be any assurance that a future inspection by the FDA will not result in an additional Form 483 or warning letter, or other regulatory actions which may include consent decrees or fines.Note 11 — Other ExpenseOther expense for the year ended December 31, consists of the following:66 2011 2012 2013 Administrative consolidation costs $ 792 $ 6,497 $ 8,750 Costs associated with purchase of a distributor 300 704 — Costs associated with legal arbitration and patent dispute — 1,555 3,206 Pension settlement expense — — 1,443 Costs associated with purchase of a business — 1,194 — Other expense $ 1,092 $ 9,950 $ 13,399 During 2011, 2012 and 2013, we consolidated certain administrative functions and incurred $0.8 million, $6.5 million and $8.8 million respectively, in related costs consisting principally of severance charges and the write-off of certain patents.During 2011, we purchased the Company's former distributor for the Nordic region of Europe. We incurred $0.3 million and $0.7 million in 2011 and 2012, respectively, in charges associated with this purchase.During 2012, we incurred legal costs related to a contractual dispute with a former distributor. The dispute was resolved in the second quarter of 2012. We incurred costs totaling $1.6 million.During 2013, we incurred $3.2 million in legal costs associated with a patent infringement claim as further described in Note 10.During 2013, we had a higher level of lump sum withdrawals from pension plan participants. This resulted in an acceleration of the recognition of a portion of our projected benefit obligation and we therefore recorded a pension settlement expense of $1.4 million. Refer to Note 9 for details.During 2012, we acquired Viking Systems Inc. as further described in Note 16. We incurred a total of $1.2 million in costs associated with the purchase.Note 12 — GuaranteesWe provide warranties on certain of our products at the time of sale. The standard warranty period for our capital and reusable equipment is generally one year. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.Changes in the carrying amount of service and product warranties for the year ended December 31, are as follows: 2011 2012 2013 Balance as of January 1, $ 3,363 $ 3,618 $ 3,636 Provision for warranties 4,344 4,163 3,061 Claims made (4,089 ) (4,145 ) (4,275 ) Balance as of December 31, $ 3,618 $ 3,636 $ 2,422 Note 13 – Fair Value MeasurementWe enter into derivative instruments for risk management purposes only. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of derivative instrument, to manage certain foreign currency exposures.By nature, all financial instruments involve market and credit risks. We enter into forward contracts with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.67Foreign Currency Forward Contracts. We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts. We account for these forward contracts as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in accumulated other comprehensive loss. These changes in fair value will be recognized into earnings as a component of sales or cost of sales when the forecasted transaction occurs. The notional contract amounts for forward contracts outstanding at December 31, 2013 which have been accounted for as cash flow hedges totaled $132.4 million. Net realized gains (losses) recognized for forward contracts accounted for as cash flow hedges approximated -$4.7 million, $3.8 million and $0.2 million for the years ended December 31, 2011, 2012, and 2013, respectively. Net unrealized losses on forward contracts outstanding which have been accounted for as cash flow hedges and which have been included in other comprehensive income totaled $1.4 million at December 31, 2013. It is expected these unrealized losses will be recognized in the consolidated statement of comprehensive income in 2014 and 2015.We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts as hedges and have not applied hedge accounting to them. The notional contract amounts for forward contracts outstanding at December 31, 2013 which have not been designated as hedges totaled $42.0 million. Net realized gains (losses) recognized in connection with those forward contracts not accounted for as hedges approximated $0.0 million, -$2.1 million and -$0.3 million for the years ended December 31, 2011, 2012, and 2013, respectively, offsetting gains (losses) on our intercompany receivables of -$0.3 million, $0.8 million and -$0.8 million for the years ended December 31, 2011, 2012, and 2013, respectively. These gains and losses have been recorded in selling and administrative expense in the consolidated statements of comprehensive income.We record these forward foreign exchange contracts at fair value; the following table summarizes the fair value for forward foreign exchange contracts outstanding at December 31, 2012 and December 31, 2013:December 31, 2012 Derivatives designated as hedged instruments: Foreign exchange contracts Other current liabilities $ (457 ) Other current liabilities $ 2,249 $ 1,792 Derivatives not designated as hedging instruments: Foreign exchange contracts Other current liabilities — Other current liabilities 150 150 Total derivatives $ (457 ) $ 2,399 $ 1,942 68December 31, 2013 Asset
Balance Sheet
Location Fair
Value Liabilities
Balance Sheet
Location Fair
Value Net
Fair
ValueDerivatives designated as hedged instruments: Foreign exchange contracts Other current liabilities $ (975 ) Other current liabilities $ 3,172 $ 2,197 Derivatives not designated as hedging instruments: Foreign exchange contracts Other current liabilities (52 ) Other current liabilities 78 26 Total derivatives $ (1,027 ) $ 3,250 $ 2,223 Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the consolidated balance sheets. Accordingly, at December 31, 2012 and December 31, 2013 we have recorded the net fair value of $1.9 million and $2.2 million, respectively, in other current liabilities.Fair Value Disclosure. FASB guidance defines fair value, establishes a framework for measuring fair value and related disclosure requirements. This guidance applies when fair value measurements are required or permitted. The guidance indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is defined based upon an exit price model.Valuation Hierarchy. A valuation hierarchy was established for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.Valuation Techniques. Assets and liabilities carried at fair value and measured on a recurring basis as of December 31, 2013 consist of forward foreign exchange contracts. The Company values its forward foreign exchange contracts using quoted prices for similar assets. The most significant assumption is quoted currency rates. The value of the forward foreign exchange contract assets and liabilities were determined within Level 2 of the valuation hierarchy and are listed in the table above. The carrying amounts reported in our balance sheets for cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximate fair value. Note 14 - New Accounting PronouncementsIn February 2013, the FASB issued Accounting Standards Update, Comprehensive Income (Topic 220): Presentation of Items Reclassified out of Accumulated Other Comprehensive Income. This guidance requires enhanced disclosures relating to reclassifications out of accumulated other comprehensive income. This guidance is effective for interim and annual periods beginning after December 15, 2012. The implementation of this new guidance did not have a material impact on our consolidated financial statements.Effective January 2013, Accounting Standards Update 2011-11: Disclosures about Offsetting Assets and Liabilities, requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The adoption of this guidance did not have a material impact on the financial statements.69In July 2013, the FASB issued ASU No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU is intended to provide guidance and reduce diversity in practice in the presentation of an unrecognized tax benefit when a tax loss or credit carryforward exists. The provisions of this ASU are effective for periods beginning after December 15, 2013 and must be applied prospectively for unrecognized tax benefits that exist at the effective date. Early adoption is permitted. We early adopted this guidance. There are no material effects on, or changes to, our financial statements or disclosures as a result of this ASU.Note 15 – RestructuringDuring 2011, 2012, and 2013 we incurred the following restructuring costs: 2011 2012 2013 Facility consolidation costs $ 3,467 $ 7,052 $ 6,489 Termination of a product offering — — 2,137 Restructuring costs included in cost of sales $ 3,467 $ 7,052 $ 8,626 Restructuring costs included in other expense $ 792 $ 6,497 $ 8,750 During 2008, we announced a plan to restructure certain of our operations. During 2011, 2012 and 2013, we continued our operational restructuring plan which includes the transfer of additional production lines from manufacturing facilities located in the United States to our manufacturing facility in Chihuahua, Mexico and the consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities. In the first quarter of 2013, we began the consolidation of our Westborough, Massachusetts operations into our Largo, Florida and Chihuahua, Mexico facilities. For the years ending December 31, 2011, 2012 and 2013, we charged $3.5 million, $7.1 million, and $6.5 million, respectively, to cost of goods sold. These costs include severance and other charges associated with the transfer of production to Mexico and consolidation of our Finland and Westborough, Massachusetts operations. We expect this phase of our plan and related cash payments to be substantially completed in the first quarter of 2014.In the third quarter of 2013, as part of our ongoing restructuring, the Company discontinued a patient monitoring product offering and incurred $2.1 million in costs which were charged to cost of goods sold.Restructuring costs included in other expense are described more fully in Note 11.We have recorded an accrual in current liabilities of $3.1 million at December 31, 2013 mainly related to severance and lease impairment costs associated with the restructuring. Below is a rollforward of the accrual: Balance as of January 1, 2013 $ 4,120 Expenses incurred 3,895 Payments made (4,887 ) Balance, December 31, 2013 $ 3,128 During February 2014, the Company announced a new phase of the restructuring plan to consolidate our Centennial, Colorado manufacturing operations into other existing CONMED manufacturing facilities. We expect this plan to be completed over the next 24 months and are in the process of determining the total costs expected to be incurred.Note 16 – Business Acquisition70On September 24, 2012, we purchased Viking Systems, Inc. ("Viking acquisition") for approximately $22.5 million in cash. Viking Systems, Inc. developed, manufactured and marketed visualization solutions for minimally invasive surgeries.The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the Viking acquisition.Cash $ 390 Accounts receivable 1,349 Inventory 2,562 Prepaid expenses and other current assets 151 Deferred income taxes 7,492 Property, plant & equipment, net 117 Customer relationships 1,725 Patents 1,100 Goodwill 13,702 Total assets acquired 28,588 Accounts payable 1,324 Other liabilities 4,736 Total liabilities assumed 6,060 Net assets acquired $ 22,528 The goodwill recorded as part of the acquisition is primarily a result of planned synergies. The goodwill is not deductible for tax purposes.The weighted average amortization period for intangible assets acquired is 9 years. Patents are being amortized over a weighted average life of 9 years. Customer relationships are being amortized over a weighted average life of 10 years.The unaudited pro forma statements of operations for the years ended December 31, 2011 and 2012, assuming the Viking acquisition occurred as of January 1, 2011 are presented below. These pro forma statements of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Viking acquisition occurred on the dates indicated, or which may result in the future. 2011 2012 Net sales $ 735,857 $ 774,239 Net income (2,176 ) 38,018 Earnings per share: Basic $ (0.08 ) $ 1.34 Diluted (0.08 ) 1.33 Net sales of $3.4 million and a pre-tax loss of $1.5 million have been recorded in the consolidated statement of comprehensive income for the year ended December 31, 2012 related to the Viking acquisition.Note 17 — Selected Quarterly Financial Data (Unaudited)Selected quarterly financial data for 2012 and 2013 are as follows:71 Three Months Ended March June September December 2012 Net sales $ 194,316 $ 189,695 $ 181,885 $ 201,244 Gross profit 100,911 99,732 97,913 107,287 Net income 9,968 10,296 9,320 10,897 EPS: Basic .36 .36 .33 .38 Diluted .35 .36 .32 .38 Three Months Ended March June September December 2013 Net sales $ 187,014 $ 192,993 $ 179,255 $ 203,442 Gross profit 102,682 102,916 95,424 111,395 Net income 10,492 9,533 5,687 10,227 EPS: Basic .37 .35 .21 .37 Diluted .37 .34 .20 .36 Items Included In Selected Quarterly Financial Data:2012First QuarterDuring the first quarter of 2012, we incurred $1.5 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico. These costs were charged to cost of goods sold – see Note 15.During the first quarter of 2012, we recorded a charge of $0.3 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the first quarter of 2012, we incurred $0.7 million in costs associated with the purchase of the Company's former distributor for the Nordic region of Europe - see Note 11.During the first quarter of 2012, we recorded a charge of $1.0 million to other expense related to legal costs associated with a contractual dispute with a former distributor - see Note 11.Second QuarterDuring the second quarter of 2012, we incurred $1.2 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico and consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities. These costs were charged to cost of goods sold – see Note 15.During the second quarter of 2012, we recorded a charge of $1.2 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the second quarter of 2012, we recorded a charge of $0.5 million to other expense related to legal costs associated with a contractual dispute with a former distributor - see Note 11.Third Quarter72During the third quarter of 2012, we incurred $1.8 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico and consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities. These costs were charged to cost of goods sold – see Note 15.During the third quarter of 2012, we recorded a charge of $1.9 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the third quarter of 2012, we recorded a charge of $0.7 million to other expense related to the acquisition of Viking Systems, Inc. - see Notes 11 and 16.Fourth QuarterDuring the fourth quarter of 2012, we incurred $2.5 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico and consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities. These costs were charged to cost of goods sold – see Note 15.During the fourth quarter of 2012, we recorded a charge of $3.1 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the fourth quarter of 2012, we recorded a charge of $0.5 million to other expense related to the acquisition of Viking Systems, Inc. - see Notes 11 and 16.2013First QuarterDuring the first quarter of 2013, we incurred $1.6 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico, consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities and consolidation of our Westborough, Massachusetts operations into our Largo, Florida and Chihuahua, Mexico manufacturing facilities. These costs were charged to cost of goods sold – see Note 15.During the first quarter of 2013, we recorded a charge of $1.6 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the first quarter of 2013, we recorded a charge of $0.2 million to other expense related to legal costs associated with a patent infringement claim - see Note 10 and Note 11.During the first quarter of 2013, we recorded a $0.3 million loss on the early extinguishment of debt related to write-off of unamortized deferred financing costs under the then existing senior credit agreement - see Note 5.Second QuarterDuring the second quarter of 2013, we incurred $1.6 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico, consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities and consolidation of our Westborough, Massachusetts operations into our Largo, Florida and Chihuahua, Mexico manufacturing facilities. These costs were charged to cost of goods sold – see Note 15.During the second quarter of 2013, we recorded a charge of $1.6 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the second quarter of 2013, we recorded a charge of $0.5 million to other expense related to legal costs associated with a patent infringement claim - see Note 10 and Note 11.Third QuarterDuring the third quarter of 2013, we incurred $1.1 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico, consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities and consolidation of our Westborough, Massachusetts operations into our Largo, Florida and Chihuahua, Mexico manufacturing facilities. These costs were charged to cost of goods sold – see Note 15.73During the third quarter of 2013, the Company discontinued a patient monitoring product offering and incurred $2.1 million in costs which were charged to cost of goods sold - see Note 15.During the third quarter of 2013, we recorded a charge of $3.1 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the third quarter of 2013, we recorded a charge of $1.5 million to other expense related to legal costs associated with a patent infringement claim - see Note 10 and Note 11.Fourth QuarterDuring the fourth quarter of 2013, we incurred $2.1 million in costs associated with the moving of additional product lines to our manufacturing facility in Chihuahua, Mexico, consolidation of our Finland operations into our Largo, Florida and Utica, New York manufacturing facilities and consolidation of our Westborough, Massachusetts operations into our Largo, Florida and Chihuahua, Mexico manufacturing facilities. These costs were charged to cost of goods sold – see Note 15.During the fourth quarter of 2013, we recorded a charge of $2.4 million to other expense related to consolidating certain administrative functions - see Note 11 and Note 15.During the fourth quarter of 2013, we recorded a charge of $1.0 million to other expense related to legal costs associated with a patent infringement claim - see Note 10 and Note 11.During the fourth quarter of 2013, we recorded a $1.4 million pension settlement expense to other expense - see Note 9 and Note 11.74SCHEDULE II—Valuation and Qualifying Accounts(in thousands) Column C Additions Column B Column E Column A Column D Description Deductions 2013 Allowance for bad debts $ 1,203 $ 421 $ — $ (240 ) $ 1,384 Sales returns and allowance 3,609 398 — (909 ) 3,098 Deferred tax asset valuation allowance — — — — — 2012 Allowance for bad debts $ 1,183 $ 530 $ — $ (510 ) $ 1,203 Sales returns and allowance 4,097 317 — (805 ) 3,609 Deferred tax asset valuation allowance — — — — — 2011 Allowance for bad debts $ 1,066 $ 3,935 $ — $ (3,818 ) $ 1,183 Sales returns and allowance 3,980 291 — (174 ) 4,097 Deferred tax asset valuation allowance 226 — — (226 ) — 75
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