CONMED Corporation Annual Report 2008

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FY2008 Annual Report · CONMED Corporation

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A N N U A L R E P O R T 2 0 0 8

C O N T E N T S

Financial Highlights 2

Letter to the Shareholders 3

Creating Efficiencies 6

Global Reach 8

Market for CONMED’s Common Stock and Related Stockholder Matters 10

Five Year Summary of Selected Financial Data 10

Management’s Discussion and Analysis of Financial Condition and Results of Operations 11

Management’s Report on Internal Control Over Financial Reporting 19

Report of Independent Registered Public Accounting Firm 20

Consolidated Balance Sheets 21

Consolidated Statements of Operations 22

Consolidated Statements of Shareholders’ Equity 23

Consolidated Statements of Cash Flows 24

Notes to Consolidated Financial Statements 25

Board of Directors 38

Officers 39

Shareholder Information, Subsidiaries 40

A N N U A L R E P O R T 2 0 0 8

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NET SALES (iN $ miLLiONS)

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CASH FROm OPERATiONS (iN $ miLLiONS)
(LiNE gRAPH)

NET iNCOmE (iN $ miLLiONS)
(bAR gRAPH)

RETAiNEd EARNiNgS (iN $ miLLiONS)

F I N A N C I A L H I G H L I G H T S

March 2009

To My Fellow Shareholders:

The first three quarters of 2008 were very good for CONMED Corporation. In

the fourth quarter of 2008, we watched the global economic crisis dramatically

impact businesses in all sectors. Although the medical device business enjoys

a greater degree of insulation from the volatility of economic trends than other

industry sectors, the fourth quarter of 2008 proved to be challenging for us as

well. Nevertheless, I am pleased to report that CONMED remains strong and

well-positioned in the medical device industry. Our products are used around the

world in surgical suites and healthcare facilities, providing clinicians with the tools

they require for superior patient outcomes. CONMED’s success is not dependent

on any single medical procedure; rather, our medical devices are used in a wide

variety of surgical and other interventions.

Financially, CONMED’s balance sheet continues to improve and our financial

statements reflect management’s conservative approach to managing the

Company’s resources. For example, as seen in the chart on the preceding page,

cash provided by operating activities exceeded the Company’s net income by a

wide margin. This permitted a reduction in debt balances, which reached their

lowest levels in 11 years.

For 2008, our results closely mirrored our original projections that were provided

over a year ago, though, as you know, the economic environment did slow

our growth toward the end of the year. During the first nine months of 2008,

J o s e p h J. C o r a s a n t i

CONMED gradually increased its earnings guidance as a result of better than

President, Chief Executive Officer

anticipated financial results, partly due to the weakening of the U.S. dollar and

its positive effect on the Company’s operations. In the fourth quarter of 2008,

however, the strengthening of the U.S. dollar reversed the currency benefits we

had experienced earlier in the year.

In spite of the global economic downturn, CONMED did achieve a number of

significant financial highlights in 2008:

• Sales grew 6.9% over 2007. In constant currency, the growth was 6.6%.

• GAAP diluted earnings per share for 2008 were $1.52 compared to $1.43 in 2007,

an increase of 6.3%.

• Non-GAAP diluted earnings per share for 2008 were $1.54 compared to the 2007

non-GAAP EPS of $1.37, an increase of 12.4%.

• Cash from operations continued to be strong. For the year, cash provided by

operating activities was $61.1 million, 37% higher than the Company’s net income

for the year, demonstrating CONMED’s significant ability to generate cash.

L E T T E R T O T H E S H A R E H O L D E R S

Over the course of the year, we continued to improve our manufacturing

efficiencies through the implementation of lean manufacturing techniques.

Furthermore, long before the current economic crisis unfolded, we planned and

began to implement an operational restructuring plan that will be completed in

2009 and will include:

• Start-up and operation of a 208,000 square foot manufacturing facility in the city

of Chihuahua, Mexico.

C O N M E D C o r p o r a t i o n

• Closure of two of the Company’s manufacturing facilities in the Utica, New

York area, as well as the current El Paso and Juarez facilities, with related

operations being transferred to either our headquarters location in Utica or to

the new facility in Chihuahua.

• Centralization of certain of CONMED’s distribution activities in a new North

American distribution center located in Atlanta, Georgia.

These improvements in operations, together with new product introductions, are

intended to enhance service to our customers, as well as to improve the Company’s

profitability. We expect that the financial impact of these initiatives will start in 2009

and be fully realized in 2010. We expect these improvements in our operations,

together with new product launches such as the roll-out of our ECOM device and

the expected release of our new tissue sealing device, to result in a $10.0 million

increase in pre-tax profitability in 2010, above and beyond the normal expected

growth of our business.

Corporate Headquarters: French Road, Utica, NY

Outlook

The change in the economic climate during the last few months has been

remarkably swift, with extreme volatility in foreign currency exchange rates

and reduced capital spending and cash conservation throughout the healthcare

provider industry. However, we are well-positioned for long-term growth with

a product offering that meets the needs of our hospital customers and with an

experienced team of managers and staff.

CONMED, like many other medical companies, has seen how the economic

downturn is affecting hospital purchasing patterns. Some hospitals in the United

States have slowed their capital purchasing cycles in an effort to conserve cash.

Now, the market’s focus has moved on to possible shifts in the number of surgical

procedures being performed; more specifically, to whether non-critical surgeries

are showing signs of decline. In the fourth quarter of 2008, single-use product

sales, a bellwether for surgical procedures and 75 percent of our revenue, were at

normal or increased levels.

L E T T E R T O T H E S H A R E H O L D E R S

Injuries and illnesses requiring surgery are not impacted by the

economy, so demographics continue to be in our favor. The only

uncertainty is whether some patients may elect to postpone non-critical

surgeries. And, while that may occur to a certain degree, injuries and

illnesses requiring surgery continue to occur, and will need to be

Reconciliation of Reported Net Income
to Net Income Before Unusual Items1
(In thousands except per share amounts)
(Unaudited)

_______________________________________________
Twelve months ended December 31,

2008

2007

addressed before too long. So, even if there is a delay in procedures due

Reported net income

_______ ________
$ 41,456 $ 44,561

to economic concerns, surgical procedures should return to historical

rates of growth in a fairly short period of time. We have seen this be the

case in other periods of economic uncertainty.

Our capital equipment sales may also be somewhat reduced in 2009

compared to 2008, but the types of capital equipment that we sell are not

“big ticket” items and we know that purchasing decisions are largely a

product of the normal replacement cycles of hospitals. Such replacement

is not susceptible to prolonged deferral.

Fair value inventory purchase
accounting adjustment included
in cost of sales

New plant/facility consolidation
costs included in cost of sales

—

1,011

_______ ________
2,470

—

Total cost of sales, other

_______ ________
3,481

—

Termination of product offering

148

—

Facility consolidation costs included
in other expense (income)

1,822

1,577

Although the healthcare industry, including CONMED, is facing

Gain on legal settlement

(6,072 )

—

headwinds that will impede financial performance in 2009, we expect

that the Company will be profitable, that our balance sheet will

continue to strengthen and that cash flow will remain positive. We

are also optimistic about CONMED’s long-term prospects as a result

of our continued development and release of new products, and our

manufacturing restructuring.

Be assured that we at CONMED are committed to achieving our goals

of improved service to our customers and greater profitability for

the Company. As always, we thank you for your continued trust and

support.

Sincerely,

Joseph J. Corasanti

President, Chief Executive Officer

Settlement of product liability claim

_______ ________
—

1,295

Total other expense (income)

_______ ________
1,577

(2,807 )

Gain on early extinguishment of debt

_______ ________
(4,376 )

—

Total unusual expense (income)
before income taxes

Provision (benefit) for income
taxes on unusual expense

(2,807 )

682

_______ ________
(245 )

1,011

Net income before unusual items

_______ ________
$ 39,660 $ 44,998

Per share data:

Reported net income

Basic
Diluted

Net income before unusual items

Basic
Diluted

1.46 $
1.43

1.55
1.52

1.40 $
1.37

1.56
1.54

1This table is provided to reconcile certain financial disclosures referenced

in the Letter to the Shareholders. Management has provided this

reconciliation of net income before unusual items as an additional

measure that investors can use to compare operating performance

between reporting periods. Management believes this reconciliation

provides a useful presentation of operating performance.

L E T T E R T O T H E S H A R E H O L D E R S

K a i z e n B r e a k t h r o u g h

Cross functional teams with a bias for action focus on

results using creativity before capital and instill a culture

of positive change.

Creating Efficiencies

CONMED is a medical technology company with an emphasis on surgical devices

and equipment for minimally invasive procedures and patient monitoring.

Surgeons and physicians use our products in specialties that include orthopedics,

general surgery, gynecology, neurosurgery and gastroenterology. We employ 3,200

people in manufacturing and distribution facilities in the U.S. and abroad.

At CONMED, we believe that in order to thrive, we must never rest. We strive to

increase revenue through new products, new markets and new acquisitions, and

decrease costs by improving quality and efficiency. Improved efficiencies have

an enormous impact on our bottom line, and ensure all of our stakeholders—our

surgeon customers, the patients on whom our products are used, our employees,

and our shareholders—that we will continue to be of service in the future just as

we are today.

CONMED’s vertical integration has been essential in our strategic plan by

allowing us to develop core competencies in each of our manufacturing facilities.

For example, our French Road facility has become our assembly, extrusion and

molding center. In addition to being our worldwide Corporate headquarters, it

has 400,000 square feet of prime manufacturing space. The result: this location

manufactures products for all of CONMED’s five separate business units.

Improvements here affect almost every downstream cost. Since it has such a

powerful influence on the entire corporation, it was the logical location for

initiating our efficiency program. We chose the Kaizen method, which promotes

a culture of continuous incremental improvement. Key elements of Kaizen are an

emphasis on quality, elimination of waste and inefficiency, willingness to change,

teamwork, personal discipline, improved morale, quality circles and suggestions

for improvement. This process never stops; it is an on-going working philosophy.

In 2007 we created the Continuous Improvement Office and launched our first

Kaizen event. Throughout that year, we conducted 19 events that, while primarily

centered on processes within our French Road facility, spread the culture of Kaizen

throughout the entire Corporation. Our success in 2007 carried over into 2008 and

beyond; we have scheduled 33 Kaizen events for this calendar year alone.

C R E A T I N G E F F I C I E N C I E S

We have already experienced improvements in productivity, reductions

in inventory and the footprint required for manufacturing individual

product lines, increased safety and ergonomics, and enhanced

responsiveness to our customers. Throughout the process, employees

from all of our production facilities have been included as team members,

and event results presentations have been broadcast to all of CONMED’s

facilities. In 2008, a consulting firm named CONMED its fifth annual

“Perfect Engine Site,” in recognition of outstanding productivity results

that create business agility, growth and profitability.

Apex Pack Room
540 Sq. Ft.

Apex Assembly Room
1833.65 Sq. Ft.

54.25 Ft.

45 Ft.

33.8 Ft.

From its single-product roots in 1973, CONMED has grown to

manufacture over 13,000 individual products that provide solutions

Apex Stores Area
945 Sq. Ft.

across the spectrum of the global healthcare marketplace. Our five

12 Ft.

business units are as close as possible to the individual markets they

serve. Our distribution network includes direct sales representatives and

direct exclusive and non-exclusive distributors to reach customers in

every corner of the world. Our Quality Assurance and Regulatory Affairs

functions have become a more centralized, shared resource. We have also

recently centralized our Operations and Supply Chain functions to take

advantage of every opportunity to leverage our resources.

As we look to the future, we anticipate further expansion of the efficiency

initiative throughout CONMED.

Drawings illustrate the dramatic space and time savings yielded from a recent Kaizen event. Prior

to the event, the production of the APEX tubing line required 3,300 square feet of space as well as a

maze of poorly coordinated movements (top photo). Since the event, the product line is run within a

695 square-foot footprint with a one-piece flow methodology, efficiently using space and movements

(bottom photo).

C R E A T I N G E F F I C I E N C I E S

French Road Facility, Utica, NY

• 400,000 square feet for manufacturing & 100,000 square feet for office space

• Worldwide Corporate Headquarters and home to the EndoSurgery and Patient Care business units.

• Recipient of the “Perfect Engine Site Award.”

Global Reach

Approximately 45% of our business

is now international.

Key

Sales

Direct

Dealer

Locations

(Sales, Marketing, etc.)

Manufacturing

& Distribution

Chihuahua, MX

• 208,000-square-foot manufacturing facility

designed and built to fabricate & assemble

a variety of CONMED’s products for

worldwide distribution.

Atlanta, GA

• 160,000-square-foot facility will serve as a

primary, consolidated product distribution center

going forward.

G L O B A L R E A C H

Tampere, Finland
• Manufacturing and R&D facility producing CONMED’s arthroscopic, procedure specific, and

sports medicine products featuring state-of-the-art bioabsorbable materials.

Belgium

• Facility is the hub of CONMED’s European

distribution and service organization.

G L O B A L R E A C H

Market for CONMED’s Common Stock and Related Stockholder Matters

Our common stock, par value $.01 per share, is traded on the NASDAQ Stock Market under the symbol “CNMD”. At January 30, 2009, there were 975
registered holders of our common stock and approximately 14,739 accounts held in “street name”.

The following table sets forth quarterly high and low sales prices for the years ended December 31, 2007 and 2008, as reported by the NASDAQ
Stock Market.

2007

2008

Period
________________________________________________________________________________________________________
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High
$ 29.23
31.85
30.00
29.68

High
$ 28.22
27.22
32.99
31.74

Low
$ 21.59
23.90
25.02
21.13

Low
$ 22.84
28.73
26.61
22.89

We did not pay cash dividends on our common stock during 2007 or 2008 and do not currently intend to pay dividends for the foreseeable future. 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.

Our Board of Directors has authorized a share repurchase program; see Note 7 to the Consolidated Financial Statements.

Information relating to compensation plans under which equity securities of CONMED Corporation are authorized for issuance is set forth in the section
captioned “Equity Compensation Plans” in CONMED Corporation’s definitive Proxy Statement or other informational filing for our 2009 Annual Meeting of
Stockholders and all such information is incorporated herein by reference.

Five Year Summary of Selected Financial data

(In thousands, except per share data)
Years Ended December 31,
Statements of Operations Data(1):

Net sales
Income (loss) from operations
Net income (loss)

Earnings (loss) per share:

Basic
Diluted

Weighted average number of common shares in calculating:

Basic earnings (loss) per share
Diluted earnings (loss) per share

Other Financial Data:

Depreciation and amortization
Capital expenditures

Balance Sheet Data (at period end):

Cash and cash equivalents
Total assets
Long-term obligations
Total shareholders’ equity

2004

2005

2006

2007

2008

558,388
63,161
33,465

617,305
63,748
31,994

1.13
1.11

1.09
1.08

29,523
30,105

26,868
12,419

4,189
872,825
361,781
447,983

29,300
29,736

30,786
16,242

3,454
903,783
388,645
453,006

646,812
(4,603 )
(12,507 )

(.45 )
(.45 )

27,966
27,966

29,851
21,895

3,831
861,571
346,012
440,354

694,288
80,991
41,456

1.46
1.43

28,416
28,965

31,534
20,910

11,695
893,951
311,665
505,002

742,183
75,259
44,561

1.55
1.52

28,796
29,227

32,336
35,879

11,811
931,661
325,013
531,734

(1) Results of operations of acquired businesses have been recorded in the financial statements since the date of acquisition.

F I N A N C I A L S

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Five Year
Summary of Selected Financial Data, and our Consolidated Financial
Statements and related notes contained elsewhere in this report.

systems for large bone and small bone orthopedic surgery; and the VP1600
Digital Documentation System, a 1080p digital still capture unit which
enables users to save and print the highest quality medical images.

Overview of CONMED Corporation

Business Challenges

CONMED 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 serve the clinical areas of arthroscopy, powered
surgical instruments, electrosurgery, cardiac monitoring disposables,
endosurgery and endoscopic technologies. They are used by surgeons
and physicians in a variety of specialties including orthopedics, general
surgery, gynecology, neurosurgery, and gastroenterology. These product
lines and the percentage of consolidated revenues associated with each,
are as follows:

Arthroscopy
Powered Surgical Instruments
Electrosurgery
Patient Care
Endosurgery
Endoscopic Technologies

Consolidated Net Sales

2006
35%
21
15
12
8
9

2007
38%
21
13
11
9
8

_______ ______

100%

_______ ______
_______ ______

100%

2008
38%
21
14
11
9
7
______
100%
______
______

A significant amount of our products are used in surgical procedures with
approximately 75% 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, Mexico and Finland.
We market our products both domestically and internationally directly to
customers and through distributors. International sales approximated 39%,
42% and 44% in 2006, 2007 and 2008, respectively.

Despite an increasingly difficult economic environment in 2008, total
revenues increased 6.9% as compared with 2007. However, given extreme
volatility in the financial markets and foreign currency exchange rates
and depressed economic conditions in both domestic and international
markets, we believe 2009 will present significant business challenges.
We expect 2009 total revenues to approximate 2008 levels, reflecting
lower revenue growth and a significant unfavorable impact from foreign
currency translation due to strengthening of the United States dollar as
compared with currencies such as the Euro. We will continue to monitor
and manage the impact of the deteriorating economic environment on the
Company.

Our Endoscopic Technologies operating segment has suffered from sales
declines and operating losses since its acquisition from C.R. Bard in
September 2004. We have corrected the operational issues associated
with product shortages that resulted following the acquisition of the
Endoscopic Technologies business and continue to reduce costs while
also investing in new product development in an effort to increase sales
and achieve a return to profitability.

Our facilities are subject to periodic inspection by the United States Food
and Drug Administration (“FDA”) for, among other things, conformance
to Quality System Regulation and Current Good Manufacturing Practice
(“CGMP”) requirements. 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 initiative. However, there can be no
assurance that our actions will ensure that we will not receive a warning
letter or other regulatory action which may include consent decrees or
fines.

Business Environment and Opportunities

Critical Accounting Policies

The 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 in our industry. We believe
that with our broad product offering of high quality surgical and patient
care products, we can capitalize on these trends 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. Among the most significant of these efforts
is the Endotracheal Cardiac Output Monitor (“ECOM”). Our ECOM product
offering is expected to provide an innovative alternative to catheter
monitoring of cardiac output with a specially designed endotracheal tube
which utilizes proprietary bio-impedance technology. Also of significance
are our research and development efforts in the area of tissue-sealing for
electrosurgery.

Continued innovation and commercialization of new proprietary products
and processes are essential elements of our long-term growth strategy. In
February 2009, we expect to unveil several new products at the American
Academy of Orthopaedic Surgeons Annual Meeting which we believe
will further enhance our arthroscopy and powered surgical instrument
product offerings. Our reputation as an innovator is exemplified by these
expected product introductions, which include the following: the Zen™
Wireless Footswitch and Adaptor, incorporating the power of Zigbee®
communications technology to provide three pedal control of CONMED
Linvatec control consoles and hand pieces; the Paladin™ suture anchor,
the latest addition to our arsenal for rotator cuff repair; the ReAct™
Arthroscopic Shaver Blades which have the ability to reciprocate while
rotating; MPower® 2, the latest in our next generation of battery power

Preparation 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 Recognition

Revenue 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.

• We place certain of our capital equipment with customers in return
for commitments to purchase disposable products over time periods
generally ranging from one to three years. In these circumstances,
no revenue is recognized upon capital equipment shipment and we
recognize revenue upon the disposable product shipment. The cost
of the equipment is amortized over the term of individual commitment
agreements.

• 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.

F I N A N C I A L S

1111

• 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 $14.3 million,
$14.1 million and $13.4 million for 2006, 2007 and 2008, 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, 2008 is adequate to provide for probable losses
resulting from accounts receivable.

Inventory Reserves

We maintain reserves for 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. We believe that our current inventory reserves are adequate.

Goodwill and Intangible Assets

We 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.
Other intangible assets primarily represent allocations of purchase
price to identifiable intangible assets of acquired businesses. We have
accumulated goodwill of $290.2 million and other intangible assets of
$195.9 million as of December 31, 2008.

In accordance with Statement of Financial Accounting Standards No.
142, “Goodwill and Other Intangible Assets” (“SFAS 142”), 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 reporting units. 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. We completed our assessment of goodwill as of October 1, 2008
and determined that no impairment existed at that date.

During the fourth quarter of 2006, after completing our annual goodwill
impairment analysis, we determined that the goodwill of our CONMED
Endoscopic Technologies reporting unit was impaired and consequently
we recorded a goodwill impairment charge of $46.7 million. Although no
further goodwill impairment charges have been recorded to date, there
can be no assurances that future goodwill impairments will not occur.
While CONMED Patient Care has the least excess of fair value over
invested capital of our reporting units, a 10% decrease in the estimated
fair value of any of our reporting units at the date of our 2008 assessment
would not have resulted in a goodwill impairment charge. Patient Care
goodwill was $59.7 million at December 31, 2008.

determine whether events and circumstances warrant a revision to the
remaining period of amortization. SFAS 142 also requires that intangible
assets subject to amortization be reviewed for impairment in accordance
with Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”). SFAS
144 requires that intangible assets subject to amortization be tested for
recoverability 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 retirement 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 18 years. The weighted average life for customer
relationship assets in aggregate is 35 years.

In accordance with SFAS 142, 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 annual analysis and assessment of actual customer attrition
and activity. 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.

SFAS 144 requires that 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.

See Note 4 to the Consolidated Financial Statements for further discussion
of goodwill and other intangible assets.

Pension Plan

We sponsor a defined benefit pension plan covering substantially all our
employees. 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.

F I N A N C I A L S

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 the projected benefit payment stream of the plan precisely. 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. This rate, which decreased from 6.48% in 2008 to 5.97% in
2009, is used in determining pension expense. This change in assumption
will result in higher pension expense during 2009 and is also the primary
cause of the increase in the projected benefit obligation at December 31,
2008 as compared to December 31, 2007.

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. For the year ended December 31, 2008, we experienced a decline
in the fair market value of our plan assets of $10.1 million. This decline is a
result of the downturn in global financial markets.

We have estimated our rate of increase in employee compensation levels
at 3.0% for 2006 and 2007 and at 3.5% for 2008, consistent with our internal
budgeting.

Pension expense in 2009 is expected to increase to $9.7 million from
$6.6 million in 2008 as a result of a negative return on plan assets during
2008 as well as a decrease in the discount rate as discussed above. In
addition, we will be required to contribute approximately $8.1 million to the
pension plan for the 2009 plan year.

See Note 9 to the Consolidated Financial Statements for further
discussion.

Stock-Based Compensation

In accordance with Statement of Financial Accounting Standards
No. 123 (revised 2004), “Shared-Based Payment” (“SFAS 123(R)”) all
share-base payments to employees, including grants of employee
stock options, restricted stock units, and stock appreciation rights
are recognized in the financial statements based at their fair values.
Compensation expense is recognized using a straight-line method over
the vesting period.

Income Taxes

The recorded future tax benefit arising from net deductible temporary
differences and tax carryforwards is approximately $32.3 million at
December 31, 2008. Management believes that our earnings during the
periods when the temporary differences become deductible will be
sufficient to realize the related future income tax benefits.

We operate in multiple taxing jurisdictions, both within and outside the
United States. We face audits from these various tax authorities regarding
the amount of taxes due. Such audits 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 2006. Tax years subsequent to 2006 are
subject to future examination.

We have established a valuation allowance to reflect the uncertainty
of realizing the benefits of certain net operating loss carryforwards
recognized in connection with an acquisition. Any subsequently
recognized tax benefits associated with the valuation allowance would
be allocated to reduce goodwill. However, upon adoption of Statement
of Financial Accounting Standards No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”) on January 1, 2009, changes in deferred tax
valuation allowances and income tax uncertainties after the acquisition
date, including those associated with acquisitions that closed prior to the
effective date of SFAS 141R, will affect income tax expense. 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 future taxable income levels.

Consolidated Results of Operations

The following table presents, as a percentage of net sales, certain
categories included in our consolidated statements of income (loss) for
the periods indicated:

Years Ended December 31,
Net sales
Cost of sales
Gross margin
Selling and administrative expense
Research and development expense
Goodwill impairment
Other expense (income), net

Income (loss) from operations
Gain (loss) on early extinguishment

of debt

Interest expense
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)

2008 Compared to 2007

2007 2008
100.0%
49.7
_______ ______ _______
50.3
34.6
4.4
—
(0.4)
_______ ______ _______
11.7

2006
100.0%
51.6
48.4
36.3
4.7
7.2
0.8
(0.6)

100.0%
48.5
51.5
36.7
4.5
—
0.2
10.1

(0.1)
—
2.3
3.0
_______ ______ _______
9.4
(3.7)
3.4
(1.8)
_______ ______ _______
6.0%
(1.9)%
_______ ______ _______
_______ ______ _______

0.6
1.4
9.3
3.3
6.0%

Sales for 2008 were $742.2 million, an increase of $47.9 million (6.9%)
compared to sales of $694.3 million in 2007 with the increase occurring
in all product lines except Endoscopic Technologies. Favorable foreign
currency exchange rates in 2008 compared to 2007 accounted for
$1.9 million of the increase while the purchase of our Italian distributor
accounted for an increase in sales of approximately $18.3 million (see
Note 15 to the Consolidated Financial Statements).

Cost of sales increased to $359.8 million in 2008 compared to $345.2 million
in 2007, primarily as a result of the increased sales volumes discussed
above. Gross profit margins increased 1.2 percentage points from 50.3% in
2007 to 51.5% in 2008. The increase of 1.2 percentage points is comprised
of improved gross margins from the newly acquired direct sales operation
in Italy (1.2 percentage points) and increases in Patient Care and
Linvatec gross margins (0.3 and 0.7 percentage points, respectively) as a
result of higher selling prices and improved manufacturing efficiencies.
These increases were offset by lower gross margins in our Endoscopic
Technologies business (0.4 percentage points) due to pricing pressures
and lower production volumes, additional costs incurred associated with
our restructuring and relocation of certain of the Company’s facilities
(0.3 percentage points) and product mix (0.3 percentage points).

Selling and administrative expense increased to $272.4 million in 2008
compared to $240.5 million in 2007. Selling and administrative expense as
a percentage of net sales increased to 36.7% in 2008 from 34.6% in 2007.
This increase of 2.1 percentage points is primarily attributable to higher
selling and administrative expense associated with our newly acquired
direct sales operation in Italy (1.5 percentage points), higher benefit costs
(0.3 percentage points), and other selling and administrative costs
(0.3 percentage points).

Research and development expense was $33.1 million in 2008 compared
to $30.4 million in 2007. As a percentage of net sales, research and
development expense remained flat at 4.5% in 2008 from 4.4% in 2007.

As discussed in Note 11 to the Consolidated Financial Statements,
other expense in 2008 consisted of the following: $1.6 million
charge related to the restructuring and relocation of certain of
the Company’s facilities. Other expense in 2007 consisted of the
following: $1.8 million charge related to the closing of our manufacturing
facility in Montreal, Canada and a sales office in France, a $0.1 million
charge related to the termination of our surgical lights product offering,
$6.1 million in income related to the settlement of the antitrust case with
Johnson & Johnson, and a $1.3 million charge related to the
settlement of a product liability claim and defense related costs.

During the fourth quarter of 2008, we repurchased and retired
$25.0 million of our 2.50% convertible senior subordinated notes
(the “Notes”) for $20.2 million and recorded a gain on the early

F I N A N C I A L S

1313

extinguishment of debt of $4.4 million net of the write-off of $0.4 million
in unamortized deferred financing costs. See additional discussion
under Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources and Note 5 to the
Consolidated Financial Statements.

Interest expense in 2008 was $10.4 million compared to $16.2 million in
2007. The decrease in interest expense is due to lower weighted average
interest rates combined with lower weighted average borrowings
outstanding in 2008 as compared to 2007. The weighted average interest
rates on our borrowings (inclusive of the finance charge on our accounts
receivable sale facility) decreased to 3.78% in 2008 as compared to 5.51%
in 2007.

A provision for income taxes was recorded at an effective rate of 35.7%
in 2008 and 36.0% in 2007 as compared to the Federal statutory rate of
35.0%. The effective tax rate was lower in 2008 than in 2007 largely as a
result of decreased apportionment factors to state taxing jurisdictions
and a decreased level of stock-based compensation that is not expected
to create a future tax deduction. 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.

2007 Compared to 2006

Sales for 2007 were $694.3 million, an increase of $47.5 million (7.3%)
compared to sales of $646.8 million in 2006 with the increase occurring
in all product lines except Electrosurgery and Endoscopic Technologies.
Favorable foreign currency exchange rates in 2007 compared to 2006
accounted for $15.2 million of the increase.

Cost of sales increased to $345.2 million in 2007 compared to $334.0 million
in 2006, primarily as a result of the increased sales volumes discussed
above. Gross profit margins increased 1.9 percentage points from 48.4% in
2006 to 50.3% in 2007. The increase of 1.9 percentage points is comprised
of improved gross margins in our Endoscopic Technologies product lines
(0.9 percentage points) as a result of the completion of the transfer of
production lines from C.R. Bard to CONMED during 2006 and improved
gross margins in our Patient Care, Electrosurgery and Endosurgery
product lines as a result of higher selling prices (0.9 percentage points)
offsetting a decline in our Arthroscopy and Powered Instrument product
lines (0.2 percentage points) caused by higher production variances.
Improved product mix also contributed to the increase in gross profit
margins (0.3 percentage points).

Selling and administrative expense increased to $240.5 million in 2007
compared to $234.8 million in 2006. Selling and administrative expense as
a percentage of net sales decreased to 34.6% in 2007 from 36.3% in 2006.
This decrease of 1.7 percentage points is primarily attributable to greater
leveraging of our cost structure as benefit costs (0.5 percentage points),
selling expense related to our Endoscopic Technologies division (0.5
percentage points), distribution expense (0.1 percentage points) and other
administrative costs (0.6 percentage points) declined as a percentage of
net sales.

Research and development expense was $30.4 million in 2007 compared
to $30.7 million in 2006. As a percentage of net sales, research and
development expense decreased to 4.4% in 2007 from 4.7% in 2006. The
decrease of 0.3 percentage points results from lower spending in our
Endoscopic Technologies division as certain biliary and other projects
near completion (0.3 percentage points).

During our fourth quarter 2006 goodwill impairment testing, we determined
that the goodwill of our Endoscopic Technologies business was impaired
and consequently we recorded an impairment charge of $46.7 million to
reduce the carrying amount of this business to its fair value (see Note 4 to
the Consolidated Financial Statements).

As discussed in Note 11 to the Consolidated Financial Statements, other
expense in 2007 consisted of the following: $1.8 million charge related
to the closing of our manufacturing facility in Montreal, Canada and a
sales office in France, a $0.1 million charge related to the termination of
our surgical lights product offering, $6.1 million in income related to the
settlement of the antitrust case with Johnson & Johnson, and a
$1.3 million charge related to the settlement of a product liability claim

F I N A N C I A L S

and defense related costs. Other expense in 2006 consisted of the
following: $0.6 million in costs related to the closing of our manufacturing
facility in Montreal, Canada; $0.6 million in costs related to the write-off
of inventory in settlement of a patent dispute; a $1.4 million charge related
to the termination of our surgical lights product offering; and $2.6 million
in Endoscopic Technologies acquisition and transition-integration
related charges.

During 2006, we recorded $0.7 million in losses on the early extinguishment
of debt in connection with the refinancing of our senior credit agreement.
See additional discussion under Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Liquidity and Capital
Resources and Note 5 to the Consolidated Financial Statements.

Interest expense in 2007 was $16.2 million compared to $19.1 million
in 2006. The decrease in interest expense is primarily a result of lower
weighted average borrowings outstanding in 2007 as compared to 2006.
The weighted average interest rates on our borrowings (inclusive of the
finance charge on our accounts receivable sale facility) decreased to
5.51% in 2007 as compared to 5.53% in 2006.

A provision for income taxes was recorded at an effective rate of 36.0%
in 2007 and (48.7)% in 2006 as compared to the Federal statutory rate of
35.0%. The effective tax rate was lower in 2006 than in 2007 as a result
of certain adjustments to income tax expense. In 2006, we settled our
2001 through 2004 income taxes as a result of IRS examinations. We
adjusted our reserves to consider positions taken in our income tax
returns for periods subsequent to 2004. The settlement and adjustment to
our reserves resulted in a $1.5 million reduction in income tax expense in
2006. During the third quarter of 2006, we filed our United States federal
income tax return for 2005. As a result of the filing, we identified a greater
benefit than was originally anticipated associated with the extraterritorial
income exclusion rules and research and development tax credit resulting
in a $0.7 million reduction in income tax expense in 2006. The net effect
of these adjustments was a $2.2 million reduction in income tax expense
in 2006. 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.

Operating Segment Results

Segment information is prepared on the same basis that we review
financial information for operational decision-making purposes. We
conduct our business through five principal operating segments:
CONMED Endoscopic Technologies, CONMED Endosurgery, CONMED
Electrosurgery, CONMED Linvatec and CONMED Patient Care. Based
upon the aggregation criteria for segment reporting under Statement of
Financial Accounting Standards No. 131 “Disclosures about Segments
of an Enterprise and Related Information” (“SFAS 131”), we have
grouped our CONMED Endosurgery, CONMED Electrosurgery and
CONMED Linvatec operating segments into a single reporting segment.
The economic characteristics of CONMED Patient Care and CONMED
Endoscopic Technologies do not meet the criteria for aggregation due to
the lower overall operating income (loss) of these segments.

The following tables summarize the Company’s results of operations by
segment for 2006, 2007 and 2008:

CONMED Endosurgery, CONMED Electrosurgery and
CONMED Linvatec

Net sales
Income from operations
Operating margin

2008

2006

2007
______________________________
$ 515,937 $ 564,834 $ 612,521
98,101
16.0%

87,569
15.5%

70,193
13.6%

Product offerings include a complete line of endo-mechanical
instrumentation for minimally invasive laparoscopic procedures,
electrosurgical generators and related surgical instruments, arthroscopic
instrumentation for use in orthopedic surgery and small bone, large bone
and specialty powered surgical instruments.

• Arthroscopy sales increased $27.3 million (10.3%) in 2008 to

$291.9 million from $264.5 million in 2007. Arthroscopy sales increased
$36.3 million (15.9%) in 2007 to $264.5 million from $228.2 million in
2006. These increases are principally a result of increased sales of
our procedure specific, resection and video imaging products for
arthroscopy and general surgery.

• Powered Surgical Instrument sales increased $6.4 million (4.3%) in

2008 to $155.7 million from $149.3 million in 2007, on increased sales of
large bone handpieces and large bone, small bone, and specialty burs
and blades; Powered Surgical Instrument sales increased $12.1 million
(8.8%) in 2007 to $149.3 million from $137.2 million in 2006, on increased
sales of small bone and large bone powered instrument products.

• Electrosurgery sales increased $8.4 million (9.1%) in 2008 to

$100.5 million from $92.1 million in 2007 principally as a result of
increased sales of our System 5000™ electrosurgical generators,
ABC® handpieces, pencils and electrodes; Electrosurgery sales
decreased $5.7 million (5.8%) in 2007 to $92.1 million from $97.8 million
in 2006 principally as a result of decreased sales of our System 5000™
electrosurgical generators and pencils offset by increased sales of our
ABC® handpieces.

• Endosurgery sales increased $5.6 million (9.6%) in 2008 to

$64.4 million from $58.9 million in 2007, as a result of increased sales
of our V-CARE, ligation, hand held instruments and suction irrigation
products; Endosurgery sales increased $6.1 million (11.6%) in 2007 to
$58.9 million from $52.8 million in 2006, as a result of increased sales of
our hand held instruments and suction/irrigation products.

• Operating margins as a percentage of net sales increased 0.5

percentage points to 16.0% in 2008 compared to 15.5% in 2007. The
increase in operating margins are due to higher gross margins (2.0
percentage points) in 2008 compared to 2007 as result of the newly
acquired direct operations in Italy and improved manufacturing
efficiencies and other decreases in selling and administrative expense
(0.2 percentage points) offset by higher selling and administrative
expenses associated with the newly acquired direct sales operation in
Italy (1.7 percentage points).

• Operating margins as a percentage of net sales increased 1.9

percentage points to 15.5% in 2007 compared to 13.6% in 2006. The
increase in operating margins are due to higher gross margins (0.3
percentage points) as result of higher selling prices, lower costs in
2007 associated with the termination of our surgical lights product
offering and closing of a manufacturing facility in Montreal, Canada
as discussed in Note 11 to the Consolidated Financial Statements (0.3
percentage points), lower benefit costs (0.4 percentage points), lower
selling costs in our Electrosurgery division (0.5 percentage points) and
lower administrative expenses (0.4 percentage points).

CONMED Patient Care

Net sales
Income (loss) from operations
Operating margin

2006

2007
_____________________________
$

2008

75,883 $
(759 )
(1.0)%

76,711 $
2,003
2.6%

78,384
2,259
2.9%

Product offerings include 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 reusable surgical patient positioners and
suction instruments & tubing for use in the operating room, as well as a
line of IV products.

• Patient Care sales increased $1.7 million (2.2%) in 2008 to $78.4 million

compared to $76.7 million in 2007 on increased sales of defibrillator pads
and ECG electrodes. Patient Care sales increased $0.9 million (1.2%) in
2007 to $76.7 million compared to $75.9 million in 2006 on increased sales
of defibrillator pads.

• Operating margins as a percentage of net sales increased 0.3%
percentage points to 2.9% in 2008 compared to 2.6% in 2007. The
increases in operating margins are primarily due to increases in gross
margins of 3.1 percentage points in 2008 compared to 2007 as a result of
higher selling prices and lower production variances offset by increased
research and development costs (2.1 percentage points) mainly due to

our Endotracheal Cardiac Output Monitor (“ECOM”) project and higher
selling and administrative costs (0.7 percentage points).

• Operating margins as a percentage of net sales increased 3.6%

percentage points to 2.6% in 2007 compared to (1.0%) in 2006. The
increases in operating margins are primarily due to increases in gross
margins of 4.0 percentage points in 2007 compared to 2006 as a result
of higher selling prices. In addition, lower costs in 2007 are associated
with the write-off of inventory in settlement of a patent dispute (0.8
percentage points) in 2006, offset by higher distribution costs (0.2
percentage points) and higher selling and administrative expenses
(1.0 percentage points).

CONMED Endoscopic Technologies

Net sales
Income (loss) from operations
Operating margin

2008

2007

2006

______________________________
51,278
$
(7,411 )
(14.5% )

54,992 $
(63,399 )
(115.3% )

52,743 $
(6,250 )
(11.8% )

Product offerings include a comprehensive line of minimally invasive
endoscopic diagnostic and therapeutic instruments used in procedures
which require examination of the digestive tract.

• Endoscopic Technologies net sales declined $1.5 million (2.8%) in 2008
to $51.3 million from $52.7 million in 2007, principally due to decreased
sales of forceps and pulmonary products as a result of strong
competition and pricing pressures. Endoscopic Technologies net sales
declined $2.2 million (4.0%) in 2007 to $52.7 million from $54.9 million in
2006, as a result of production and operational issues which resulted in
product shortages and backorders during the first half of 2007.

• Operating margins as a percentage of net sales decreased 2.7

percentage points to (14.5%) in 2008 from (11.8%) in 2007. The decrease
in operating margins of 2.7 percentage points in 2008 is primarily due
to decreases in gross margins of 5.4 percentage points as a result of
increased production costs and pricing pressures as well as higher
selling and administrative expenses as a percentage of sales (0.9
percentage points) offset by decreased research and development
spending as a percentage of sales (0.7 percentage points) and the
charge in 2007 associated with the closure of a sales office in France
(2.9 percentage points).

• Operating margins as a percentage of net sales increased to

(11.8%) in 2007 from (115.3%) in 2006. The increase in operating
margins of 103.5 percentage points in 2007 is primarily a result of the
$46.7 million goodwill impairment charge (85.0 percentage points) in
2006. In addition, gross margins increased 12.2 percentage points as
a result of the completion of the transfer of production lines from C.R.
Bard to CONMED during 2006. The remaining increases in operating
margins of 6.3 percentage points are attributable to lower costs in
2007 associated with acquisition-related costs (4.6 percentage points),
lower research and development expenses as certain biliary and other
projects near completion (2.0 percentage points) and other selling
and administrative expenses (2.6 percentage points) offset by charges
related to closure of a sales office in France (2.9 percentage points).

Liquidity and Capital Resources

Our liquidity needs arise primarily from capital investments, working
capital requirements and payments on indebtedness under our senior
credit agreement. We have historically met these liquidity requirements
with funds generated from operations, including sales of accounts
receivable and borrowings under our revolving credit facility.
In addition, we use term borrowings, including borrowings under
our 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 generally attempt to minimize our cash balances on-hand and use
available cash to pay down debt or repurchase our common stock.

Operating Cash Flows

Our net working capital position was $219.3 million at
December 31, 2008. Net cash provided by operating activities

F I N A N C I A L S

1515

was $64.7 million in 2006, $65.9 million in 2007 and $61.1 million in
2008, generated on net income of -$12.5 million in 2006, $41.5 million in 2007
and $44.6 million in 2008.

The net cash provided by operating activities in 2006, 2007 and 2008
reflects the relative stability of our cash flows and the non-cash nature
of both the goodwill impairment charge in 2006 and the gain on the early
extinguishment of debt in 2008.

Investing Cash Flows

Capital expenditures were $21.9 million, $20.9 million and $35.9 million in
2006, 2007 and 2008, respectively. The increase in capital expenditures
in 2008 as compared to 2006 and 2007 is primarily due to the ongoing
implementation of an enterprise business software application as well
as various other infrastructure improvements related to our restructuring
efforts (see “Restructuring” below and Note 16 to the Consolidated
Financial Statements). Capital expenditures are expected to approximate
$20.0 million in 2009.

During 2008, we purchased our Italian distributor (the “Italy acquisition”)
for $21.8 million. See Note 15 to the Consolidated Financial Statements for
further discussion of the Italy acquisition. The purchase of a business and
a purchase price adjustment resulted in payments totaling $5.9 million in
2007. In 2006, the sale of an equity investment resulted in proceeds of
$1.2 million while the purchase of a distributor’s business resulted in a
$2.5 million payment.

Financing Cash Flows

Net cash provided by (used in) financing activities during 2008 consisted
of the following: $7.3 million in proceeds from the issuance of common
stock under our equity compensation plans and employee stock purchase
plan (See Note 7 to the Consolidated Financial Statements), $4.0 million in
borrowings on our revolver under our senior credit agreement, $1.4 million
in repayments of term borrowings under our senior credit agreement, a
$4.3 million net change in cash overdrafts, $1.1 million in payments on
mortgage notes, and a $20.2 million repurchase of our 2.50% convertible
senior subordinated notes. See Note 5 to the Consolidated Financial
Statements for further discussion of the repurchase of the Notes.

During 2006, we entered into an amended and restated $235.0 million
senior credit agreement (the “amended and restated senior credit
agreement”). The amended and restated senior credit agreement consists
of a $100.0 million revolving credit facility and a $135.0 million term loan.
There were $4.0 million in borrowings outstanding on the revolving credit
facility as of December 31, 2008. Our available borrowings on the revolving
credit facility at December 31, 2008 were $89.0 million with approximately
$7.0 million of the facility set aside for outstanding letters of credit.
There were $57.6 million in borrowings outstanding on the term loan at
December 31, 2008. The proceeds of the term loan portion of the amended
and restated senior credit agreement were used to repay borrowings
outstanding on the term loan and revolving credit facility of $142.5 million
under the previously existing senior credit agreement. In connection with
the refinancing, we recorded a $0.7 million loss on early extinguishment of
debt of which $0.2 million related to the write-off of unamortized deferred
financing costs under the previously existing senior credit agreement and
$0.5 million related to financing costs associated with the amended and
restated senior credit agreement.

The scheduled principal payments on the term loan portion of the senior
credit agreement are $1.4 million annually through December 2011,
increasing to $53.6 million in 2012 with the remaining balance outstanding
due and payable on April 12, 2013. We may also be required, under certain
circumstances, to make additional principal payments based on excess
cash flow as defined in the senior credit agreement. Interest rates on the
term loan portion of the senior credit agreement are at LIBOR plus 1.50%
(1.96% at December 31, 2008) or an alternative base rate; interest rates on
the revolving credit facility portion of the senior credit agreement are at
LIBOR plus 1.25% or an alternative base rate. For those borrowings where
the Company elects to use the alternative base rate, the base rate will be
the greater of the Prime Rate or the Federal Funds Rate in effect on such
date plus 0.50%, plus a margin of 0.50% for term loan borrowings or 0.25%
for borrowings under the revolving credit facility.

The senior credit agreement is collateralized by substantially all of
our personal property and assets, except for our accounts receivable
and related rights which are pledged in connection with our accounts
receivable sales agreement. 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 compliance with these
covenants and restrictions as of December 31, 2008. We are also required,
under certain circumstances, to make mandatory prepayments from net
cash proceeds from any issue of equity and asset sales.

Mortgage notes outstanding in connection with the property and facilities
utilized by our CONMED Linvatec subsidiary consist of a note bearing
interest at 7.50% per annum with semiannual payments of principal and
interest through June 2009 (the “Class A note”); and a note bearing
interest at 8.25% per annum compounded semiannually through June 2009,
after which semiannual payments of principal and interest will commence,
continuing through June 2019 (the “Class C note”). The principal balances
outstanding on the Class A note and Class C note aggregated $1.4 million
and $11.3 million, respectively, at December 31, 2008. These mortgage
notes are secured by the CONMED Linvatec property and facilities.

We have outstanding $125.0 million in 2.50% convertible senior
subordinated notes due 2024. During the fourth quarter of 2008, we
repurchased and retired $25.0 million of the Notes for $20.2 million and
recorded a gain on the early extinguishment of debt of $4.4 million net of
the write-off of $0.4 million in unamortized deferred financing costs. The
Notes represent subordinated unsecured obligations and are convertible
under certain circumstances, as defined in the bond indenture, into a
combination of cash and CONMED common stock. Upon conversion, the
holder of each Note will receive the conversion value of the Note payable
in cash up to the principal amount of the Note and CONMED common
stock for the Note’s conversion value in excess of such principal amount.
Amounts in excess of the principal amount are at an initial conversion
rate, subject to adjustment, of 26.1849 shares per $1,000 principal amount
of the Note (which represents an initial conversion price of $38.19 per
share). As of December 31, 2008, there was no value assigned to the
conversion feature because the Company’s share price was below the
conversion price. The Notes mature on November 15, 2024 and are not
redeemable by us prior to November 15, 2011. Holders of the Notes will be
able to require that we repurchase some or all of the Notes on November
15, 2011, 2014 and 2019.

The Notes contain two embedded derivatives. The embedded derivatives
are recorded at fair value in other long-term liabilities and changes in their
value are recorded through the consolidated statements of operations.
The embedded derivatives have a nominal value, and it is our belief that
any change in their fair value would not have a material adverse effect on
our business, financial condition, results of operations, or cash flows.

Our Board of Directors has authorized a share repurchase program under
which we may repurchase up to $50.0 million of our common stock in
any calendar year. We did not repurchase any shares during 2008. In
the past, we have financed the repurchases and may finance additional
repurchases through the proceeds from the issuance of common stock
under our stock option plans, from operating cash flow and from available
borrowings under our revolving credit facility.

Management believes that cash flow from operations, including accounts
receivable sales, cash and cash equivalents on hand and available
borrowing capacity under our 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 Business Forward-Looking Statements.

Off-Balance Sheet Arrangements

F I N A N C I A L S

(the “purchaser”). The purchaser’s share of collections on accounts
receivable are calculated as defined in the accounts receivable sales
agreement, as amended. Effectively, collections on the pool of receivables
flow first to the purchaser and then to CRC, but to the extent that the
purchaser’s share of collections may be less than the amount of the
purchaser’s asset interest, there is no recourse to CONMED or CRC
for such shortfall. For receivables which have been sold, CONMED
Corporation and its subsidiaries retain collection and administrative
responsibilities as agent for the purchaser. As of December 31, 2007
and 2008, the undivided percentage ownership interest in receivables
sold by CRC to the purchaser aggregated $45.0 million and $42.0 million,
respectively, which has been accounted for as a sale and reflected in the
balance sheet as a reduction in accounts receivable. Expenses associated
with the sale of accounts receivable, including the purchaser’s financing
costs to purchase the accounts receivable, were $2.3 million, $2.9 million
and $1.7 million, in 2006, 2007 and 2008, respectively, and are included in
interest expense.

There are certain statistical ratios, primarily related to sales dilution and
losses on accounts receivable, which must be calculated and maintained
on the pool of receivables in order to continue selling to the purchaser.
The pool of receivables is in compliance with these ratios. Management
believes that additional accounts receivable arising in the normal
course of business will be of sufficient quality and quantity to meet the
requirements for sale under the accounts receivables sales agreement.
In the event that new accounts receivable arising in the normal course
of business do not qualify for sale, then collections on sold receivables
will flow to the purchaser rather than being used to fund new receivable
purchases. To the extent that such collections would not be available to
CONMED in the form of new receivables purchases, we would need to
access an alternate source of working capital, such as our $100 million
revolving credit facility. Our accounts receivable sales agreement, as
amended, also requires us to obtain a commitment (the “purchaser
commitment”) from the purchaser to fund the purchase of our accounts
receivable. The purchaser commitment was amended effective
December 28, 2007 whereby it was extended through October 31, 2009
under substantially the same terms and conditions.

Restructuring

During the second quarter of 2008, we announced a plan to restructure
certain of our operations. The restructuring plan includes the closure of
two manufacturing facilities located in the Utica, New York area totaling
approximately 200,000 square feet with manufacturing to be transferred
into either our Corporate headquarters location in Utica, New York or
into a newly constructed leased manufacturing facility in Chihuahua,
Mexico. In addition, manufacturing presently done by a contract
manufacturing facility in Juarez, Mexico will be transferred in-house to
the Chihuahua facility. Finally, certain domestic distribution activities will
be centralized in a new leased consolidated distribution center in Atlanta,
Georgia. We believe our restructuring plan will reduce our cost base by
consolidating our Utica, New York operations into a single facility and
expanding our lower cost Mexican operations, as well as improve service
to our customers by shipping orders from more centralized distribution
centers. The transition of manufacturing operations and consolidation of
distribution activities began in the third quarter of 2008 and is expected to
be largely completed by the fourth quarter of 2009.

In conjunction with our restructuring plan, we considered Statement of
Financial Accounting Standards No. 144 “Accounting for the Impairment
or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires
that long-lived assets be tested for recoverability whenever events or
changes in circumstances indicate that their carrying amount may not
be recoverable. Based on the announced restructuring plan, our current
expectation is that it is more likely than not, that the two manufacturing
facilities located in the Utica, New York area scheduled to be closed as
a result of the restructuring plan, will be sold prior to the end of their
previously estimated useful lives. Even though we expect to sell these
facilities prior to the end of their useful lives, we do not believe that at
present we meet the criteria contained within SFAS 144 to designate
these assets as held for sale and accordingly we have tested them for
impairment under the guidance for long-lived assets to be held and used.
We performed our impairment testing on the two manufacturing facilities

scheduled to close under the restructuring plan by comparing future cash
flows expected to be generated by these facilities (undiscounted and
without interest charges) against their carrying amounts ($2.2 million and
$2.1 million, respectively, as of December 31, 2008). Since future cash
flows expected to be generated by these facilities exceeds their carrying
amounts, we do not believe any impairment exists at this time. However,
we cannot be certain an impairment charge will not be taken in the future
when the facilities are no longer in use.

During the year ended December 31, 2008, we incurred $4.1 million in
costs associated with the restructuring. Approximately $2.5 million of
the total $4.1 million in restructuring costs have been charged to cost
of goods sold and represent startup activities associated with the new
manufacturing facility in Chihuahua, Mexico. The remaining $1.6 million
in restructuring costs have been recorded in other expense and include
charges directly related to the consolidation of our distribution centers,
including severance charges. As our restructuring plan progresses, we
will incur additional charges, including employee termination and other
exit costs. However, based on the criteria contained within Statement of
Financial Accounting Standards No. 146 “Accounting for Costs Associated
with Exit or Disposal Activities”, no accrual for such costs has been made
at this time.

We estimate the total costs of the restructuring plan will approximate $9.4
million during 2009, including $2.1 million related to employee termination
costs, $3.7 million in expense related to abnormally low production levels
at certain of our plants (as we transfer production to alternate sites),
$1.4 million in accelerated depreciation at one of the two Utica, New
York area facilities which are expected to close and $2.2 million in other
restructuring related activities. We estimate approximately $2.0 million of
the total anticipated $9.4 million in restructuring costs will be reported in
other expense with the remaining $7.4 million charged to cost of goods
sold. The restructuring plan impacts Corporate manufacturing and
distribution facilities which support multiple reporting segments. As a
result, costs associated with the restructuring plan will be reflected in the
Corporate line within our business segment reporting.

Contractual Obligations

The following table summarizes our contractual obligations for the next
five years and thereafter (amounts in thousands). 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, 2008.

Payments Due by Period
1-3
Years

Less than
1 Year

3-5 More than
Years

5 Years
3,185 $ 8,418 $ 55,607 $ 132,165

Total
$ 199,375 $

55,410

54,000

1,410

—

6,157
_______ _______ _______ ______ _______

21,631

6,690

3,764

5,020

$ 276,416 $ 60,949 $ 16,518 $ 60,627 $ 138,322
_______ _______ _______ ______ _______
_______ _______ _______ ______ _______

Long-term debt
Purchase
obligations
Operating lease
obligations
Total contractual
obligations

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. “Quantitative and Qualitative Disclosures
About Market Risk—Interest Rate Risk” and Note 5 to the Consolidated
Financial Statements). The above table does not include required
contributions to our pension plan in 2009, which are expected to be
approximately $8.1 million. (See Note 9 to the Consolidated Financial
Statements). The above table also does not include unrecognized
tax benefits of approximately $0.7 million, the timing and certainty of
recognition for which is uncertain. (See Note 6 to the Consolidated
Financial Statements).

Stock-Based Compensation

We 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

F I N A N C I A L S

1717

Business Forward-Looking Statements

This Annual Report for the Fiscal Year Ended December 31, 2008
contains certain forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act of 1995) and information
relating to CONMED Corporation (“CONMED,” the “Company,” “we” or
“us” — references to “CONMED,” the “Company,” “we” or “us” shall be
deemed to include our direct and indirect subsidiaries unless the context
otherwise requires) which are based on the beliefs of our management,
as well as assumptions made by and information currently available to our
management.

When used in this Annual Report, the words “estimate,” “project,”
“believe,” “anticipate,” “intend,” “expect” and similar expressions
are intended to identify forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors which
may cause our actual results, performance or achievements, or industry
results, 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 litigation as well as the cost

associated with patent and other litigation;

• changes in regulatory requirements.

rights, restricted stock, restricted stock units (“RSUs”), 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 are valued at the market value of the underlying
stock on the date of grant. Stock options, SARs and RSUs 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 Pronouncements

See Note 14 to the Consolidated Financial Statements for a discussion of
new accounting pronouncements.

Quantitative and Qualitative Disclosures About Market Risk

Market 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 Risk

Approximately 44% of our total 2008 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 and
Korea. In those countries in which we have a direct presence, our sales
are denominated in the local currency amounting to approximately 30%
of our total net sales in 2008. The remaining 14% 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 2008, changes in foreign currency exchange rates increased
sales by approximately $1.9 million and income before income taxes by
approximately $0.4 million. We do not presently hedge any portion of
our foreign currency denominated revenues through the use of forward
foreign currency exchange contracts or other derivative financial
instruments, however we may consider such strategies in the future.

We do maintain a forward contract program to exchange foreign
currencies for United States dollars in order to hedge our net investment
in foreign subsidiaries. These forward contracts settle each month at
month-end, at which time we enter into new forward contracts. The
notional contract amounts for forward contracts outstanding at December
31, 2008 totaled $24.0 million. We have not designated these forward
contracts as hedges. Net realized gains in connection with these forward
contracts approximated $3.0 million for the year ended December 31, 2008,
partially offsetting losses on our intercompany exposure of
approximately $6.1 million. These gains and losses have been
recorded in selling and administrative expense in the Consolidated
Statements of Operations. We mark outstanding forward contracts
to market. The market value for forward foreign exchange contracts
outstanding at December 31, 2008 was not material.

Interest Rate Risk

At December 31, 2008, we had approximately $61.6 million of variable rate
long-term debt outstanding under our senior credit agreement and an
additional $42.0 million in accounts receivable sold under our accounts
receivable sales agreement; we are not a party to any interest rate swap
agreements as of December 31, 2008. Assuming no repayments other
than our 2009 scheduled term loan payments, if market interest rates for
similar borrowings and accounts receivable sales averaged 1.0% more in
2009 than they did in 2008, interest expense would increase, and income
before income taxes would decrease by $1.0 million. Comparatively, if
market interest rates for similar borrowings averaged 1.0% less in 2009
than they did in 2008, our interest expense would decrease, and income
before income taxes would increase by $1.0 million.

F I N A N C I A L S

Management’s Report on Internal Control Over Financial Reporting

The 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, 2008. 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”. Management has concluded that based
on its assessment, CONMED’s internal control over financial reporting was effective as of December 31, 2008. The effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting
firm, as stated in their report which appears herein.

Joseph J. Corasanti
President and
Chief Executive Officer

Robert D. Shallish, Jr.
Vice President-Finance and
Chief Financial Officer

F I N A N C I A L S

1919

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of CONMED Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, 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, 2008 and December
31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements,
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, 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.

As discussed in Note 7 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in
2006. As discussed in Note 9 to the consolidated financial statements, the Company changed the way in which it accounts for its defined benefit pension
plan in 2006.

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.

PricewaterhouseCoopers LLP

Albany, New York
February 24, 2009

F I N A N C I A L S

Consolidated Balance Sheets

December 31, 2007 and 2008
(In thousands except share and per share amounts)

Assets
Current assets:

Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $787 in 2007 and $1,370 in 2008

Inventories
Income taxes receivable
Deferred income taxes
Prepaid expenses and other current assets
Total current assets

Property, plant and equipment, net
Goodwill, net
Other intangible assets, net
Other assets

Total assets

Liabilities and Shareholders’ Equity

Current liabilities:

Current portion of long-term debt
Accounts payable
Accrued compensation and benefits
Income taxes payable
Other current liabilities

Total current liabilities

Long-term debt
Deferred income taxes
Other long-term liabilities

Total liabilities
Commitments and contingencies

Shareholders’ equity:

Preferred stock, par value $.01 per share; authorized

500,000 shares, none outstanding

Common stock, par value $.01 per share; 100,000,000 authorized;

31,299,203, issued in 2007 and 2008, respectively

Paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Less: Treasury stock, at cost; 2,684,163 and 2,274,822 shares in

2007 and 2008, respectively

Total shareholders’ equity
Total liabilities and shareholders’ equity

See notes to consolidated financial statements.

2007

2008

11,695

11,811

80,642
164,969
1,425
11,697
8,594
_________
279,022
_________

123,679
289,508
191,807
9,935
_________
$ 893,951
_________
_________

3,349
38,987
19,724
—
15,224
_________
77,284
_________

219,485
71,188
20,992
_________
388,949
_________

96,515
159,976
—
14,742
11,218
_________
294,262
_________

143,737
290,245
195,939
7,478
_________
$ 931,661
_________
_________

3,185
35,887
20,129
1,279
14,434
74,914

_________
_________

196,190
83,498
45,325
_________
399,927
_________

—

313
287,926
284,850
(505 )

313
292,251
327,471
(31,032 )

(67,582 )
_________
505,002
_________
$ 893,951
_________
_________

(57,269 )
_________
531,734
_________
$ 931,661
_________
_________

F I N A N C I A L S

2121

Consolidated Statements of Operations

Years Ended December 31, 2006, 2007 and 2008
(In thousands except per share amounts)

Net sales
Cost of sales
Gross profit
Selling and administrative expense
Research and development expense
Impairment of goodwill
Other expense (income)

Income (loss) from operations
Gain (loss) on early extinguishment of debt
Interest expense
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)

Earnings (loss) per share

Basic
Diluted

2006
$ 646,812
333,966
_________
312,846
_________
234,832
30,715
46,689
5,213
_________
317,449
_________
(4,603 )
(678)
19,120
_________
(24,401 )
(11,894 )
_________
$
(12,507 )
_________
_________

2007
$ 694,288
345,163
_________
349,125
_________
240,541
30,400
—
(2,807 )
_________
268,134
_________
80,991
—
16,234
_________
64,757
23,301
_________
$
41,456
_________
_________

2008
$
742,183
359,802
_________
382,381
_________
272,437
33,108
—
1,577
_________
307,122
_________
75,259
4,376
10,372
_________
69,263
24,702
_________
44,561
_________
_________

(.45 )
(.45 )

1.46
1.43

1.55
1.52

See notes to consolidated financial statements.

F I N A N C I A L S

Consolidated Statements of Shareholders’ Equity

Years Ended December 31, 2006, 2007 and 2008
(In thousands)

Common Stock
__________________
Amount

Paid-in
Capital

Accumulated
Other

Retained Comprehensive Treasury Shareholders’
Earnings

Income (Loss)

Stock

Equity

Balance at December 31, 2005

31,137
________
________

$
311
_______
_______

$ 278,281 $ 259,932 $
________ ________ ________ _________ ________
________ ________ ________ _________ ________

(75,782 ) $ 453,006

(9,736 ) $

Common stock issued under employee plans

Tax benefit arising from common stock issued
under employee plans

Stock based compensation

Repurchase of common stock

Comprehensive income:

Foreign currency translation adjustments

Minimum pension liability (net of income tax
expense of $1,330)

Net income (loss)

Total comprehensive income (loss)

Adjustment to initially apply SFAS No. 158
(net of income tax benefit of $3,132)

Balance at December 31, 2006

167

2,729

139

3,709

2,731

139

3,709

(7,848 )

(6,040 )

3,375

3,092

(12,507 )

________

_______

(5,343 )
________ ________ ________ _________ ________

(5,343 )

31,304
________
________

$
313
_______
_______

$ 284,858 $ 247,425 $
________ ________ ________ _________ ________
________ ________ ________ _________ ________

(83,630 ) $ 440,354

(8,612 ) $

Common stock issued under employee plans

(5)

(662 )

(4,031 )

16,048

11,355

Tax benefit (expense) arising from common stock issued

under employee plans

Stock-based compensation

Comprehensive income (loss):

Foreign currency translation adjustments

Pension liability (net of income tax

expense of $1,654)

Net income (loss)

Total comprehensive income (loss)

Balance at December 31, 2007

Common stock issued under employee plans

Tax benefit arising from common stock issued
under employee plans

Stock-based compensation

Comprehensive income:

Foreign currency translation adjustments

Pension liability (net of income tax
expense of $10,566)

Net income (loss)

Total comprehensive income (loss)

Balance at December 31, 2008

See notes to consolidated financial statements.

(41 )

3,771

(41 )

3,771

5,284

2,823

41,456

________

_______

49,563
________ ________ ________ _________ ________

31,299
________
________

$
313
_______
_______

(67,582 ) $ 505,002
$ 287,926 $ 284,850 $
________ ________ ________ _________ ________
________ ________ ________ _________ ________

(505 ) $

(1,483)

(1,940)

10,313

6,890

1,630

4,178

1,630

4,178

(12,498 )

(18,029 )

44,561

________

_______

14,034
________ ________ ________ _________ ________

31,299
________
________

$
313
_______
_______

$ 292,251 $ 327,471 $
________ ________ ________ _________ ________
________ ________ ________ _________ ________

(57,269 ) $ 531,734

(31,032 ) $

F I N A N C I A L S

2323

Consolidated Statements of Cash Flows

Years Ended December 31, 2006, 2007 and 2008
(In thousands)

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash
provided by operating activities:

Depreciation
Amortization
Stock-based compensation
Goodwill impairment
Deferred income taxes
Sale of accounts receivable
Income tax benefit of stock option exercises
Excess tax benefit from stock option exercises
Contributions to pension plans less than (in excess of) net pension cost
Loss (gain) on extinguishment of debt

Increase (decrease) in cash flows from changes in assets and liabilities,

net of effects from acquisitions:
Accounts receivable
Inventories
Accounts payable
Income taxes
Accrued compensation and benefits
Other assets
Other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Payments related to business acquisitions, net of cash acquired
Proceeds from sale of equity investment
Purchases of property, plant and equipment, net

Net cash used in investing activities

Cash flows from financing activities:

Net proceeds from common stock issued under employee plans
Excess tax benefit from stock options exercises
Repurchase of common stock
Payments on senior credit agreement
Proceeds of senior credit agreement
Payments on mortgage notes
Payments on senior subordinated notes
Payments related to issuance of debt
Net change in cash overdrafts

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Interest
Income taxes

2006

2007

2008

$
(12,507 )
_________

$
41,456
_________

$
44,561
_________

11,738
18,113
3,709
46,689
(12,164 )
4,000
139
—
1,877
203

(126 )
(9,380 )
7,016
(2,069 )
5,251
(1,582 )
3,804
_________
77,218
_________
64,711
_________

(2,466 )
1,205
(21,895 )
_________
(23,156 )
_________

2,731
—
(7,848 )
(173,160 )
135,000
(867 )
—
(1,260 )
1,166
_________
(44,238 )
_________
3,060
_________
377
3,454
_________
$
3,831
_________
_________

13,101
18,433
3,771
—
16,714
1,000
—
—
(5,112 )
—

(6,301 )
(22,621 )
(2,414 )
3,118
2,012
(83 )
2,820
_________
24,438
_________
65,894
_________

(5,933 )
—
(20,910 )
_________
(26,843 )
_________

11,355
—
—
(44,000 )
—
(990 )
—
—
(1,770 )
_________
(35,405 )
_________
4,218
_________
7,864
3,831
_________
$
11,695
_________
_________

14,641
17,695
4,178
—
18,984
(3,000 )
1,630
(1,738 )
(5,425 )
(4,376 )

(3,735 )
(8,110 )
(7,043 )
2,627
(238 )
(4,469 )
(5,033 )
_________
16,588
_________
61,149
_________

(22,023 )
—
(35,879 )
_________
(57,902 )
_________

7,347
1,738
—
(1,350 )
4,000
(1,109 )
(20,248)
—
4,270
_________
(5,352 )
_________
2,221
_________
116
11,695
_________
$
11,811
_________
_________

18,247
2,168

14,386
4,172

9,381
7,397

See notes to consolidated financial statements.

F I N A N C I A L S

Notes to Consolidated Financial Statements

Note 1 — Operations and Significant Accounting Policies

Organization and operations

Principles of consolidation

The consolidated financial statements include the accounts of CONMED
Corporation and its controlled subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

Use of estimates

The 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 equivalents

We consider all highly liquid investments with an original maturity of three
months or less to be cash equivalents.

Accounts receivable sale

We have an accounts receivable sales agreement pursuant to which we
and certain of our subsidiaries sell on an ongoing basis certain accounts
receivable to CONMED Receivables Corporation (“CRC”), a wholly-owned,
bankruptcy-remote, special-purpose subsidiary of CONMED Corporation.
CRC may in turn sell up to an aggregate $50.0 million undivided percentage
ownership interest in such receivables (the “asset interest”) to a bank
(the “purchaser”). The purchaser’s share of collections on accounts
receivable are calculated as defined in the accounts receivable sales
agreement, as amended. Effectively, collections on the pool of receivables
flow first to the purchaser and then to CRC, but to the extent that the
purchaser’s share of collections may be less than the amount of the
purchaser’s asset interest, there is no recourse to CONMED or CRC
for such shortfall. For receivables which have been sold, CONMED
Corporation and its subsidiaries retain collection and administrative
responsibilities as agent for the purchaser. As of December 31, 2007
and 2008, the undivided percentage ownership interest in receivables
sold by CRC to the purchaser aggregated $45.0 million and $42.0 million,
respectively, which has been accounted for as a sale and reflected in the
balance sheet as a reduction in accounts receivable. Expenses associated
with the sale of accounts receivable, including the purchaser’s financing
costs to purchase the accounts receivable, were $2.3 million, $2.9 million
and $1.7 million, in 2006, 2007 and 2008, respectively, and are included in
interest expense.

normal course of business will be of sufficient quality and quantity to meet
the requirements for sale under the accounts receivable sales agreement.
In the event that new accounts receivable arising in the normal course
of business do not qualify for sale, then collections on sold receivables
will flow to the purchaser rather than being used to fund new receivable
purchases. To the extent that such collections would not be available to
CONMED in the form of new receivables purchases, we would need to
access an alternate source of working capital, such as our $100 million
revolving credit facility. Our accounts receivable sales agreement, as
amended, also requires us to obtain a commitment (the “purchaser
commitment”) from the purchaser to fund the purchase of our accounts
receivable. The purchaser commitment was amended effective
December 28, 2007 whereby it was extended through October 31, 2009
under substantially the same terms and conditions.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined
on the FIFO (first-in, first-out) method of accounting.

Property, plant and equipment

Property, plant and equipment are stated at cost and depreciated using
the straight-line method over the following estimated useful lives:

Building and improvements
Leasehold improvements
Machinery and equipment

40 years
Shorter of life of asset or life of lease
2 to 15 years

Goodwill and other intangible assets

Goodwill represents the excess of purchase price over fair value of
identifiable net assets of acquired businesses. Other intangible assets
primarily represent allocations of purchase price to identifiable intangible
assets of acquired businesses. Because of our history of growth through
acquisitions, goodwill and other intangible assets comprise a substantial
portion (52.2% at December 31, 2008) of our total assets.

In accordance with Statement of Financial Accounting Standards
No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), 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 reporting units. 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. These tests resulted in an
impairment charge of $46.7 million in the fourth quarter ending December
31, 2006. We completed our assessment of goodwill as of October 1, 2008
and determined that no impairment existed at that date. See Note 4 for
additional discussion.

Intangible assets with a finite life are amortized over the estimated useful
life of the asset. SFAS 142 requires that intangible assets which continue
to be subject to amortization be evaluated each reporting period to
determine whether events and circumstances warrant a revision to the
remaining period of amortization. SFAS 142 also requires that intangible
assets subject to amortization be reviewed for impairment in accordance
with Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”).
SFAS 144 requires that intangible assets subject to amortization be
tested for recoverability 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.

F I N A N C I A L S

2525

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 retirement
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 18 years. The weighted average life for
customer relationship assets in aggregate is 35 years.

Other long-lived assets

We 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.

Fair value of financial instruments

The carrying amounts reported in our balance sheets for cash and cash
equivalents, accounts receivable, accounts payable and long-term debt
excluding the 2.50% convertible senior subordinated notes (the “Notes”)
approximate fair value. The fair value of the Notes approximated
$134.8 million and $97.2 million at December 31, 2007 and 2008,
respectively, based on their quoted market price. We repurchased
and retired $25.0 million of the Notes during 2008 for $20.2 million and
recorded a net gain of $4.4 million on the early extinguishment of debt
as further described in Note 5.

Translation of foreign currency financial statements

Assets 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 income (loss). Transaction gains and losses are
included in net income (loss).

F I N A N C I A L S

Forward Foreign Exchange Contracts

We have a forward contract program to exchange foreign currencies
for United States dollars in order to hedge our net investment in foreign
subsidiaries. These forward contracts settle each month at month-
end, at which time we enter into new forward contracts. The notional
contract amounts for forward contracts outstanding at December 31, 2008
totaled $24.0 million. We have not designated these forward contracts as
hedges. Net realized gains in connection with these forward contracts
approximated $3.0 million for the year ended December 31, 2008, partially
offsetting losses on our intercompany exposure of approximately
$6.1 million. These gains and losses have been recorded in selling and
administrative expense in the Consolidated Statements of Operations.
We mark outstanding forward contracts to market. The market value for
forward foreign exchange contracts outstanding at December 31, 2008
was not material.

Income taxes

We provide for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, “Accounting for
Income Taxes” (“SFAS 109”). Under the liability method specified by SFAS
109, deferred 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 tax provision generally represents
the net change in the assets and liabilities for deferred tax. A valuation
allowance is established when it is necessary to reduce deferred tax
assets to amounts for which realization is not likely.

Deferred 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
the sale or liquidation of these subsidiaries or upon the remittance of
dividends. Deferred taxes are provided when the Company no longer
considers subsidiary earnings to be permanently invested, such as in
situations where the Company’s subsidiaries plan to make future dividend
distributions.

On January 1, 2007 we adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”). FIN 48
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 impact of this pronouncement
was not material to the Company’s consolidated financial statements. See
Note 6 to the Consolidated Financial Statements for further discussion.

Revenue recognition

Revenue 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:

• 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.

• 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 $14.3 million, $14.1 million and
$13.4 million for 2006, 2007 and 2008, 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, 2008 is adequate to provide for probable
losses resulting from accounts receivable.

Earnings (loss) per share

Basic earnings per share (“basic EPS”) is computed by dividing net
income (loss) by the weighted average number of shares outstanding
for the reporting period. Diluted earnings per share (“diluted EPS”)
gives effect during the reporting period to all dilutive potential shares
outstanding resulting from employee share-based awards. In the 2006
period, incremental shares are not included in computing diluted EPS
because to do so would have reduced the net loss per share. The
following table sets forth the calculation of basic and diluted earnings per
share at December 31, 2006, 2007 and 2008, respectively:

SFAS 123(R) was adopted using the modified prospective transition
method. Under this method, the provisions of SFAS No. 123(R) apply to
all awards granted or modified after the date of adoption. In addition,
compensation expense must be recognized for any nonvested stock
option awards outstanding as of the date of adoption. We recognize such
expense using a straight-line method over the vesting period. Prior periods
have not been restated.

We elected to adopt the alternative transition method, as permitted by
FASB Staff Position No. FAS 123(R)-3 “Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards,” to calculate
the tax effects of stock-based compensation pursuant to SFAS 123(R) for
those employee awards that were outstanding upon adoption of
SFAS 123(R). The alternative transition method allows the use of a
simplified method to calculate the beginning pool of excess tax benefits
available to absorb tax deficiencies recognized subsequent to the
adoption of SFAS 123(R). The Company’s policy for intra-period tax
allocation is the with and without approach for utilization of tax attributes.

During 2007, we began issuing 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 income (loss)

Accumulated other comprehensive income (loss) consists of the following:

Net income (loss)

Basic-weighted average
shares outstanding
Effect of dilutive potential securities
Diluted-weighted average
shares outstanding

Basic EPS

Diluted EPS

2006

2007
$ (12,507 ) $ 41,456 $ 44,561
_______ _______ _______
_______ _______ _______

2008

28,796
27,966
431
—
_______ _______ _______

28,416
549

28,965

27,966
29,227
_______ _______ _______
_______ _______ _______
1.55
$
_______ _______ _______
_______ _______ _______
$
1.52
_______ _______ _______
_______ _______ _______

(.45) $

1.46 $

1.43 $

Cumulative Accumulated Other
Comprehensive
Pension
Translation
Income (loss)
Liability Adjustments
$
(9,563 )

$ 9,058

(505 )

Balance, December 31, 2007 $
Foreign currency
translation adjustments
Pension liability
(net of tax)
(18,029 )
________
Balance, December 31, 2008 $ (27,592 )
________
________

—

(12,498 )

—
________
$ (3,440 )
________
________

(18,029 )
________
$
(31,032 )
________
________

Note 2 — Inventories
Inventories consist of the following at December 31,:

Raw materials
Work in process
Finished goods

2007
60,081 $
18,669
86,219

2008
55,022
22,177
82,777
_________ _________
$ 164,969 $ 159,976
________ ________
________ ________

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 0.6 and 0.9 million at December 31, 2007 and 2008,
respectively. Upon conversion of our 2.50% convertible senior subordinated
notes (the “Notes”), the holder of each Note will receive the conversion
value of the Note payable in cash up to the principal amount of the Note
and CONMED common stock for the Note’s conversion value in excess
of such principal amount. As of December 31, 2008, our share price has
not exceeded the conversion price of the Notes, therefore the conversion
value was less than the principal amount of the Notes. Under the net share
settlement method and in accordance with Emerging Issues Task Force
(“EITF”) Issue 04-8, “The Effect of Contingently Convertible Debt on Diluted
Earnings per Share”, there were no potential shares issuable under the
Notes to be used in the calculation of diluted EPS. The maximum number of
shares we may issue with respect to the Notes is 5,750,000. See Note 5 for
further discussion of the Notes.

Stock based compensation

We adopted Statement of Financial Accounting Standards No. 123 (revised
2004), “Share-Based Payment” (“SFAS 123(R)”) effective January 1, 2006.
SFAS 123(R) requires that all share-based payments to employees,
including grants of employee stock options, restricted stock units, and
stock appreciation rights be recognized in the financial statements based
on their fair values. Prior to January 1, 2006, we accounted for stock-
based compensation in accordance with Accounting Principles Board
Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”).
No compensation expense was recognized for stock options under the
provisions of APB 25 since all options granted had an exercise price equal
to the market value of the underlying stock on the grant date.

F I N A N C I A L S

2727

Note 3 — Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31,:

Goodwill associated with each of our principal operating units at
December 31, is as follows:

Land
Building and improvements
Machinery and equipment
Construction in progress

Less: Accumulated depreciation

2007
4,200 $
88,564
109,368
14,103
216,235
(92,556 )

2008
4,273
91,047
117,339
29,962
_________ _________
242,621
(98,884)
_________ _________
$ 123,679 $ 143,737
_________ _________
_________ _________

CONMED Electrosurgery
CONMED Endosurgery
CONMED Linvatec
CONMED Patient Care

Balance as of December 31,

Other intangible assets consist of the following:

2007

2008

16,645 $
42,439
171,332
59,092

16,645
42,439
171,437
59,724
_________ _________
$ 289,508 $ 290,245
_________ _________
_________ _________

We lease various manufacturing facilities, office facilities and equipment
under operating leases. Rental expense on these operating leases was
approximately $3,269, $3,724 and $3,443 for the years ended December 31,
2006, 2007 and 2008, respectively. The aggregate future minimum lease
commitments for operating leases at December 31, 2008 are as follows:

2009

2010

2011

2012

2013

Thereafter

$ 3,764

3,569

3,121

2,612

2,408

6,157

Note 4 — Goodwill and Other Intangible Assets

The changes in the net carrying amount of goodwill for the years ended
December 31, are as follows:

Balance as of January 1,
Adjustments to goodwill resulting from

tax benefits recognized

Adjustments to goodwill resulting from
business acquisitions finalized

Foreign currency translation

Balance as of December 31,

2007

2008

$ 290,512 $ 289,508

(2,192 )

—

671
517

632
105
_________ _________
$ 289,508 $ 290,245
_________ _________
_________ _________

In September 2004, we acquired the business operations of the Endoscopic
Technologies Division of C.R. Bard, Inc. (the “Endoscopic Technologies
acquisition”) for aggregate consideration of $81.3 million in cash. The
Endoscopic Technologies acquisition involved the transfer of substantially
all of the Endoscopic Technologies production lines from C.R. Bard
facilities to CONMED facilities. This transfer proved to be more time-
consuming, costly and complex than was originally anticipated. In addition,
production and operational issues at an assembly operation in Mexico
under contract to CONMED resulted in product shortages and backorders.
These operational issues, in combination with increased competition and
pricing pressures in the marketplace resulted in decreased sales and
gross margins and operating losses. As a result of these factors, during our
fourth quarter 2006 goodwill impairment testing, we determined that the
goodwill of our Endoscopic Technologies operating unit was impaired and
consequently we recorded a goodwill impairment charge of $46.7 million to
reduce the carrying amount of the unit to its fair value. We estimated the
fair value of the Endoscopic Technologies operating unit using a discounted
cash flow valuation methodology and measured the goodwill impairment in
accordance with SFAS 142.

F I N A N C I A L S

__________________________________________

Dec. 31, 2007

Dec. 31, 2008

Gross

Carrying Accumulated Carrying Accumulated
Amount Amortization

Amount Amortization

Amortized
intangible assets:
Customer
relationships
Patents and other
intangible assets
Unamortized
intangible assets:
Trademarks and
tradenames

$ 118,124 $

(28,000 )

$ 127,594 $

(32,187 )

39,812

(26,473 )

40,714

(28,526 )

88,344
—
________ _________
$ 246,280 $
(54,473 )
________ _________
________ _________

88,344
________
$ 256,652 $
________
________

—
________
(60,713 )
________
________

Other intangible assets primarily represent allocations of purchase price
to identifiable intangible assets of acquired businesses. The weighted
average amortization period for intangible assets which are amortized
is 24 years. Customer relationships are being amortized over a weighted
average life of 35 years. Patents and other intangible assets are being
amortized over a weighted average life of 13 years.

Customer relationship assets were recognized 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 retirement 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 18 years. The weighted average life for customer
relationship assets in aggregate is 35 years.

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, in
accordance with SFAS 142, our trademarks and tradenames intangible
assets are not amortized.

Amortization expense related to intangible assets for the year ending
December 31, 2008 and estimated amortization expense for each of the
five succeeding years is as follows:

2008

2009

2010

2011

2012

2013

$ 6,240

6,182

5,992

5,352

5,266

5,034

Note 5 — Long-Term Debt
Long-term debt consists of the following at December 31,:

Revolving line of credit
Term loan borrowings on senior credit facility
2.50% convertible senior subordinated notes
Mortgage notes

Total long-term debt

Less: Current portion

2007

— $

58,988
150,000
13,846

2008
4,000
57,638
125,000
12,737
_________ _________
199,375
3,185
_________ _________
$ 219,485 $ 196,190
_________ _________
_________ _________

222,834
3,349

During 2006, we entered into an amended and restated $235.0 million senior
credit agreement (the “amended and restated senior credit agreement”).
The amended and restated senior credit agreement consists of a
$100.0 million revolving credit facility and a $135.0 million term loan.
There were $4.0 million in borrowings outstanding on the revolving credit
facility as of December 31, 2008. Our available borrowings on the revolving
credit facility at December 31, 2008 were $89.0 million with approximately
$7.0 million of the facility set aside for outstanding letters of credit.
There were $57.6 million in borrowings outstanding on the term loan at
December 31, 2008. The proceeds of the term loan portion of the amended
and restated senior credit agreement were used to repay borrowings
outstanding on the term loan and revolving credit facility of $142.5 million
under the previously existing senior credit agreement. In connection with
the refinancing, we recorded a $0.7 million loss on early extinguishment of
debt of which $0.2 million related to the write-off of unamortized deferred
financing costs under the previously existing senior credit agreement and
$0.5 million related to financing costs associated with the amended and
restated senior credit agreement.

The senior credit agreement is collateralized by substantially all of
our personal property and assets, except for our accounts receivable
and related rights which are pledged in connection with our accounts
receivable sales agreement. 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 are also required, under certain
circumstances, to make mandatory prepayments from net cash proceeds
from any issue of equity and asset sales.

Mortgage notes outstanding in connection with the property and facilities
utilized by our CONMED Linvatec subsidiary consist of a note bearing
interest at 7.50% per annum with semiannual payments of principal and
interest through June 2009 (the “Class A note”); and a note bearing interest
at 8.25% per annum compounded semiannually through June 2009, after
which semiannual payments of principal and interest will commence,
continuing through June 2019 (the “Class C note”). The principal balances
outstanding on the Class A note and Class C note aggregated $1.4 million
and $11.3 million, respectively, at December 31, 2008. These mortgage notes
are secured by the CONMED Linvatec property and facilities.

We have outstanding $125.0 million in 2.50% convertible senior
subordinated notes due 2024. During the fourth quarter of 2008, we
repurchased and retired $25.0 million of the Notes for $20.2 million and
recorded a gain on the early extinguishment of debt of $4.4 million net of
the write-off of $0.4 million in unamortized deferred financing costs. The
Notes represent subordinated unsecured obligations and are convertible
under certain circumstances, as defined in the bond indenture, into a
combination of cash and CONMED common stock. Upon conversion, the
holder of each Note will receive the conversion value of the Note payable
in cash up to the principal amount of the Note and CONMED common
stock for the Note’s conversion value in excess of such principal amount.
Amounts in excess of the principal amount are at an initial conversion rate,
subject to adjustment, of 26.1849 shares per $1,000 principal amount of the
Note (which represents an initial conversion price of $38.19 per share).
As of December 31, 2008, there was no value assigned to the conversion
feature because the Company’s share price was below the conversion
price. The Notes mature on November 15, 2024 and are not redeemable by
us prior to November 15, 2011. Holders of the Notes will be able to require
that we repurchase some or all of the Notes on November 15, 2011, 2014
and 2019.

The Notes contain two embedded derivatives. The embedded derivatives
are recorded at fair value in other long-term liabilities and changes in their
value are recorded through the consolidated statements of operations. The
embedded derivatives have a nominal value, and it is our belief that any
change in their fair value would not have a material adverse effect on our
business, financial condition, results of operations, or cash flows.

The scheduled maturities of long-term debt outstanding at
December 31, 2008 are as follows:

2009

2010

2011

2012

2013

3,185

2,174

6,244

54,557

1,050

Thereafter

132,165

Note 6 — Income Taxes

The provision for income taxes for the years ended December 31, 2006,
2007 and 2008 consists of the following:

2006

2007

2008

Current tax expense:
Federal
State
Foreign

Deferred income tax expense

Provision for income taxes

2,634 $
1,102
2,851

(2,582 ) $
1,006
1,846

2,094
498
3,126
________ ________ ________
5,718
18,984
________ ________ ________
$ (11,894 ) $ 23,301 $ 24,702
________ ________ ________
________ ________ ________

6,587
16,714

270
(12,164 )

F I N A N C I A L S

2929

A reconciliation between income taxes computed at the statutory federal
rate and the provision for income taxes for the years ended December 31,
2006, 2007 and 2008 follows:

Tax provision at statutory rate based
on income (loss) before income taxes
Extraterritorial income exclusion
State income taxes
Stock-based compensation
Research and development credit
Settlement of taxing authority
examinations
Other nondeductible permanent
differences
Other, net

2006

2007

2008

(35.00 )%
(5.39 )
(3.24 )
3.49
(3.87 )

35.00 %
—
1.78
0.56
(1.23 )

35.00 %
—
1.52
0.39
(1.29 )

(6.08 )

(0.97 )

—

1.81
(0.46 )

0.63
0.21
________ ________ ________
35.66 %
35.98 %
________ ________ ________
________ ________ ________

0.82
(0.78 )

(48.74 )%

The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities at December 31, 2007 and 2008 are
as follows:

2007

2008

Assets:

Inventory

Net operating losses
Deferred compensation
Accounts receivable
Employee benefits
Accrued pension
Research and development credit
Other
Valuation allowance

Liabilities:
Goodwill and intangible assets
Depreciation
State taxes
Contingent interest

Net liability

4,376
2,493
2,302
2,534
1,582
11,783
3,004
6,287
(2,069 )
_________ _________
32,292
_________ _________

4,817 $
6,903
3,162
2,960
2,200
3,117
2,200
3,495
(4,209 )
24,645

83,524
6,951
1,250
9,323
_________ _________
101,048
_________ _________
$
(68,756 )
_________ _________
_________ _________

70,653
4,949
360
8,174
84,136
(59,491 ) $

Income (loss) before income taxes consists of the following U.S. and
foreign income (loss):

U.S. income (loss)
Foreign income
Total income (loss)

2006

2007

2008
$ (29,659 ) $ 57,664 $ 58,868
10,395
_______
_______
_______
$ (24,401 ) $ 64,757 $ 69,263
_______ ________
_______
_______ ________
_______

5,258

7,093

The net operating loss carryforwards of acquired subsidiaries begin to
expire in 2009. These net operating loss carryforwards are subject to
pre-existing ownership change limitations under IRC section 382 as a
result of the purchase of stock of these acquired subsidiaries. The annual
existing ownership change limitation on the acquired net operating losses
is $3.4 million. We have established a valuation allowance to reflect
the uncertainty of realizing the benefits of certain net operating loss
carryforwards recognized in connection with an acquisition. Upon adoption
of Statement of Financial Accounting Standards No. 141 (revised 2007),
“Business Combinations” (“SFAS 141R”) on January 1, 2009, changes in
deferred tax valuation allowances and income tax uncertainties after the
acquisition date, including those associated with acquisitions that closed
prior to the effective date of SFAS 141(R), generally will affect income tax
expense.

During 2007, we reduced our valuation allowance for the portion of the net
operating loss carryforward for which we determined utilization is more
likely than not. This amount totaled $2.2 million (see Note 4).

F I N A N C I A L S

The gross amount of Federal net operating loss carryforwards available is
$7.4 million. This includes $3.4 million of net operating loss carryforwards
from acquired subsidiaries as discussed above. The remaining $4.0 million
begins to expire in 2026. Approximately $4.0 million of the gross Federal
net operating loss is attributable to stock-based compensation windfall
tax deductions. In accordance with SFAS 123(R), the $1.4 million windfall
tax benefit on the $1.4 million net operating loss carryforward has not
been recorded as a deferred tax asset. The $1.4 million tax benefit will be
recorded in additional paid-in capital when realized.

The amount of Federal Research and Development credit carryforward
available is $3.0 million. These credits begin to expire in 2024. The total
amount of Federal Foreign Tax Credit carryforward available is $1.1 million.
These credits begin to expire in 2017.

We operate in multiple taxing jurisdictions, both within and outside the
United States. We face audits from these various tax authorities regarding
the amount of taxes due. Such audits 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 2006.

We have not provided for federal income taxes on undistributed earnings of
our foreign subsidiaries as it remains our intention to permanently reinvest
such earnings (approximately $29.8 million at December 31, 2008.) It is not
practicable given the complexities of the foreign tax credit calculation to
estimate the tax due upon any possible repatriation.

The following table summarizes the activity related to our unrecognized tax
benefits for the years ending December 31,:

Balance as of January 1,
Increases (decreases) for positions taken in
prior periods
Increases for positions taken in
current periods
Decreases in unrecorded tax positions related
to settlement with the taxing authorities
Decreases in unrecorded tax positions related
to lapse of statute of limitations
Balance as of December 31,

2007

1,359 $

2008
1,866

(164 )

212

1,410

1,117

(739 )

(154)

(172)
—
_________ ________
$
2,869
1,866 $
_________ ________
_________ ________

If the total unrecognized tax benefits of $2.9 million at December 31,
2008 were recognized, it would reduce our annual effective tax rate. The
amount of interest accrued in 2008 related to these unrecognized tax
benefits was not material and is included in the provision for income taxes
in the Consolidated Statements of Operations. It is reasonably possible
that the amount of unrecognized tax benefits could change in the next
12 months as a result of the anticipated completion of the 2007 and 2008
IRS examinations. The range of change in unrecognized tax benefits is
estimated between $1.1 million and $1.9 million.

Note 7 — Shareholders’ Equity

Our 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,
2007 and 2008, no preferred stock had been issued.

On February 15, 2005, our Board of Directors authorized a share repurchase
program under which we may repurchase up to $50.0 million of our common
stock, although no more than $25.0 million could be purchased in any
calendar year. The Board subsequently amended this program on December
2, 2005 to authorize repurchases up to $100.0 million of our common stock,
although no more than $50.0 million may be purchased in any calendar year.
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. Through December 31, 2006, we
have repurchased a total of 2.2 million shares of common stock aggregating
$53.2 million under this authorization. No stock repurchases were made in
2007 or 2008.

We have reserved 4.8 million shares of common stock for issuance to
employees and directors under three shareholder-approved share-based
compensation plans (the “Plans”) of which approximately 418,000 shares
remain available for grant at December 31, 2008. 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”) are valued at the market value of the underlying stock on the
date of grant. Stock options, SARs and RSUs 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 are
from the Company’s treasury stock.

Total pre-tax stock-based compensation expense recognized in the
Consolidated Statements of Operations was $3.7 million, $3.8 million and
$4.2 million for the year ended December 31, 2006, 2007 and 2008,
respectively. This amount is included in selling and administrative expenses
on the Consolidated Statements of Operations. Tax related benefits of
$0.4 million, $0.8 million and $1.1 million were also recognized for the years
ended December 31, 2006, 2007 and 2008. Cash received from the exercise
of stock options was $1.7 million, $11.3 million and $6.9 million for the years
ended December 31, 2006, 2007 and 2008, respectively and is reflected in
cash flows from financing activities in the Consolidated Statements of
Cash Flows.

The weighted average fair value of awards of options and SARs granted in
the years ended December 31, 2006, 2007 and 2008 was $8.92, $11.88 and
$9.35, respectively. The fair value of these options and SARs was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for options and SARs granted in
the years ended December 31, 2006, 2007 and 2008, respectively: risk-free
interest rate of 5.13%, 4.56% and 3.25%; volatility factor of the expected
market price of the Company’s common stock of 37.79%, 32.61% and 30.36%;
a weighted-average expected life of the option and SAR of 5.7 years for all
three years; and that no dividends would be paid on common stock. The
risk free interest rate is based on the option and SAR grant date for a traded
zero-coupon U.S. Treasury bond with a maturity date closest to the expected
life. 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 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 stock option and SAR activity for the year
ended December 31, 2008. There were no SARs granted prior to 2006.:

Outstanding at December 31, 2007
Granted
Forfeited
Exercised

Outstanding at December 31, 2008

Exercisable at December 31, 2008

Number
of Shares Weighted-Average
(in 000’s)
2,689
197
(107 )
(356 )
_______
2,423
_______
_______
1,814
_______
_______

Exercise Price
23.46
$
26.60
27.73
19.67
________
$
24.10
________
________
$ 23.35
________
________

The weighted average remaining contractual term for stock options and
SARs outstanding and exercisable at December 31, 2008 was 5.3 years
and 4.4 years, respectively. The aggregate intrinsic value of stock options
and SARs outstanding and exercisable at December 31, 2008 was
$5.2 million and $4.6 million, respectively. The aggregate intrinsic value
of stock options and SARs exercised during the year ended December
31, 2006, 2007 and 2008 was $0.7 million, $6.7 million and $4.0 million,
respectively.

The following table illustrates the RSU activity for the year ended
December 31, 2008. There were no RSU’s granted prior to 2006.

Outstanding at December 31, 2007
Granted
Vested

Forfeited

Outstanding at December 31, 2008

265
158
(55 )
(32 )
________
336
________
________

Number Weighted-Average
of Shares
(in 000’s)

Grant-Date
Fair Value
$ 25.20
26.94
24.84
25.95
________
$ 26.01
________
________

The weighted average fair value of awards of RSUs granted in the years
ended December 31, 2006, 2007 and 2008 was $20.21, $29.13 and $26.94,
respectively.

The total fair value of shares vested was $0.6 and $1.3 million for the years
ended December 31, 2007 and 2008, respectively.

As of December 31, 2008, there was $12.4 million of total unrecognized
compensation cost related to nonvested stock options, SARs and RSUs
granted under the Plan which is expected to be recognized over a
weighted average period of 3.6 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 2008, we issued
approximately 20,000 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 Areas

CONMED conducts its business through five principal operating
segments, CONMED Endoscopic Technologies, CONMED Endosurgery,
CONMED Electrosurgery, CONMED Linvatec and CONMED Patient Care.
We believe each of our segments are similar in the nature of products,
production processes, customer base, distribution methods and regulatory
environment. In accordance with Statement of Financial Accounting
Standards No. 131 “Disclosures About Segments of an Enterprise and
Related Information” (“SFAS 131”), our CONMED Endosurgery, CONMED
Electrosurgery and CONMED Linvatec operating segments also have
similar economic characteristics and therefore qualify for aggregation
under SFAS 131. Our CONMED Patient Care and CONMED Endoscopic
Technologies operating units do not qualify for aggregation under
SFAS 131 since their economic characteristics do not meet the
criteria for aggregation as a result of the lower overall operating income
(loss) in these segments.

CONMED Endosurgery, CONMED Electrosurgery and CONMED Linvatec
consist of a single aggregated segment comprising a complete line of
endo-mechanical instrumentation for minimally invasive laparoscopic
procedures, electrosurgical generators and related surgical instruments,
arthroscopic instrumentation for use in orthopedic surgery and small
bone, large bone and specialty powered surgical instruments. CONMED
Patient Care product offerings include a line of vital signs and cardiac
monitoring products as well as suction instruments & tubing for use
in the operating room. CONMED Endoscopic Technologies product
offerings include a comprehensive line of minimally invasive endoscopic
diagnostic and therapeutic instruments used in procedures which require
examination of the digestive tract.

F I N A N C I A L S

3131

The following is net sales information by product line and reportable
segment:

Arthroscopy
Powered Surgical Instruments
CONMED Linvatec
CONMED Electrosurgery
CONMED Endosurgery
CONMED Linvatec,
Electrosurgery, and Endosurgery
CONMED Patient Care
CONMED Endoscopic
Technologies

Total

2008

2006

2007
$ 228,195 $ 264,637 $ 291,910
155,659
_________ _________ _________
447,569
100,493
64,459
_________ _________ _________

137,150
365,345
97,809
52,783

149,261
413,898
92,107
58,829

515,937
75,883

564,834
76,711

612,521
78,384

54,992

51,278
_________ _________ _________
$ 646,812 $ 694,288 $ 742,183
_________ _________ _________
_________ _________ _________

52,743

Total assets, capital expenditures, depreciation and amortization
information are not available by reportable segment.

The following is a reconciliation between segment operating income
(loss) and income (loss) before income taxes. The Corporate line includes
corporate related items not allocated to operating units:

2006

2007

2008

CONMED Linvatec,
Electrosurgery, and Endosurgery
CONMED Patient Care
CONMED Endoscopic Technologies
Corporate
Income (loss) from operations
Gain (loss) on early extinguishment
of debt
Interest expense
Income (loss) before income taxes

98,101
2,259
(7,411 )
(17,690 )
_________ _________ _________
75,259

70,193 $
(759 )
(63,399 )
(10,638 )
(4,603 )

87,569 $
2,003
(6,250 )
(2,331 )
80,991

4,376
10,372
_________ _________ _________
$
69,263
_________ _________ _________
_________ _________ _________

(678)
19,120
(24,401 ) $

—
16,234
64,757 $

Net sales information for geographic areas consists of the following:

United States
Canada
United Kingdom
Japan
Australia
All other countries

Total

2008

2006

2007
$ 396,953 $ 404,434 $ 411,773
55,313
52,792
45,335
44,123
26,274
28,026
30,199
30,270
175,199
132,733
_________ _________ _________
$ 646,812 $ 694,288 $ 742,183
_________ _________ _________
_________ _________ _________

43,104
32,542
25,451
27,249
121,513

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, 2007 and 2008. No single customer
represented over 10% of our consolidated net sales for the years ended
December 31, 2006, 2007 and 2008.

Note 9 — Employee Benefit Plans

We sponsor an employee savings plan (“401(k) plan”) and a defined
benefit pension plan (the “pension plan”) covering substantially all our
employees.

Total employer contributions to the 401(k) plan were $2.3 million,
$2.5 million and $2.7 million during the years ended December 31, 2006,
2007 and 2008, 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,:

F I N A N C I A L S

Accumulated Benefit Obligation

Change in benefit obligation
Projected benefit obligation at
beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid

Projected benefit obligation at end of year

Change in plan assets
Fair value of plan assets at beginning of year
Actual gain (losses) on plan assets
Employer contribution
Benefits paid

Fair value of plan assets at end of year

Funded status

2008
$
61,514
_________ _________
_________ _________

2007
47,991 $

54,541 $ 56,592
5,835
5,863
3,977
3,216
14,837
(3,834 )
(4,631 )
(3,194 )
_________ _________
$
_________ _________

56,592 $

76,610

36,894 $
2,832
12,000
(3,194 )

48,532
(10,520 )
12,000
(4,631 )
_________ _________
$
_________ _________
$
(31,229 )
_________ _________
_________ _________

48,532 $

(8,059 ) $

45,381

Amounts recognized in the consolidated balance sheets consist of the
following at December 31,:

Accrued long-term pension liability
Accumulated other comprehensive
income (loss)

2007
8,059 $

2008
31,229

(15,167 )

(43,762 )

The following actuarial assumptions were used to determine our
accumulated and projected benefit obligations as of December 31,:

Discount rate
Expected return on plan assets
Rate of compensation increase

2007
6.48%
8.00%
3.00%

2008
5.97%
8.00%
3.50%

The following table illustrates the effects of adopting Statement of Financial
Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans – an amendment of FASB Statements
No. 87, 88, 106, and 132(R)” (“SFAS 158”) on each of the balance sheet line
items in 2006:

Accrued pension liability
Deferred income taxes
Total liabilities
Accumulated other
comprehensive income (loss)
Shareholders’ equity

After
Before
Application
Application
of SFAS 158 Adjustment of SFAS 158
17,647
$
51,004
421,217

9,172
54,136
415,874

8,475
(3,132 )
5,343

(3,269 )
445,697

(5,343 )
(5,343 )

(8,612 )
440,354

Accumulated other comprehensive income (loss) for the years ended
December 31, 2007 and 2008 consists of the following items not yet
recognized in net periodic pension cost (before income taxes):

Net actuarial loss
Transition liability
Prior service cost
Accumulated other
comprehensive income (loss)

2008

2007
(19,969 ) $ (48,216 )
(28 )
(32 )
4,482
________ ________

4,834

(43,762 )
________ ________
________ ________

(15,167 ) $

Other changes in plan assets and benefit obligations recognized in other
comprehensive income in 2008 are as follows:

Current year actuarial loss
Amortization of actuarial loss
Amortization of prior service costs (credits)
Amortization of transition liability
Total recognized in other comprehensive
income (loss)

(29,567 )
1,320
(352 )
4
________

(28,595 )
________
________

The total amounts reclassified from accumulated other comprehensive
income (loss) and recognized in 2008 as a component of net periodic
pension cost included net actuarial losses of $1,320, transition obligation
of $4 and prior service cost (credit) of $(351).

Net periodic pension cost for the years ended December 31, consists of
the following:

2006

2007

2008

Service cost—benefits earned
during the period
Interest cost on projected
benefit obligation
Return on plan assets
Transition amount
Prior service cost
Amortization of loss
Net periodic pension cost

5,444 $

5,863 $

5,835

3,977
(4,210 )
4
(351 )
1,320
________ ________ ________
6,575
________ ________ ________
________ ________ ________

2,905
(2,694 )
4
(351 )
1,569
6,877 $

3,216
(3,226 )
4
(351 )
1,382
6,888 $

The following actuarial assumptions were used to determine our net
periodic pension benefit cost for the years ended December 31,:

Discount rate
Expected return on plan assets
Rate of compensation increase

2006
5.55%
8.00%
3.00%

2007
5.90%
8.00%
3.00%

2008
6.48%
8.00%
3.50%

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,:

Percentage of Pension
Plan Assets

Equity securities
Debt securities
Total

2007
64%
36
_____
100%
_____
_____

2008
47%
53
_____
100%
_____
_____

Target
Allocation
2009
75%
25
_____
100%
_____
_____

As of December 31, 2008, the Plan held 27,562 shares of our common
stock, which had a fair value of $0.7 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.

We are required to contribute approximately $8.1 million to our pension
plan for the 2009 Plan year.

The estimated portion of net actuarial loss, net prior service cost, and
transition obligation in accumulated other comprehensive income (loss)
that is expected to be recognized as a component of net periodic pension
cost in 2009 is $2,644, ($351) and $4, respectively.

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, 2008 and reflect the impact of expected
future employee service.

2009
2010
2011
2012
2013
2014-2018

2,640
2,632
2,798
2,934
3,453
24,054

Note 10 — Legal Matters

From 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 Equal
Employment Opportunity Commission, Occupational Safety and Health
Administration, the Department of Labor, the Treasury Department, and
other federal and state agencies or foreign governments or government
agencies. These subpoenae 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 and
maximum policy limits. When there is no insurance coverage, as would
typically be the case primarily in lawsuits alleging patent infringement or in
connection with certain government investigations, we establish reserves
sufficient to cover probable losses associated with such 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 future
performance.

Manufacturers of medical products may face exposure to significant
product liability claims. To date, we have not experienced any product
liability claims that are 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 or that such insurance will be available in the future at
a reasonable cost to us.

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 could
not have a material adverse effect on our financial condition, results of
operations or cash flows.

On April 7, 2006, CONMED received a copy of a complaint filed in the
United States District for the Northern District of New York on behalf of a
purported class of former CONMED Linvatec sales representatives. The
complaint alleges that the former sales representatives were entitled
to, but did not receive, severance in 2003 when CONMED Linvatec
restructured its distribution channels. Although we do not believe
it is probable a loss has been incurred, it is reasonably possible.
The range of loss associated with this complaint ranges from $0 to $3.0
million, not including any interest, fees or costs that might be awarded
if the five named plaintiffs were to prevail on their own behalf as well as
on behalf of the approximately 70 (or 90 as alleged by the plaintiffs) other
members of the purported class. CONMED Linvatec did not generally
pay severance during the 2003 restructuring because the former sales
representatives were offered sales positions with CONMED Linvatec’s
new manufacturer’s representatives. Other than three of the five named
plaintiffs in the class action, nearly all of CONMED Linvatec’s former
sales representatives accepted such positions.

F I N A N C I A L S

3333

The Company’s motions to dismiss and for summary judgment, which
were heard at a hearing held on January 5, 2007, were denied by a
Memorandum Decision and Order dated May 22, 2007. The District
Court also granted the plaintiffs’ motion to certify a class of former
CONMED Linvatec sales representatives whose employment with
CONMED Linvatec was involuntarily terminated in 2003 and who did not
receive severance benefits. Although the Court’s ruling on the motions
to dismiss, for summary judgment and the motion to certify the class do
not represent final rulings on the merits, the Company had filed a motion
seeking reconsideration of the motions to dismiss, and sought to appeal
to the United State Court of Appeals for the Second Circuit from the class
certification ruling. The Second Circuit declined to consider the appeal
by Order dated August 28, 2007. In an order dated February 25, 2008, the
United States District for the Northern District of New York granted the
Company’s motion to reconsider the Company’s motions to dismiss portions
of the complaint and, upon reconsideration, reaffirmed its previous ruling
denying the aforementioned motions. The Company believes there is no
merit to the claims asserted in the Complaint, and plans to vigorously
defend the case. There can be no assurance, however, that the Company
will prevail in the litigation.

Note 11 — Other Expense (income)

Other expense (income) for the year ended December 31, consists of the
following:

Acquisition-transition related costs
Termination of product offering
Loss on settlement of a patent dispute
Facility closure costs
Gain on litigation settlement
Product liability settlement
New plant/facility consolidation costs

Other expense (income)

2007

2008

2006
2,592 $
1,448
595
578
—
—
—

—
—
—
—
—
—
1,577
________ ________ ________
1,577
________ ________ ________
________ ________ ________

— $
148
—
1,822
(6,072 )
1,295
—

5,213 $

(2,807 ) $

On September 30, 2004, we completed the Endoscopic Technologies
acquisition. As part of the acquisition, manufacturing of the acquired
products was conducted in various C.R. Bard facilities under a transition
agreement. The transition of the manufacturing of these products from
C.R. Bard facilities to CONMED facilities was completed during 2006.
During the year ended December 31, 2006, we incurred $2.6 million, of
acquisition and transition-integration related charges associated with the
Endoscopic Technologies acquisition which have been recorded in other
expense (income).

During 2004, we elected to terminate our surgical lights product line. We
instituted a customer replacement program whereby all currently installed
surgical lights were replaced by CONMED. We recorded charges totaling
$5.5 million related to the surgical lights customer replacement program
(including $1.4 million and $0.1 million in the years ended December 31,
2006 and 2007, respectively) in other expense (income). The surgical lights
customer replacement program was completed during the second
quarter of 2007.

During the quarter ended June 30, 2006, we were notified by Dolphin
Medical, Inc. (“Dolphin”), that it would discontinue its Dolphin ONE®
product line as a result of an agreement between Dolphin and Masimo
Corporation in which Masimo agreed to release Dolphin and its affiliates
from certain patent infringement claims. We had sold the Dolphin ONE®
and certain other pulse oximetry products manufactured by Dolphin under
a distribution agreement. As a result of the product line discontinuation,
we recorded a $0.6 million charge to other expense (income) to write-off
on-hand inventory of the discontinued product line.

During 2006, we elected to close our facility in Montreal, Canada which
manufactured products for our CONMED Linvatec line of integrated
operating room systems and equipment. The products which had been
manufactured in the Montreal facility are now purchased from third party

F I N A N C I A L S

vendors. The closing of this facility was completed in the first quarter
of 2007. We incurred a total of $2.2 million in costs associated with this
closure, of which $1.3 million related to the write-off of inventory and was
included in cost of goods sold during 2006. The remaining $0.9 million
(including $0.3 million in 2007) primarily relates to severance expense
and the disposal of fixed assets and has been recorded in other
expense (income).

During 2007, we elected to close our CONMED Endoscopic Technologies
sales office in France. During 2007, we incurred $1.5 million in costs
associated with this closure primarily related to severance expense. We
have recorded such costs in other expense (income); no further expenses
are expected to be incurred.

In November 2003, we commenced litigation against Johnson & Johnson
and several of its subsidiaries, including Ethicon, Inc. for violations of
federal and state antitrust laws. In the lawsuit we claimed that Johnson
& Johnson engaged in illegal and anticompetitive conduct with respect
to sales of product used in endoscopic surgery, resulting in higher
prices to consumers and the exclusion of competition. We sought relief
including an injunction restraining Johnson & Johnson from continuing
its anticompetitive practices as well as receiving the maximum amount
of damages allowed by law. During the litigation, Johnson & Johnson
represented that the marketing practices which gave rise to the litigation
had been altered with respect to CONMED. On March 31, 2007, CONMED
and Johnson & Johnson settled the litigation. Under the terms of the final
settlement agreement, CONMED received a payment of $11.0 million from
Johnson & Johnson in return for which we terminated the lawsuit. After
deducting legal and other related costs, we recorded a pre-tax gain of
$6.1 million related to the settlement which we have recorded in other
expense (income).

Two of the Company’s subsidiaries settled a product liability claim asserted
against it and several of the Company’s subsidiaries in a case captioned
Wehner v. Linvatec Corp., et al. Total settlement and defense related
costs amounted to $1.3 million which we have recorded in other expense
(income) during 2007.

During the year ended December 31, 2008, we incurred $4.1 million in
restructuring costs. Approximately $2.5 million of the total $4.1 million
in restructuring costs have been charged to cost of goods sold and
represent startup activities associated with a new manufacturing facility in
Chihuahua, Mexico. The remaining $1.6 million in restructuring costs have
been recorded in other expense and include charges directly related to the
consolidation of our distribution centers, including severance charges. See
Note 16 for further discussion.

Note 12 — Guarantees

We 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:

Balance as of January 1,

Provision for warranties
Claims made

Balance as of December 31,

2008

2006
3,416 $

2007
3,617 $

3,306
________ ________ ________
3,581
(3,546 )
________ ________ ________

3,078
(3,389 )

5,774
(5,573 )

3,341
________ ________ ________
________ ________ ________

3,617 $

3,306 $

Note 13 — Fair Value Measurement

In September 2006, the Financial Accounting Standards Board (“FASB”)
issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (“SFAS 157”), which is effective for fiscal years beginning
after November 15, 2007 and for interim periods within those years. This
statement defines fair value, establishes a framework for measuring fair
value and expands the related disclosure requirements. This statement
applies under other accounting pronouncements that require or permit fair
value measurements. The statement 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. SFAS 157 defines fair value based upon an exit price
model.

Relative to SFAS 157, the FASB issued FASB Staff Positions (“FSP”)
157-1 and 157-2. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13,
“Accounting for Leases” (“SFAS 13”) and its related interpretive
accounting pronouncements that address leasing transactions, while FSP
157-2 delays the effective date of the application of SFAS 157 to fiscal
years beginning after November 15, 2008 for all nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis.

We adopted SFAS 157 as of January 1, 2008 with the exception of the
application of the statement to non-recurring nonfinancial assets and
nonfinancial liabilities. Nonrecurring nonfinancial assets and nonfinancial
liabilities for which we have not applied the provisions of SFAS 157 include
those measured at fair value in goodwill impairment testing, indefinite
lived intangible assets measured at fair value for impairment testing, and
those initially measured at fair value in a business combination.

Liabilities carried at fair value and measured on a recurring basis as of
December 31, 2008 consist of forward foreign exchange contracts and
two embedded derivatives associated with our 2.50% convertible senior
subordinated notes. We do not apply derivative accounting to our forward
exchange contracts, and they are marked to market each reporting
period. The value of these liabilities was determined within Level 2 of
the valuation hierarchy and was not material either individually or in the
aggregate to our financial position, results of operations or cash flows.

Note 14 — New Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting
Standard No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”).
SFAS 141R requires the use of “acquisition date fair value” to record all the
identifiable assets, liabilities, noncontrolling interests and goodwill acquired
in a business combination. SFAS 141R is effective for fiscal years beginning
on or after December 15, 2008. The Company is currently assessing the
impact of SFAS 141R on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About
Derivative Instruments and Hedging Activities – an amendment of FASB
Statement No. 133” (“SFAS 161”). SFAS 161 expands quarterly disclosure
requirements about an entity’s derivative instruments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently assessing the
impact of SFAS 161 on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements. SFAS
No. 162 was effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles”. The implementation of this standard did not have a
material impact on our consolidated financial statements.

In May 2008, the FASB issued FASB Staff Position No. APB 14-1 (“FSP”).
The FSP specifies that issuers of convertible debt instruments that permit
or require the issuer to pay cash upon conversion should separately
account for the liability and equity components in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost
is recognized in subsequent periods. The Company is required to apply
the guidance retrospectively to all past periods presented. The FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. This
FSP is applicable to our 2.50% convertible senior subordinated notes.
We believe this pronouncement will increase our interest expense by
$4.4 million in 2009.

In December 2008, the Financial Accounting Standards Board issued
FASB Staff Position (FSP) No. 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” to provide guidance on an employer’s
disclosures about plan assets of a defined benefit pension plan. FSP
No. 132(R)-1 is effective for our year ending December 31, 2009.

Note 15 — Business Acquisition

On January 9, 2008, we purchased our Italian distributor’s business for
approximately $21.8 million in cash (the “Italy acquisition”). Under the terms
of the acquisition agreement, we agreed to pay additional consideration
in 2009 based upon the 2008 results of the acquired business. We have
accrued approximately $0.6 million at December 31, 2008 for this additional
payment.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed as a result of the Italy acquisition.

Cash
Inventory
Accounts receivable
Other assets
Customer relationships

Total assets acquired

Income taxes payable
Other current liabilities

Total liabilities assumed

Net assets acquired

953
3,444
19,701
846
9,479
________
34,423
________
(2,443 )
(9,658 )
________
(12,101 )
________
$
________
________

22,322

The unaudited pro forma statement of operations for the year ended
December 31, 2007, assuming the Italy acquisition occurred as of January 1,
2007 is presented below. This pro forma statement of operations has
been prepared for comparative purposes only and does not purport to be
indicative of the results of operations which actually would have resulted
had the Italy acquisition occurred on the dates indicated, or which may
result in the future.

Net sales
Net income
Net income per share:
Basic
Diluted

2007

710,685
43,981

1.55
1.52

$
$

F I N A N C I A L S

3535

Note 16 — Restructuring

During the second quarter of 2008, we announced a plan to restructure
certain of our operations. The restructuring plan includes the closure of
two manufacturing facilities located in the Utica, New York area totaling
approximately 200,000 square feet with manufacturing to be transferred
into either our Corporate headquarters location in Utica, New York or into a
newly constructed leased manufacturing facility in Chihuahua, Mexico. In
addition, manufacturing presently done by a contract manufacturing facility
in Juarez, Mexico will be transferred in-house to the Chihuahua facility.
Finally, certain domestic distribution activities will be centralized in a new
leased consolidated distribution center in Atlanta, Georgia. We believe
our restructuring plan will reduce our cost base by consolidating our
Utica, New York operations into a single facility and expanding our lower
cost Mexican operations, as well as improve service to our customers by
shipping orders from more centralized distribution centers. The transition of
manufacturing operations and consolidation of distribution activities began
in the third quarter of 2008 and is expected to be largely completed by the
fourth quarter of 2009.

In conjunction with our restructuring plan, we considered Statement of
Financial Accounting Standards No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires that long-
lived assets be tested for recoverability whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable.
Based on the announced restructuring plan, our current expectation is
that it is more likely than not, that the two manufacturing facilities located
in the Utica, New York area scheduled to be closed as a result of the
restructuring plan, will be sold prior to the end of their previously
estimated useful lives. Even though we expect to sell these facilities
prior to the end of their useful lives, we do not believe that at present
we meet the criteria contained within SFAS 144 to designate these
assets as held for sale and accordingly we have tested them for
impairment under the guidance for long-lived assets to be held
and used. We performed our impairment testing on the two manufacturing
facilities scheduled to close under the restructuring plan by comparing
future cash flows expected to be generated by these facilities

(undiscounted and without interest charges) against their carrying amounts
($2.2 million and $2.1 million, respectively, as of December 31, 2008). Since
future cash flows expected to be generated by these facilities exceeds
their carrying amounts, we do not believe any impairment exists at this
time. However, we cannot be certain an impairment charge will not be
taken in the future when the facilities are no longer in use.

During the year ended December 31, 2008, we incurred $4.1 million in costs
associated with the restructuring. Approximately $2.5 million of the total
$4.1 million in restructuring costs have been charged to cost of goods sold
and represent startup activities associated with the new manufacturing
facility in Chihuahua, Mexico. The remaining $1.6 million in restructuring
costs have been recorded in other expense and include charges directly
related to the consolidation of our distribution centers, including severance
charges. As our restructuring plan progresses, we will incur additional
charges, including employee termination and other exit costs. However,
based on the criteria contained within Statement of Financial Accounting
Standards No. 146 “Accounting for Costs Associated with Exit or Disposal
Activities”, no accrual for such costs has been made at this time.

We estimate the total costs of the restructuring plan will approximate
$9.4 million during 2009, including $2.1 million related to employee
termination costs, $3.7 million in expense related to abnormally low
production levels at certain of our plants (as we transfer production to
alternate sites), $1.4 million in accelerated depreciation at one of the two
Utica, New York area facilities which are expected to close and $2.2 million
in other restructuring related activities. We estimate approximately
$2.0 million of the total anticipated $9.4 million in restructuring costs will
be reported in other expense with the remaining $7.4 million charged
to cost of goods sold. The restructuring plan impacts Corporate
manufacturing and distribution facilities which support multiple reporting
segments. As a result, costs associated with the restructuring plan will be
reflected in the Corporate line within our business segment reporting.

F I N A N C I A L S

Note 17 — Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data for 2007 and 2008 are as follows:

Three Months Ended

2007
Net sales
Gross profit
Net income
EPS: Basic

Diluted

2008
Net sales
Gross profit
Net income
EPS: Basic

Diluted

March
171,014
85,225
11,922
.43
.42

March
190,773
97,764
11,010
.38
.38

June
169,258
85,860
9,345
.33
.32

June
192,755
100,890
12,455
.43
.43

September
164,448
$
82,358
8,355
.29
.29

September
179,409
$
94,688
10,519
.36
.36

December
189,568
$
95,682
11,834
.41
.41

December
179,246
$
89,039
10,577
.38
.35

Unusual Items Included In Selected Quarterly Financial Data:

2007
First quarter
During the first quarter of 2007, we recorded a charge of $0.1 million
related to our termination of our surgical lights product line, $0.3 million
related to the closure of a manufacturing plant, and $0.3 million related to
the closure of a sales office – see Note 11.

During the first quarter of 2007, we recorded a pre-tax gain of $6.1 million
related to the settlement of a legal dispute between CONMED and
Johnson & Johnson. – see Note 11.

Second quarter

2008
First quarter
During the first quarter of 2008, we recorded a charge of $1.0 million to
cost of goods sold related to the fair value adjustment from the purchase
of our Italian distributor’s business.

Second quarter
There were no unusual items in the second quarter of 2008.

Third quarter
During the third quarter of 2008, we recorded a charge of $0.7 million
related to the restructuring of certain of our operations – see Note 11.

During the second quarter of 2007, we recorded a charge of $1.3 million
related to severance payments due to the closing of a sales office – see
Note 11.

Fourth quarter
During the fourth quarter of 2008, we recorded a gain of $4.4 million on
the early extinguishment of debt – see Note 5.

Third quarter

There were no unusual items in the third quarter of 2007.

Fourth quarter

During the fourth quarter of 2007, we recorded a charge of $1.3 million
related to the settlement of a product liability case. Such charges included
the settlement and defense related costs – see Note 11.

During the fourth quarter of 2008, we recorded a charge of $4.1 million
related to the restructuring of certain of our operations. $2.5 million of
this charge is recorded in cost of goods sold and the other $1.6 million is
recorded as other expenses – see Note 11 and Note 16.

F I N A N C I A L S

3737

Board of Directors

EUGENE R. CORASANTI is Vice Chairman of the Company and Chairman of the Board of
Directors. Mr. Corasanti also served as the Company’s Chief Executive Officer from its founding
until 2006, as well as President and Chief Operating Officer from its founding until August 1999.
Prior to the founding of the Company, Mr. Corasanti was an independent public accountant. Mr.
Corasanti holds a B.B.A. degree in Accounting from Niagara University. Eugene R. Corasanti’s
son, Joseph J. Corasanti, is President and Chief Executive Officer and a Director of the Company.

JOSEPH J. CORASANTI has served as President and Chief Executive Officer since January
1, 2007, having served as President and Chief Operating Officer from August 1999 through
December 2006. Mr. Corasanti has been a Director of the Company since May 1994. Mr.
Corasanti is also on the Board of Directors of II-VI, Inc. He previously served as General
Counsel and Vice President-Legal Affairs, and Executive Vice-President/General Manager of the
Company. Prior to that time he was an Associate Attorney with the law firm of Morgan, Wenzel
& McNicholas. Mr. 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, Vice Chairman and Chairman of the Board of Directors.

BRUCE F. DANIELS 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.

JO ANN GOLDEN joined the Board of Directors in May 2003. Ms. Golden is a certified public
accountant and managing partner of the New Hartford, NY office of Dermody Burke and Brown,
CPAs, LLC. Ms. Golden is past President of the New York State Society of CPAs and the New
York State Society’s Foundation for Accounting Education. She also served as Secretary and
Vice President of the State Society and was a member of the governing Council of the American
Institute of Certified Public Accountants, where she served on the Global Credential Survey Task
Force in 2001. Ms. Golden holds a B.A. degree from the State University College at New Paltz,
and a B.S. degree in Accounting from Utica College of Syracuse University.

STEPHEN M. MANDIA has served as a Director of the Company since July 2002. Mr. Mandia
has been Chief Executive Officer of Sovena USA, formerly East Coast Olive Oil Corp., since 1991.
Mr. Mandia also possesses financial ownership and sits on the Board of ECOO Realty Corp. and
Northside Gourmet Corp. Mr. Mandia holds a B.S. degree from Bentley College, having also
undertaken undergraduate studies at Richmond College in London.

STUART J. SCHWARTZ 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 a
urologist. Dr. Schwartz holds a B.A. degree from Cornell University and an M.D. degree from
SUNY Upstate Medical College, Syracuse.

MARK E. TRYNISKI has served as a Director of the Company since May 2007. 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 in Syracuse, New York. Mr. Tryniski holds a B.S. degree from the
State University of New York at Oswego.

B O A R D O F D I R E C T O R S

Senior Officers

Terence M. Bergé
Treasurer and Assistant Corporate Controller

Alexander R. Jones
Vice President - Corporate Sales

David R. Murray
President – CONMED Electrosurgery

John J. Stotts
Vice President – CONMED Patient Care

Dennis M. Werger
Vice President, General Manager –

CONMED Endoscopic Technologies

Frank R. Williams
Vice President – CONMED EndoSurgery

Executive Officers

Joseph J. Corasanti, Esq.
President and CEO

William W. Abraham
Senior Vice President

Heather L. Cohen, Esq.
Vice President -

Corporate Human Resources

Joseph G. Darling
President - CONMED Linvatec

David A. Johnson
Vice President – Global Operations and

Supply Chain

Daniel S. Jonas, Esq.
General Counsel and Vice President –

Legal Affairs

Gregory R. Jones
Vice President – Corporate Regulatory Affairs

Luke A. Pomilio
Vice President – Corporate Controller

Robert D. Shallish, Jr.
Vice President – Finance and

Chief Financial Officer

O F F I C E R S

3939

Shareholder Information

Corporate Offices

Interested shareholders may obtain a copy of the Company’s
Form 10-K without charge upon written request to:

Investor Relations Department
CONMED Corporation
525 French Road
Utica, NY 13502

Transfer Agent/Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016

Stock

The NASDAQ Stock Market® Stock Symbol: CNMD

Independent Registered Public

Accounting Firm
PricewaterhouseCoopers LLP
677 Broadway
Albany, NY 12207

General Counsel
Daniel S. Jonas, Esq.
525 French Road
Utica, NY 13502

Special Counsel
Sullivan & Cromwell, LLP
125 Broad Street
New York, NY 10004

CONMED Corporation
525 French Road
Utica, NY 13502
Phone (315) 797-8375
Fax (315) 797-0321
Customer Service
1-800-448-6506
email: info@conmed.com
website: www.conmed.com

Ethics Policy
Available at www.conmed.com

Operating Subsidiaries

CONMED Electrosurgery
CONMED Endoscopic Technologies
CONMED Integrated Systems Canada
CONMED Italia SrL
CONMED Linvatec
CONMED Linvatec Australia
CONMED Linvatec Austria
CONMED Linvatec Belgium
CONMED Linvatec Biomaterials Oy
CONMED Linvatec Canada
CONMED Linvatec Deutschland
CONMED Linvatec Europe
CONMED Linvatec France
CONMED Linvatec Korea
CONMED Linvatec Nederland
CONMED Linvatec Poland
CONMED Linvatec Spain
CONMED Linvatec U.K.
CONMED Receivables Corporation
Consolidated Medical Equipment Company
S.de r.L. de C.V. (Mexico)

S H A R E H O L D E R S I N F O R M A T I O N | S U B S I D I A R I E S

D E S I G N E D B Y R O M A N E L L I C O M M U N I C A T I O N S

525 French Road | Utica, NY 13502 | USA