Agility &
Resilience
2020 was a year that few people will ever forget. Like most companies, the COVID-19 pandemic
had a substantial impact on CONMED - both as a company and in our employees’ personal lives all
around the world. The leadership team and Board of Directors quickly rallied around three focus areas:
Employee Safety and Wellbeing, Financial Security of CONMED, and our Future. While these three
focus areas drove our activities, we also dealt with the realities of COVID-19 across our workforce and
customer base. Our hearts and prayers go out to everyone who was affected by this virus.
But often, it’s the worst times that bring out the best in people. For CONMED, this unprecedented
crisis led our teams to unprecedented focus and resolve. Working apart taught us new ways to work
together. Being stuck inside led to more outside-the-box thinking. Even though we couldn’t walk
through the front door, we found new ways to have our customers’ backs – and we’re still standing
behind them. After all, Resilience & Agility isn’t about making excuses; it’s about making a difference.
It’s about rising to meet new challenges with new approaches and new solutions.
If this year showed us anything, it‘s that even a global pandemic can‘t stop CONMED‘s
commitment to our customers, our employees, and developing innovative products that
help improve patient lives.
Annual Report 2020 Annual Report 2020
Company Snapshot
FY 2020 Revenue
$862MILLION
Geographic Revenue
Product Revenue
44%
International Revenue
General
Surgery 57%
Recurring, single-use revenue
Employees Globally
Founded
82%
3,400
1970
JANUARY2021
Relocated HQ to Largo, FL
Orthopedics
43%
General Surgery
Low ImpactTM Laparoscopy, enabled by the AirSeal®
System
GI therapeutic and diagnostic products
ECG, MFE (Multi-Function Electrodes), and other
Patient Care devices
Operating Room Smoke Management, Buffalo Filter®
product line
Orthopedics
Surgical devices including capital, single-use, and
implants used in the repair of soft tissue and joint
injuries.
Annual Report 2020 Annual Report 2020
Letter to Shareholders
‘While this year was atypical, I strongly believe that we have continued to capitalize
on our track record of success and made meaningful improvements to strengthen the
business for the long-term.’
Dear Shareholders,
2020 introduced a number of unprecedented challenges for the global economy and for CONMED Corporation, and I am proud of the way our team
successfully navigated this environment. The team acted decisively to ensure the safety and well-being of our employees and to maintain profitability
while continuing to deliver innovative products to staff, physicians, and the patients they serve, regardless of the operating conditions.
In 2020, we celebrated the 50th anniversary of the founding of CONMED. While this year was atypical, I strongly believe that we have continued to
capitalize on our track record of success and made meaningful improvements to strengthen the business for the long-term.
While there was an obvious impact to our financial performance as a result of market conditions, we are proud of the sequential improvements we
drove across the business as the year progressed. Our sales in 2020 were $862.5 million, a decrease of 9.7% as reported and 9.3% in constant
currency compared to the prior year. We also delivered adjusted net income of $64.2 million, a decrease of 17.6% from the prior year, and adjusted
diluted net earnings per share of $2.18, a decrease of 17.4% from the prior year.
I would also like to thank the Board of Directors for its vote of confidence in selecting me as Chair and in appointing Martha Goldberg Aronson as Lead
Independent Director. This transition followed Mark Tryniski’s decision to remain on the Board but not seek reelection to the Chair role, in which he
had served since 2014. Mark was a steady hand during CONMED’s turn-around period and, subsequently, as we entered our growth and expansion
phase. We are thrilled that he remains on our Board and thank him for his contributions to the Company’s success.
Many words have been used to describe 2020, but there are two words that perfectly describe the character of CONMED during this time: agile and
resilient. We entered the year with great enthusiasm and, when facing the early stages of a global crisis in January, realized that we were likely to
encounter a true test of our business strategy and leadership resolve. We quickly aligned on the facts we were facing and narrowed our leadership
focus with an emphasis on:
1.
2.
3.
Securing employee safety and well-being;
Ensuring the financial security of our Company; and
Taking actions to ensure that our Company emerges from the pandemic even stronger.
Employee Safety and Well-being
Our manufacturing sites in Chihuahua, Mexico; Largo, Florida; and Utica, New York all remained operational throughout the past year, and we
supplemented pay to ensure that employees were supported as they tackled the unforeseen challenges brought about by the pandemic. We took
a proactive approach to employee safety and mandated quarantines for any employees who had reason to believe they may have been exposed to
the virus, while also offering paid leave for “high-risk” employees as defined by global health standards. Although our supply chain did experience
some disruption in product flow and delivery schedules, I am proud to say that, throughout 2020, our factories continued to build product on a daily
basis to ensure our customers received the needed devices to provide high-quality care for their patients.
Financial Security of the Company
Given the slowdown in surgical procedures as a result of the pandemic, we quickly reduced our expenses while also maintaining our key innovative
Research and Development projects. We also focused on remaining poised to serve our customers at a high level as soon as their patients returned.
In addition, we secured debt covenant relief as a form of added insurance to provide a cushion for the most challenging period. I am very pleased to
Annual Report 2020 report that at no point during 2020 was our liquidity stressed, nor were we ever in danger of breaking either the original or revised debt covenants.
In fact, at the time of the February 2019 acquisition of Buffalo Filter, our expectation was that our debt leverage ratio* would be approximately 3.0x
by the end of 2021. We now expect that metric to still be below 3.5x on that same schedule, despite enduring a global pandemic.
Entering the Future as a Stronger Company
We took advantage of the time periods during which our customers were experiencing deferred surgical procedures and ensured that our teams
continued to be highly productive. We used this time to retrain and energize our sales teams, rapidly invest in our growing digital strategy, and
continue our focus on innovation. This focus yielded meaningful results, as we launched 118 new SKUs into the market during 2020, compared to
68 SKUs in 2019. Finally, we reviewed and challenged our investments across the board and believe we have focused our spending on innovative
products that will have a meaningful impact for our customers and their patients.
Externally, our customers faced incredible pressures but have remained very resilient. Beginning in late April, we saw surgical volumes returning
and stood ready to support the efforts of our customers in an unprecedented environment. The technology underlying both our AirSeal and Buffalo
Filter platforms was met with even greater enthusiasm than before the pandemic, and we continue to ramp up our efforts to expand these platforms
around the globe. Our global commercial teams have worked tirelessly to support customers seeking these solutions.
Internally, our agility enabled us to drive a number of improvements throughout the year while gaining efficiency and adapting to the rapidly changing
macroeconomic environment. The caliber of our executive team and the quality of our consistent, healthy debate yield aligned outcomes for our
organization. The accomplishments that I have detailed here are a direct reflection of this collaborative approach. I am very thankful to the members
of the executive team for their ongoing resilience and commitment to improving this organization even in the face of a difficult operating environment.
Our agility and resilience were instrumental to our progress in 2020. Further, our Board of Directors was nimble as we moved our schedules to
accommodate remote virtual meetings, with call intervals measured in weeks, rather than months. I am grateful to our Directors for their commitment
to the long-term success of our Company and their support of our employees.
Looking Forward
I enter 2021 with a great deal of enthusiasm for our Company. I believe that our renewed focus on innovation, our implementation of an accelerated
digital enablement strategy, and our growing commitment to environmental, social, and governance, including the increased diversity of our Board,
are all factors that we expect will contribute to a stronger CONMED in 2021 and beyond. History has shown that, in a crisis, many companies emerge
even stronger, having adapted and overcome the challenges presented. I am proud that, due to the actions we have taken, we can count CONMED
among them.
On behalf of our management team and the Board of Directors, I thank you for your confidence in CONMED, and I believe that, as the pressure of
the pandemic begins to abate, we are well-positioned to return to long-term, above-market growth.
Sincerely,
Curt Hartman
Chair of the Board, President, and Chief Executive Officer
*The debt leverage ratio is a non-GAAP measure that calculates net debt divided by adjusted EBITDA. Please refer to our quarterly earnings reports for the reconciliation of GAAP EBITDA to
adjusted EBITDA.
**Constant currency net sales growth, adjusted net income and adjusted diluted net earnings per share are non-GAAP financial measures. Refer to the Additional Information page for the “GAAP
to Non-GAAP Reconciliations” section for reconciliations to the most directly comparable GAAP financial measures, reported net sales, net income and diluted net earnings per share.
Annual Report 2020 CONMED leads with
Clear the Air®
Surgical Smoke Programs During the Pandemic
Protecting operating room personnel’s health and safety by minimizing exposure to
airborne contaminants has always been one of the central missions of CONMED’s
smoke evacuation portfolio. Created as a by-product of electrosurgery, surgical
smoke contains over 40 carcinogenic chemicals1 – 77% of which are not filtered
out by standard surgical masks.2,3 The AirSeal® system and Buffalo Filter® smoke
evacuation products are designed to remove and filter these dangerous chemicals.
While these products’ benefits have not changed, the onset of the COVID-19
pandemic and the uncertainty of aerosolization of the virus created a heightened
awareness of the crucial role these products play in reducing the risk for operating
room personnel. Knowing how important it was to protect healthcare workers
during the pandemic, CONMED took action.
Utilizing an education-first approach, CONMED was the first company to publish
Insufflation Guidelines for the COVID-19 era.* We also partnered with professional
societies like the Society of American Gastrointestinal and Endoscopic Surgeons
(SAGES) and the American Association of Gynecologic Laparoscopists (AAGL) to
answer clinicians’ questions and two prospective clinical studies focused on
COVID-19 and surgical smoke**. Additionally, CONMED reached thousands of
surgeons, nurses, and other operating room workers by hosting multiple
educational webinars, and promoting education about surgical smoke evacuation
on CONMED’s social media channels, and utilizing CONMED’s Clear the Air®
surgical smoke programs.
Annual Report 2020 Despite lockdowns and all the other healthcare challenges created
by the pandemic, this increased awareness and demand helped
CONMED’s AirSeal® system and Buffalo Filter® smoke
evacuation product portfolios achieve strong growth in 2020 –
further cementing CONMED as...
the global leader in surgical smoke evacuation.
* Among other medical device manufactuers
**Results not available at time of press
1Barrett WL, Garber SM. “Surgical Smoke: A review of the literature. Is this just a lot of hot air?” Surg Endosc. 2003;17(6):979-87
2McCormick, P. “Bovie Smoke: A perilous Plume.” AANS Neurosurgeon 17.1 (2008): 10-12. Web. March, 2016.
3Ball, K. “Management of Surgical Smoke in the Perioperative Setting.” AORN Annual Conference Presentation. Web. January, 2016.
Annual Report 2020 Scrubs to Screens:
Digital Medical Education
While the pandemic may have put in-person medical education on pause, that didn’t stop
CONMED from effectively training healthcare providers. CONMED’s marketing teams quickly
pivoted to digital medical education, hosting dozens of online webinars and even utilizing new
technology innovations like virtual reality. Attended by several thousand surgeons, nurses, and
healthcare providers from all over the globe*, these digital events were a huge success and will
remain an important part of CONMED’s medical education efforts post-pandemic.
*Data on file
Annual Report 2020 Making A Difference:
Environmental, Social, and Governance
Whether it’s donating equipment to countries in need
or working with charitable organizations like The United
Way, having a positive impact in the communities we
serve has always been important at CONMED.
CONMED’s Chihuahua, Mexico manufacturing facility
has held the Clean Industry Certification since 2015
and CONMED achieved ISO 14001 Certification in
2020, which specifies the requirements for an effective
environmental management system (EMS). To put an
even greater emphasis on this area, CONMED kicked
off a new Environmental, Social, and Governance
initiative in 2020 and hired a dedicated resource to
lead this effort. We look forward to seeing the
expansion of CONMED’s social and community efforts
in the months and years to come.
Driving Growth with Innovation:
Accelerated New Product Introductions
Even a global pandemic couldn’t stop CONMED’s R&D teams from
churning out innovative new products!
CONMED launched 118 new SKUs in 2020 (up from 68 new SKUs
in 2019) including AirSeal® for pediatrics, the Hall® Titan™ Powered
Instruments System, Looking Glass™ 4K Integrated Visualization
System, additions to the hip & knee portfolios and many more.
Sales from new product introductions continue to be a driver of
growth for CONMED.
Annual Report 2020 Board Members
Curt R. Hartman
Chair of the Board,
President and Chief Executive Officer
Martha Goldberg Aronson
Lead Independent Director
David Bronson
Director
Jerome J. Lande
Director
Brian P. Concannon
Director
Barbara J. Schwarzentraub
Director
LaVerne Council
Director
Mark E. Tryniski
Director
Charles M. Farkas
Director
Dr. John L. Workman
Director
Annual Report 2020 Executive Officers
Terence M. Bergé
Vice President, Corporate Controller
Daniel S. Jonas, Esq.
Executive Vice President
Legal Affairs & General Counsel & Secretary
Patrick J. Beyer
President
CONMED International and Global Orthopedics
John E. (Jed) Kennedy
Group Executive Vice President
Advanced Endoscopic Technologies
Heather L. Cohen
Executive Vice President
Human Resources
Shanna Cotti-Osmanski
Executive Vice President
Information Technology
Todd W. Garner
Executive Vice President
& Chief Financial Offcer
Sarah M. Oliker, Esq.
Assistant General Counsel &
Assistant Secretary
Johonna Pelletier
Treasurer & Vice President, Tax
Stanley W. (Bill) Peters
Vice President & General Manager
U.S. Advanced Surgical
Curt R. Hartman
Chair of the Board
President and Chief Executive Officer
Peter K. Shagory
Executive Vice President, Strategy
& Corporate Development
Annual Report 2020 Additional Information
CORPORATE OFFICE
CONMED Corporation
11311 Concept Blvd.
Largo, FL 33773
Phone: 1-866-4CONMED
Fax: 1-315-797-0321
CUSTOMER SERVICE
1-866-4CONMED
customerexperience@CONMED.com
www.CONMED.com
Ethics policy available at
www.CONMED.com
SHAREHOLDER INFO
Interested shareholders may
obtain a copy of the Company’s
Annual Report without charge
upon written request to:
Investor Relations Department
CONMED Corporation
Attn: Todd Garner
1131 Concept Blvd.
Largo, FL 33773
727-214-2975
Transfer Agent/Registrar
Computershare Investor
Services
P.O. Box 505000
Louisville, KY 40233-5000
1-800-368-5948
www.computershare.com/investor
STOCK
CONMED Corporation’s stock is
traded on the New York Stock
Exchange with the symbol: CNMD
GAAP to Non-GAAP Reconciliations
Reconciliation of Reported Net Income to Adjusted Net Income*
(in thousands, except per share amounts, unaudited)
Year Ended December 31, 2020
As reported
% of sales
Plant underutilization costs
Product rationalization costs
Restructuring and related costs
Acquisition and integration costs
Manufacturing consolidation costs
Adjusted gross profit %
Amortization
Adjusted net income
% of sales
Gross Profit
460,300
$
53.4%
6,586
2,169
1,087
2,820
3,993
476,955
55.3%
6,000
$
$
Selling &
Administrative
Expense
Operating
Income
$
$
373,817
43.3%
-
(2,095)
(4,782)
(1,192)
-
$
365,748
$
Interest
Expense
$
44,052
-
-
-
-
-
44,052
$
Tax
Expense/
(Benefit)
$
(7,914)
739
460
1,807
888
485
(3,535)
$
Effective Tax
Rate
-493.9%
Net
Income
$
9,517
Diluted EPS
$
0.32
5,847
3,804
4,062
3,124
3,508
29,862
$
0.20
0.13
0.14
0.11
0.12
1.02
$
46,010
5.3%
6,586
4,264
5,869
4,012
3,993
70,734
$
(27,945)
337,803
39.2%
$
33,945
104,679
12.1%
(13,414)
30,638
$
13,037
9,502
$
34,322
64,184
$
1.16
2.18
$
12.9%
Sales Summary*
(in millions, unaudited)
Net Sales
2020
$
862.5
2019
$
955.1
% Change from 2019 to 2020
Impact of
Foreign
Currency
0.4%
As Reported
-9.7%
Constant
Currency
-9.3%
* Refer to our 2020 Annual Report on Form 10-K, available both within this document and at www.CONMED.com, as well as our Form 8-K filed with the SEC on January 27, 2021,
for additional information regarding our non-GAAP measures.
Annual Report 2020
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2020 Commission file number: 001-39218
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11311 Concept Boulevard
Largo, Florida
(Address of principal executive
offices)
16-0977505
(I.R.S. Employer Identification
No.)
33773
(Zip Code)
(727) 392-6464
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on
which registered
Common Stock, $0.01 par value
CNMD
NYSE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer", "accelerated filer", "smaller reporting company", and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of
the shares of voting common stock held by non-affiliates of the registrant was approximately $1.5 billion based upon the closing price of the
Company’s common stock on the NYSE Stock Market.
The number of shares of the registrant's $0.01 par value common stock outstanding as of February 17, 2021 was 28,942,757.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Definitive Proxy Statement and any other informational filings for the 2021 Annual Meeting of Shareholders are
incorporated by reference into Part III of this report.
CONMED CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits, Financial Statement Schedules
Signatures
Item 16.
Form 10-K Summary
Part IV
1
Page
2
8
19
19
19
19
20
22
23
31
31
31
32
32
33
33
33
34
34
35
36
82
CONMED CORPORATION
Item 1. Business
Forward Looking Statements
This Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2020 (“Form 10-K”) 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 Form 10-K, 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, including those identified under the caption “Item 1A-Risk Factors” and elsewhere in this
Form 10-K which may cause our actual results, performance or achievements, or industry results, 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;
compliance with and changes in regulatory requirements;
the COVID-19 global pandemic poses significant risks to our business, financial condition and results of operations,
which may be heightened if the pandemic, and various government responses to it, continue for an extended period of
time;
environmental compliance risks, including lack of availability of sterilization with Ethylene Oxide (“EtO”) or other
compliance costs associated with the use of EtO;
the possibility that United States or foreign regulatory and/or administrative agencies may initiate enforcement
actions against us or our distributors;
competition;
changes in customer preferences;
changes in technology;
the introduction and acceptance of new products;
the availability and cost of materials;
the risk of an information security breach, including a cybersecurity breach;
cyclical customer purchasing patterns due to budgetary and other constraints;
the quality of our management and business abilities and the judgment of our personnel;
the availability, terms and deployment of capital;
future levels of indebtedness and capital spending;
changes in foreign exchange and interest rates;
the ability to evaluate, finance and integrate acquired businesses, products and companies;
changes in business strategy;
the risk of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the
appropriate high standards for screening and/or processing of such tissues;
the ability to defend and enforce intellectual property, including the risks related to theft or compromise of intellectual
property in connection with our international operations;
the risk of patent, product and other litigation as well as the cost associated with such litigation;
trade protection measures, tariffs and other border taxes, and import or export licensing requirements; and
various other factors referenced in this Form 10-K.
See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Item 1-
Business” and “Item 1A-Risk Factors” for a further discussion of these factors. You are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or
to reflect the occurrence of unanticipated events.
2
General
CONMED Corporation was incorporated under the laws of the State of New York in 1970 and became a Delaware
corporation in May 2020. CONMED is a medical technology company that provides surgical devices and equipment for
minimally invasive procedures. The Company’s products are used by surgeons and other healthcare professionals in a variety
of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology. The Company’s
3,400 employees distribute its products worldwide from three primary manufacturing locations. In January 2021, we changed
the designation of our headquarters from Utica, New York to Largo, Florida.
We have historically used strategic business acquisitions, internal product development and distribution relationships
to diversify our product offerings, increase our market share in certain product lines, realize economies of scale and take
advantage of growth opportunities in the healthcare field.
We are committed to offering products with the highest standards of quality, technological excellence and customer
service. Substantially all of our facilities have attained certification under the ISO international quality standards and other
domestic and international quality accreditations.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports are accessible free of charge through the Investor Relations section of our website (http://www.conmed.com) as
soon as practicable after such materials have been electronically filed with, or furnished to, the United States Securities and
Exchange Commission (the "SEC"). In addition, the SEC maintains an Internet site (http:/www.sec.gov) containing reports,
proxy and information statements and other information regarding issuers that file with the SEC.
COVID-19
Our business has been significantly impacted by the emergence of the COVID-19 pandemic, with the Company
experiencing lower sales in 2020 compared to 2019, first in the Asia/Pacific Rim and later in the United States, Europe and
elsewhere as temporary closures occurred and hospitals and surgery centers postponed many non-urgent surgical procedures to
minimize the risk of infection. In compliance with various governmental orders, beginning in March 2020 we restricted access
to our main facilities to only essential personnel required to be on-site while maintaining production and distribution as medical
device manufacturing was deemed essential. See additional discussion under Item 7 – Management’s Discussion and Analysis
of Financial Condition and Results of Operations, Liquidity and Capital Resources.
Business Strategy
CONMED's vision is to empower healthcare providers worldwide to deliver exceptional outcomes for patients through
the following initiatives:
•
•
•
Introduction of New Products and Product Enhancements. We pursue organic growth through developing new
products and enhancing existing products. We seek to develop new technologies which improve the durability,
performance and usability of existing products. In addition to our internal research and development efforts, we
receive new ideas for products and technologies, particularly in procedure-specific areas, from surgeons, inventors and
other healthcare professionals.
Pursue Strategic Acquisitions. We pursue strategic acquisitions, distribution and similar arrangements in existing
and new growth markets to achieve increased operating efficiencies, geographic diversification and market
penetration. Targeted companies have historically included those with proven technologies and established brand
names which provide potential sales, marketing and manufacturing synergies. This includes the February 11, 2019
acquisition of Buffalo Filter.
Realize Manufacturing and Operating Efficiencies. We continually review our production systems for
opportunities to reduce operating costs, consolidate product lines or process flows, reduce inventory and optimize
existing processes.
• Geographic Diversification. We believe that significant growth opportunities exist for our surgical products outside
the United States. Principal international markets for our products include Europe, Latin America, Canada and the
Asia/Pacific Rim.
3
•
Active Participation in the Medical Community. We believe that excellent working relationships with physicians
and others in the medical industry enable us to gain an understanding of trends and emerging opportunities. Active
participation allows us to quickly respond to the changing needs of physicians and patients. In addition, we are an
active sponsor of medical education both in the United States and internationally, offering training on new and
innovative surgical techniques as well as other medical education programs on the use of our products.
Products
The following table sets forth the percentage of net sales for each of our product lines during each of the three years
ended December 31:
Orthopedic surgery
General surgery
Consolidated net sales
Net sales (in thousands)
Orthopedic Surgery
Year Ended December 31,
2019
2018
2020
43 %
57
100 %
49 %
51
100 %
52 %
48
100 %
$
862,459
$
955,097
$
859,634
Our orthopedic surgery product offering includes procedure specific, sports medicine implants and single-use
products, powered surgical instruments, and sports biologics and tissue. These products are marketed under a number of
brands, including Hall®, CONMED Linvatec®, Concept® and Shutt®. In 2020, approximately 74% of orthopedic surgery
revenue came from single-use products that are expected to be recurring.
We offer a comprehensive range of products to repair injuries in the articulating joint areas of the body. Many of these
injuries are the result of sports-related events or similar traumas. Our sports medicine products include powered resection
instruments, arthroscopes, reconstructive systems, tissue repair sets, metal and bioabsorbable implants as well as related
disposable products and fluid management systems. It is our standard practice to place some of these products, such as shaver
consoles and fluid pumps, with certain customers at no charge in exchange for commitments to purchase disposable products
over certain time periods. We loan this capital equipment, and it is subject to return if the customer does not meet certain
minimum single-use purchases. Single-use products include products such as shaver blades, burs and pump tubing. In sports
medicine, we compete with Smith & Nephew, plc; Arthrex, Inc.; Stryker Corporation; Johnson & Johnson: DePuy Mitek, Inc.
and Zimmer Biomet, Inc.
Our powered instruments offering is sold principally under the Hall® Surgical brand name, for use in large and small
bone orthopedic, arthroscopic, oral/maxillofacial, podiatric, spinal and cardiothoracic surgeries. Our newest products include
our Hall® TitanTM Large Bone Powered Instrument System and our Hall® MicroFree® Cordless Small Bone Powered Instrument
System. These systems provide our customers with comprehensive battery-powered, autoclavable, large and small bone power
systems to meet the multi-specialty needs of their service lines. In powered instruments, our competition includes Stryker
Corporation; Medtronic plc; Johnson & Johnson: DePuy Synthes, Inc.; and Zimmer Biomet, Inc.
Our surgical visualization products offer imaging systems for use in minimally invasive orthopedic and general
surgery procedures including 2DHD vision technologies. In surgical visualization, our competition includes Stryker
Corporation; Olympus, Inc.; Karl Storz GmbH; Anthrex, Inc.; Smith & Nephew, plc and Richard Wolf.
The Company is party to an agreement with Musculoskeletal Transplant Foundation (“MTF”) for the exclusive
worldwide sales representation, marketing and promotion of MTF's allograft tissues in the field of sports medicine and related
areas to customers through our sales force and marketing channels. The allograft tissues supplied by MTF under this agreement
are used in the reconstruction and/or replacement of tendon, ligament, cartilage or menisci, along with the correction of
deformities within the extremities.
General Surgery
Our general surgery product line offers a large range of products in the areas of advanced surgical, endoscopic
technologies and critical care. In 2020, approximately 88% of general surgery revenue came from single-use products that are
expected to be recurring.
4
Our advanced surgical product offering includes the leading clinical insufflation system (AirSeal®). AirSeal® includes
the proprietary valveless access ports that deliver significant benefits to traditional minimally invasive surgery and robotic
surgical procedures. The Buffalo Filter acquisition complemented the CONMED portfolio of smoke removal devices, which
provides the Company with the broadest portfolio of disposable and capital smoke evacuation products available in the medical
device market today. In addition to AirSeal® and the Buffalo Filter® products, the Company manufactures and sells an extensive
energy line and a broad offering of endomechanical products. The electrosurgical offering consists of monopolar and bipolar
generators, argon beam coagulation generators, handpieces, smoke management systems and other accessories. Our
endomechanical products offer a full line of instruments, including the Anchor1 line of tissue retrieval bags, trocars, suction
irrigation devices, graspers, scissors and dissectors, used in minimally invasive surgery. Our competition includes Medtronic
plc; Johnson & Johnson: Ethicon Endo-Surgery, Inc.; Stryker Endoscopy, Olympus, ERBE Elektromedizin GmbH; and Applied
Medical Resources Corporation.
Our advanced endoscopic technologies offering includes a comprehensive line of diagnostic and therapeutic products
used in gastroenterology procedures which utilize flexible endoscopes, and other critical care products. This offering includes
devices for dilatation, stricture management, hemostasis, products for the treatment of diseases of the biliary structures, and
cardiac monitoring, including ECG & EEG electrodes and cardiac defibrillation pads. Our competition includes Boston
Scientific Corporation - Endoscopy; Cook Medical, Inc.; Merit Medical Endotek; Olympus, Inc.; STERIS Corporation - U.S.
Endoscopy and Cantel Medical- Medivators, Inc., Cardinal and 3M Company.
International
Expanding our international presence is an important component of our long-term growth plan. Our products are sold
in over 100 foreign countries. International sales efforts are coordinated through local country dealers (including sub-
distributors or sales agents) or through direct in-country sales. We distribute our products through sales subsidiaries and
branches with offices located in Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Italy,
Japan, Korea, the Netherlands, Poland, Spain, Sweden and the United Kingdom. In these countries, our sales are denominated
in the local currency and amounted to approximately 34% of our total net sales in 2020. In the remaining countries where our
products are sold through independent distributors, sales are denominated in United States dollars.
Competition
We compete in orthopedic and general surgery medical device markets across the world. Our competitors range from
large manufacturers with multiple business units to smaller manufacturers with limited product offerings. We believe we have
appropriate product offerings and adequate market share to compete effectively in these markets. The global markets are
constantly changing due to technological advances. We seek to closely align our research and development with our key
business objectives, namely developing and improving products and processes, applying innovative technology to the
manufacture of products for new global markets and reducing the cost of producing core products.
The breadth of our product lines in our key product areas enables us to meet a wide range of customer requirements
and preferences. This has enhanced our ability to market our products to surgeons, hospitals, surgery centers, group purchasing
organizations ("GPOs"), integrated delivery networks ("IDNs") and other customers, particularly as institutions seek to reduce
costs and minimize the number of suppliers.
Marketing
A significant portion of our products are distributed domestically directly to more than 6,000 hospitals, surgery centers
and other healthcare institutions as well as through medical specialty distributors. We are not dependent on any single customer
and no single customer accounted for more than 10% of our net sales in 2020, 2019 and 2018.
A significant portion of our U.S. sales are to customers affiliated with GPOs, IDNs and other large national or regional
accounts, as well as to the Veterans Administration and other hospitals operated by the Federal government. For hospital
inventory management purposes, some of our customers prefer to purchase our products through independent third-party
medical product distributors.
Our employee sales representatives are extensively trained in our various product offerings. Each employee sales
representative is assigned a defined geographic area and compensated on a commission basis or through a combination of salary
and commission. The sales force is supervised and supported by either area directors or district managers. In certain
1
Anchor is a trademark of the Anchor Products Company, Addison, Illinois.
5
geographies, sales agent groups are used in the United States to sell our orthopedic products. These sales agent groups are paid
a commission for sales made to customers while home office sales and marketing management provide the overall direction and
training for marketing and positioning of our products. Our sales professionals provide surgeons and other healthcare
professionals with information relating to the technical features and benefits of our products.
Our healthcare systems organization is responsible for interacting with large regional and national accounts (e.g.
GPOs, IDNs, etc.). We have contracts with many such organizations and believe that the loss of any individual group
purchasing contract would not materially impact our business.
We sell to a diversified base of customers around the world and, therefore, believe there is no material concentration of
credit risk.
Manufacturing
Raw material costs constitute a substantial portion of our cost of production. Substantially all of our raw materials and
select components used in the manufacturing process are procured from external suppliers. Where possible, we work closely
with multiple suppliers to ensure continuity of supply while maintaining high quality and reliability. As a consequence of
supply chain best practices, new product development and acquisitions, we often form strategic partnerships with key suppliers.
As a result, components and raw materials may be sole sourced. Due to the strength of these suppliers and the variety of
products we provide, we do not believe the risk of supplier interruption poses an overall material adverse effect on our financial
and operational performance. We schedule production and seek to maintain adequate levels of safety stock based on a number
of factors, including experience, knowledge of customer ordering patterns, demand, manufacturing lead times and optimal
quantities required to maintain the highest possible service levels. Customer orders are generally processed for immediate
shipment and backlog of firm orders is therefore not generally material to an understanding of our business.
Research and Development
New and improved products play a critical role in our continued sales growth. Internal research and development
efforts focus on the development of new products and product technological and design improvements aimed at complementing
and expanding existing product lines. We continually seek to leverage new technologies which improve the durability,
performance and usability of existing products. In addition, we maintain close working relationships with surgeons, inventors
and other healthcare professionals who often make new product and technology disclosures, principally in procedure-specific
areas. In certain cases, we seek to obtain rights to these ideas through negotiated agreements. Such agreements typically
compensate the originator through payments based upon a percentage of licensed product net sales. Annual royalty expense
approximated $1.5 million, $2.0 million and $1.5 million in 2020, 2019 and 2018, respectively.
Amounts expended for Company research and development were approximately $40.5 million, $45.5 million and
$42.2 million during 2020, 2019 and 2018, respectively.
Intellectual Property
Patents and other proprietary rights, in general, are important to our business. We have rights to intellectual property,
including United States patents and foreign equivalent patents which cover a wide range of our products with expiration dates
from 2021 to 2040. We own a majority of these patents and have exclusive and non-exclusive licensing rights to the
remainder. We believe that the development of new products and technological and design improvements to existing products
will continue to be important to our competitive position.
Government Regulation and Quality Systems
The development, manufacture, sale and distribution of our products are subject to regulation by numerous agencies
and legislative bodies, including the U.S. Food and Drug Administration ("FDA") and comparable foreign counterparts. In the
United States, these regulations were enacted under the Medical Device Amendments of 1976 to the Federal Food, Drug and
Cosmetic Act and its subsequent amendments, and the regulations issued or proposed thereunder.
The FDA’s Quality System Regulations set forth requirements for our product design and manufacturing processes,
require the maintenance of certain records, provide for on-site inspection of our facilities and continuing review by the
FDA. Many of our products are also subject to industry-defined standards. Authorization to commercially market our products
in the U.S. is granted by the FDA under a procedure referred to as a 510(k) pre-market notification and clearance. We believe
that our products and processes presently meet applicable standards in all material respects.
6
Medical device regulations continue to evolve world-wide. Products marketed in the European Union and other
countries require preparation of technical files and design dossiers which demonstrate compliance with applicable international
regulations. As government regulations continue to change, there is a risk that the distribution of some of our products may be
interrupted or discontinued if they do not meet the country specific requirements.
We market our products in numerous foreign countries and therefore are subject to regulations affecting, among other
things, product standards, sterilization, packaging requirements, labeling requirements, import laws and on-site inspection by
independent bodies with the authority to issue or not issue certifications we may require to be able to sell products in certain
countries. Many of the regulations applicable to our devices and products in these countries are similar to those of the
FDA. The member countries of the European Union (“EU”) follow the requirements under the European Medical Device
Directives ("EU MDD"), which create a single set of medical device regulations for all member countries. In addition, the EU
enacted the EU Medical Device Regulation ("EU MDR") in May 2017 that replaces the EU MDD. EU MDR becomes effective
beginning in May 2021 and continuing through May 2023, depending on the device class, which imposes stricter requirements
for the marketing and sale of medical devices, including in the areas of clinical evaluation requirements, quality systems,
labeling and post-market surveillance. These regulations require companies that wish to manufacture and distribute medical
devices in the European Union to maintain quality system certifications through European Union recognized Notified
Bodies. These Notified Bodies authorize the use of the CE Mark allowing free movement of our products throughout the
member countries. Requirements pertaining to our products vary widely from country to country, ranging from simple product
registrations to detailed submissions such as those required by the FDA. We believe that our products and quality procedures
currently meet applicable standards for the countries in which they are marketed.
As noted above, our facilities are subject to periodic inspection by the United States Food and Drug Administration
(“FDA”) and foreign regulatory agencies or notified bodies for, among other things, conformance to Quality System Regulation
and Current Good Manufacturing Practice (“CGMP”) requirements and foreign or international standards. Refer to Note 13 for
further discussion.
We are also subject to various environmental health and safety laws and regulations both in the United States and
internationally, as are our suppliers and sterilization service providers. Our operations involve the use of substances regulated
under environmental laws, primarily in manufacturing and sterilization processes. We believe our policies, practices and
procedures are properly designed to comply, in all material respects, with applicable environmental laws and regulations. We
do not expect internal compliance with these requirements to have a material effect on purchases of property, plant and
equipment, cash flows, net income or our competitive position. Refer to Item 1A, Risk Factors, for further discussion of the use
of outside EtO sterilization service providers.
Human Capital Resources
As of December 31, 2020, we had approximately 3,400 full-time employees, including approximately 2,100 in
operations, 180 in research and development and the remaining in sales, marketing and related administrative support.
CONMED's Vision is to empower healthcare providers worldwide to deliver positive outcomes for patients. We know
that our people are our most important assets and a key part of the focus behind our CONMED Vision. Accordingly, the
success and growth of our business depends in large part on our ability to attract, retain and develop a diverse population of
talented employees at all levels of our organization who are empowered to deliver positive results. To deliver on our human
capital needs, we have developed key recruitment and retention strategies, objectives and measures that we focus on as part of
the overall management of our business. These strategies, objectives and measures align with our corporate pillars and are
advanced through various programs and policies including the following:
Talent Management and Succession Planning
The Board is actively engaged and involved in talent management. The Board reviews the Company’s people strategy
in support of its business strategy at least annually and frequently discusses talent issues at its meetings. This includes a detailed
discussion of the Company’s global leadership bench and succession plans with a focus on key positions at the senior executive
level. High-potential leaders are given exposure and visibility to Board members through formal presentations and informal
events. More broadly, the Board is regularly updated on key talent indicators for the overall workforce, including diversity,
recruiting and development programs.
7
Competitive Pay and Benefits
Our compensation programs are designed to align the compensation of our employees with CONMED’s performance
and to provide the proper incentives to attract, retain and motivate employees to achieve positive results. The structure of our
compensation programs balances incentive earnings for both short-term and long-term performance. Our compensation
programs are evaluated regularly not only for market competitiveness but as importantly for equality and fairness.
Diversity and Inclusion
A demonstrated commitment to diversity and inclusion is vital to CONMED's success as we seek out individuals who
bring their unique capabilities to our Company. At CONMED, we believe that diverse teams stimulate innovation, enhance our
understanding of the needs of our global customer base and ultimately deliver better results for our stakeholders. We value
individual strengths and are committed to hiring and retaining employees of all different backgrounds and experiences. We
also recognize that while representation of diversity in the workforce is not enough to have the impact desired because inclusion
is also an imperative, tracking representation of diversity in our workforce helps us to understand where our opportunities exist.
These metrics are reviewed on a regular basis at the senior executive level.
Training, Development and Retention
We offer formal in person and e-learning training as well as tuition reimbursement programs to support our culture,
strategy and ensure the development of key skills. In addition, we conduct anonymous employee engagement surveys and
initiatives on a regular basis the results of which are reviewed both at the individual manager level and corporate wide at the
senior executive level to continuously drive and support employee engagement. Finally, we track critical metrics including
workforce planning needs and employee turnover, the results of which are reviewed on a regular basis at the senior executive
level.
Item 1A. Risk Factors
An investment in our securities, including our common stock, involves a high degree of risk. Investors should
carefully consider the specific factors set forth below as well as the other information included or incorporated by reference in
this Form 10-K. See “Forward Looking Statements”.
(i) Risks Related to Our Business and the Medical Device Industry
Our financial performance is dependent on conditions in the healthcare industry and the broader economy.
The results of our business are directly tied to the economic conditions in the healthcare industry and the broader economy as a
whole. We will continue to monitor and manage the impact of the overall economic environment on the Company.
In this regard, approximately 18% of our revenues are derived from the sale of capital products. The sales of such products
may be negatively impacted if hospitals and other healthcare providers are unable to secure the financing necessary to purchase
these products or otherwise defer purchases.
The COVID-19 global pandemic may pose significant risks to our business if the pandemic, and various government
responses to it, continue for an extended period of time.
The public health actions undertaken to reduce the spread of the virus have created and may continue to create significant
disruptions with respect to the demand for non-urgent surgeries in hospitals and surgery centers, hospital and ambulatory
surgery center operating volumes, and potentially to our ability to adequately rely on our supply chain.
As of the date of this report:
1.
In some geographies or territories, our field-based sales representatives are limited in their ability to travel to
service or call on customers, with in-person visits in many cases dependent on requests by physicians to cover
surgeries, the policies of individual hospitals, surgery centers or other institutions, and the availability of
appropriate personal protective equipment, testing or vaccines;
8
2. Our office-based employees continue to work remotely, and
3. Our manufacturing facilities and warehouses continue to operate with precautions, including increased hygiene
and cleaning within facilities, social distancing, mandatory personal protective equipment and monitoring of
temperatures.
As such, the COVID-19 pandemic has directly and indirectly adversely impacted the Company’s business, financial condition
and operating results. The extent to which this will continue will depend on numerous evolving factors that are highly
uncertain, rapidly changing and cannot be predicted with precision or certainty at this time, including:
•
•
•
•
•
•
•
•
•
•
the duration and scope of the COVID-19 pandemic, including any resurgence of the pandemic in some areas and
the development of new strains, as well as the effectiveness of vaccines, and the extent to which they are
distributed and administered;
governmental, business and individual actions that have been, continue to be, or may in the future be taken in
response to the COVID-19 pandemic including, for example, business and travel restrictions, “stay-at-home” and
“shelter-in-place” directives, quarantines, and slowdowns, suspensions or delays of commercial activity;
the effect of the COVID-19 pandemic on our partners and customers, including their ability to conduct surgeries,
to continue to purchase our products, to pay for the products purchased from us and/or to collect reimbursement,
or their ability to do so in the volumes that existed prior to the pandemic;
the effect of the COVID-19 pandemic and the governmental response on the budgets of our partners and
customers;
our ability during the COVID-19 pandemic to continue operations and/or adjust our production schedules in an
efficient manner, as a result of current and anticipated weakened demand and/or production delays, if any, from
our suppliers;
significant reductions or volatility in demand for certain surgeries or for certain of our products;
the effect of the COVID-19 pandemic on our supply chain’s reliability and costs;
costs incurred as a result of actions intended to protect the health and safety of our employees and continued
operations, including enhanced cleaning processes and protocols designed to implement appropriate social
distancing practices;
our ability to comply with the financial covenants in our debt agreements if a material economic downturn as a
result of the COVID-19 pandemic results in substantially increased indebtedness and/or lower earnings; and
the exacerbation of negative impacts resulting from the occurrence of a global or national recession, depression or
other sustained adverse market event as a result of the COVID-19 pandemic.
We have undertaken steps to reduce our spending and expenses in light of the uncertainty concerning forecasting demand, and
consequently revenues. While we expect that we will be well positioned as surgeries return to their normalized levels, we are
unable to predict with certainty how long the COVID-19 pandemic will last, or how severe its economic impact will be. Even
after the COVID-19 pandemic and government responses thereto have subsided, residual economic and other effects may have
an impact on the demand for post-pandemic surgery levels. If the downturn is more severe and prolonged than we currently
expect, we may need to take further steps to reduce our costs, or to refinance our debt.
Our financial performance may be adversely impacted by healthcare reform legislation.
Provisions of healthcare legislation, including provisions of the Patient Protection and Affordable Care Act ("ACA") in the
United States and any future federal healthcare legislation that may be passed, and similar attempts to reform or manage health
care costs in other markets, could meaningfully change the way health care is developed and delivered and may adversely affect
our business and results of operations. For example, the ACA includes provisions aimed at improving quality and decreasing
costs of Medicare, governing comparative effectiveness research, and implementing an independent payment advisory board
and pilot programs to evaluate alternative payment methodologies. We also face uncertainties that might result in the
modification of health care laws or reimbursement in the United States and other markets. The uncertainty associated with
9
modifications could generally cause healthcare markets to be unstable and we could be subject to some interruptions, the
magnitude of which cannot be determined.
Limitations on the availability of Ethylene Oxide (“EtO”) sterilization services may limit our ability to sell certain sterile
products.
Approximately 33% of our products when measured in terms of revenues, are sterilized by third-party sterilizers using ethylene
oxide, a chemical which, when present or used in high levels of concentrations, has raised some environmental concerns in
some areas within the United States, with the result that some EtO sterilization facilities have closed, or are threatened with
closure, either temporarily or permanently, in connection with government enforcement actions or enhanced regulations
prompted by environmental concerns. We have been able to work to secure alternate EtO sterilization services to date, and do
not currently expect sterilization availability to have a material impact on our business. If, however, there are further
restrictions on capacity or further government actions adverse to EtO sterilization, it is possible that we could be impacted
materially in the future.
As a manufacturer of medical devices that interacts with physicians and health care providers domestically and
internationally, we face risks under domestic and foreign regulations, including the Foreign Corrupt Practices Act.
Manufacturers of medical devices have been the subject of various investigations or enforcement actions relating to interactions
with health care providers domestically or internationally. The interactions with domestic health care providers are subject to
regulations, known as the Anti-Kickback Statute, the Stark Act and the False Claims Act, that generally govern incentives for
health care providers, or methods of reimbursement funded in whole or in part by the government. Similarly, the Foreign
Corrupt Practices Act (“FCPA”), and similar foreign laws, prohibit certain conduct by manufacturers, generally described as
bribery, with respect to interactions, either directly through foreign subsidiaries or indirectly through distributors, with health
care providers who may be considered government officials because they are affiliated with public hospitals. The FCPA also
imposes obligations on manufacturers listed on U.S. stock exchanges to maintain accurate books and records, and maintain
internal accounting controls sufficient to provide assurance that transactions are accurately recorded, lawful and in accordance
with management’s authorization. The FCPA can pose unique challenges for manufacturers who operate in foreign cultures
where conduct prohibited by the FCPA may not be viewed as illegal in local jurisdictions, and because, in some cases, a United
States manufacturer may face risks under the FCPA based on the conduct of third parties over whom the manufacturer may not
have complete control.
In this regard, from time to time, the Company may receive an information request or subpoena from a government agency,
such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, the
Occupational Safety and Health Administration, the Department of Labor, the Treasury Department or other federal and state
agencies or foreign governments or government agencies. Alternatively, employees or private parties may provide us with
reports of alleged misconduct. These information requests or subpoenas may or may not be routine inquiries, or may begin as
informal or routine inquiries and over time develop into investigations or enforcement actions of various types under the FCPA
or otherwise. Similarly, the employee and third party reports may prompt us to conduct internal investigations into the alleged
misconduct. As a medical device company, CONMED’s operations and interactions with government hospitals, healthcare
professionals and purchasers may be subject to various federal and state regulations, including the federal False Claims Act,
which provides, in part, that the federal government may bring a lawsuit against any person or entity that it believes has
knowingly presented, or caused to be presented, a false or fraudulent request for payment to the government, or has made or
used, or caused to be made or used, a false statement or false record material to a false claim. In addition, in certain
circumstances, private parties may bring so-called Qui Tam claims as plaintiffs purportedly on behalf of the government
asserting claims arising under the False Claims Act. A violation of the False Claims Act may result in fines up to $11,000 for
each false claim, plus up to three times the amount of damages sustained by the government, and may also provide the basis for
the imposition of administrative penalties and exclusion from participation in federal healthcare programs. Many states have
enacted false claims acts that are similar to the federal False Claims Act. No inquiry or claim that the Company currently faces
or has faced to date, and no report of misconduct that the Company has received to date, has had a material adverse effect on
our financial condition, results of operations or cash flows. There can be no assurance, however, that any pending inquiries will
not become investigations or enforcement actions, or the costs associated with responding to such inquiries, investigations,
enforcement actions or investigations relating to reports of misconduct will not have a material adverse effect on our financial
condition, results of operations or cash flows.
10
Failure to comply with regulatory requirements may result in recalls, loss of revenues, fines or materially adverse
implications.
Substantially all of our products are classified as class II medical devices subject to regulation by numerous agencies and
legislative bodies, including the U.S. Food and Drug Administration ("FDA") and comparable international counterparts. As a
manufacturer of medical devices, our manufacturing processes and facilities are subject to on-site inspection and continuing
review by the FDA for compliance with the Quality System Regulations. We may have future inspections at our sites and there
can be no assurance that the costs of responding to such inspections will not be material.
Manufacturing and sales of our products outside the United States are also subject to international regulatory requirements
which vary from country to country. Moreover, we are generally required to obtain regulatory clearance or approval prior to
marketing a new product. The time required to obtain approvals from foreign countries may be longer or shorter than that
required for FDA clearance, and requirements for such approvals may differ from FDA requirements. Failure to comply with
applicable domestic and/or foreign regulatory requirements may result in:
•
•
•
•
•
•
•
•
fines or other enforcement actions;
recall or seizure of products;
total or partial suspension of production;
loss of certification;
withdrawal of existing product approvals or clearances;
refusal to approve or clear new applications or notices;
increased quality control costs; or
criminal prosecution.
In addition to the Quality System Regulations, many of our products are also subject to industry-defined standards. We may
not be able to comply with these regulations and standards due to deficiencies in component parts or our manufacturing
processes. If we are not able to comply with the Quality System Regulations or industry-defined standards, we may not be able
to fill customer orders and we may decide to cease production or sale of non-compliant products. Failure to produce products
could affect our revenues, profit margins and could lead to loss of customers.
Our products are subject to product recall and we have conducted product recalls in the past. Although no recall has had a
material adverse effect on our business or financial condition, we cannot assure you that regulatory issues will not have a
material adverse effect on our business, financial condition or results of operations in the future or that product recalls will not
harm our reputation and our customer relationships.
The highly competitive market for our products may create adverse pricing pressures.
The market for our products is highly competitive and our customers have numerous alternatives of supply. Many of our
competitors offer a range of products in areas other than those in which we compete, which may make such competitors more
attractive to surgeons, hospitals, group purchasing organizations and others. In addition, many of our competitors are large,
technically competent firms with substantial assets. Competitive pricing pressures or the introduction of new products by our
competitors could have an adverse effect on our revenues. See “Products” in Item 1 - Business for a further discussion of these
competitive forces.
Factors which may influence our customers’ choice of competitor products include:
•
•
•
•
•
•
changes in surgeon preferences;
increases or decreases in healthcare spending related to medical devices;
our inability to supply products to them as a result of product recall, market withdrawal or back-order;
the introduction by competitors of new products or new features to existing products;
the introduction by competitors of alternative surgical technology; and
advances in surgical procedures, discoveries or developments in the healthcare industry.
Cost reduction efforts in the healthcare industry could put pressures on our prices and margins.
In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs. Such efforts
include national healthcare reform, trends towards managed care, cuts in Medicare reimbursement for procedures, consolidation
of healthcare distribution companies and collective purchasing arrangements by GPOs and IDNs. Demand and prices for our
products may be adversely affected by such trends.
11
We use a variety of raw materials in our businesses, and significant shortages or price increases could increase our
operating costs and adversely impact the competitive positions of our products.
Our reliance on certain suppliers and commodity markets to secure raw materials used in our products exposes us to volatility in
the prices and availability of raw materials. In some instances, we participate in commodity markets that may be subject to
allocations by suppliers. A disruption in deliveries from our suppliers, price increases or decreased availability of raw materials
or commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating
costs. The increases in costs or availability of raw materials may be exacerbated as a result of the COVID-19 pandemic. We
believe that our supply management practices are based on an appropriate balancing of the foreseeable risks and the costs of
alternative practices. Nonetheless, price increases or the unavailability of some raw materials may have an adverse effect on
our results of operations or financial condition.
We may not be able to keep pace with technological change or to successfully develop new products with wide market
acceptance, which could cause us to lose business to competitors.
The market for our products is characterized by rapidly changing technology. Our future financial performance will depend in
part on our ability to develop and manufacture new products on a cost-effective basis, to introduce them to the market on a
timely basis and to have them accepted by surgeons and other healthcare professionals.
We may not be able to keep pace with technology or to develop viable new products. In addition, many of our competitors are
substantially larger with greater financial resources which may allow them to more rapidly develop new products. Factors
which may result in delays of new product introductions or cancellation of our plans to manufacture and market new products
include:
•
•
•
•
capital constraints;
research and development delays;
delays in securing regulatory approvals; and
changes in the competitive landscape, including the emergence of alternative products or solutions which reduce or
eliminate the markets for pending products.
Ordering patterns of our customers may change resulting in reductions in sales.
Our hospital and surgery center customers purchase our products in quantities sufficient to meet their anticipated
demand. Likewise, our healthcare distributor customers purchase our products for ultimate resale to healthcare providers in
quantities sufficient to meet the anticipated requirements of the distributors’ customers. Should inventories of our products
owned by our hospital, surgery center and distributor customers grow to levels higher than their requirements, our customers
may reduce the ordering of products from us. This could result in reduced sales.
(ii) Risks Related to Our Indebtedness
The terms of our indebtedness outstanding from time to time, including our senior credit agreement, may restrict our
current and future operations, particularly our ability to respond to changes or to take certain actions.
The senior credit agreement contains, and future credit facilities are expected to contain, a number of restrictive covenants that
impose significant operating and financial restrictions on us and may limit our ability to respond to changes in our business or
competitive activities, or to otherwise engage in acts that may be in our long-term best interest, including restrictions on our
ability to:
•
•
•
•
•
•
•
•
•
•
•
incur indebtedness;
allow for liens to be placed on our assets;
make investments;
engage in transactions with affiliates;
make certain restricted payments;
enter into certain restrictive agreements;
enter into certain swap agreements;
change our line of business;
pay dividends or make other distributions on, or redeem or repurchase, capital stock;
consolidate, merge or sell all or substantially all of our assets;
prepay and/or modify the terms of certain indebtedness; and
12
•
pursue acquisitions.
These covenants, unless waived, may prevent us from pursuing acquisitions, significantly limit our operating and financial
flexibility and limit our ability to respond to changes in our business or competitive activities. Our ability to comply with such
provisions may be affected by events beyond our control. In the event of any default under our credit agreement, the credit
agreement lenders may elect to declare all amounts borrowed under our credit agreement, together with accrued interest, to be
due and payable. If we were unable to repay such borrowings, the credit agreement lenders could proceed against collateral
securing the credit agreement which consists of substantially all of our property and assets. Our credit agreement also contains
a material adverse effect clause which may limit our ability to access additional funding under our credit agreement should a
material adverse change in our business occur.
We may not be able to generate sufficient cash to service our indebtedness, and, our leverage and debt service requirements
may require us to adopt alternative business strategies.
As of December 31, 2020, we had $793.8 million of debt outstanding, representing 52% of total capitalization. We may not
have sufficient cash flow available to enable us to meet our obligations. If we are unable to service our indebtedness, we will
be forced to adopt an alternative strategy that may include actions such as foregoing acquisitions, reducing or delaying capital
expenditures, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital. We cannot
assure you that any of these strategies could be implemented on terms acceptable to us, if at all. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 7.
The degree to which we are leveraged could have important consequences to investors, including but not limited to the
following:
•
•
•
•
•
•
a portion of our cash flow from operations must be dedicated to debt service and will not be available for operations,
capital expenditures, acquisitions, dividends and other purposes;
our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general
corporate purposes may be limited or impaired or may be at higher interest rates;
we may be at a competitive disadvantage when compared to competitors that are less leveraged;
we may be hindered in our ability to adjust rapidly to market conditions;
our degree of leverage could make us more vulnerable in the event of a downturn in general economic conditions or
other adverse circumstances applicable to us; and
our interest expense could increase if interest rates in general increase because a portion of our borrowings, including
our borrowings under our credit agreement, are and will continue to be at variable rates of interest.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly.
Borrowings under our senior credit agreement are at variable rates of interest and expose us to interest rate risk. If interest rates
were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount
borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will
correspondingly decrease. In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed
rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect
to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.
Our interest rates may be impacted by the phase out of LIBOR.
LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending transactions between banks on the
London interbank market and is widely used as a reference for setting the interest rate on loans globally. Certain of the interest
rates applicable to our sixth amended and restated senior credit agreement are calculated using LIBOR. On July 27, 2017, the
United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the
end of 2021. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established
such that it continues to exist after 2021. While our sixth amended and restated credit agreement includes provisions for
establishing alternative reference rates in the event that LIBOR shall no longer be available or the determination is made to
adopt an alternative reference rate, any such alternative reference rate could be higher and more volatile than LIBOR or may
otherwise perform differently than LIBOR. The consequences of the adoption of any such alternative reference rates cannot be
predicted at this time and may result in exposure to additional interest rate risk and increase the cost of indebtedness under our
sixth amended and restated credit agreement.
13
Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This
could further exacerbate the risks to our financial condition described above.
We may incur substantial additional indebtedness, including secured indebtedness. As of December 31, 2020, we have $375.5
million of availability under the senior credit agreement. If we incur secured indebtedness and such secured indebtedness is
either accelerated or becomes subject to a bankruptcy, liquidation or reorganization, our assets would be used to satisfy
obligations with respect to the indebtedness secured thereby before any payment could be made on the debt that is not
similarly secured. If new debt or other liabilities are added to our current debt levels, the related risks that we now face could
intensify. Our senior credit agreement restricts our ability to incur additional indebtedness, including secured indebtedness,
but if the facilities mature or are repaid, we may not be subject to such restrictions under the terms of any subsequent
indebtedness.
The conditional conversion features of our 2.625% Convertible Notes due 2024 (the “Convertible Notes”), if triggered, may
adversely affect our financial condition.
In the event the conditional conversion features of the Convertible Notes issued on January 29, 2019 are triggered, holders of
the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If
one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering
solely shares of our common stock, we would be required to make cash payments to satisfy all or a portion of our conversion
obligation based on the conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to
convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the
outstanding principal of the Convertible Notes as a current rather than long-term liability, which could result in a material
reduction of our net working capital. Refer to Item 7. Management and Discussion and Analysis - Financing Cash Flows and
Note 7 for further details on the Convertible Notes.
The convertible notes hedge and warrant transactions that we entered into in connection with the offering of the Convertible
Notes may affect the value of the Convertible Notes and our common stock.
In connection with the offering of the Convertible Notes, we entered into convertible notes hedge transactions with certain
option counterparties (each an “Option Counterparty”). The convertible notes hedge transactions are expected generally to
reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments we are required to make
in excess of the principal amount of converted Convertible Notes, as the case may be. We also entered into warrant transactions
with each Option Counterparty. The warrant transactions could separately have a dilutive effect on our common stock to the
extent that the market price per share of our common stock exceeds the strike price of the warrants, unless we elect to settle the
warrants in cash. In connection with establishing its initial hedge of the convertible notes hedge and warrant transactions, each
Option Counterparty or an affiliate thereof may have entered into various derivative transactions with respect to our common
stock concurrently with or shortly after the pricing of the Convertible Notes. This activity could increase (or reduce the size of
any decrease in) the market price of our common stock or the Convertible Notes at that time. In addition, each Option
Counterparty or an affiliate thereof may modify its hedge position by entering into or unwinding various derivatives with
respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market
transactions prior to the maturity of the Convertible Notes (and is likely to do so during any observation period related to a
conversion of the Convertible Notes). This activity could also cause or avoid an increase or a decrease in the market price of
our common stock or the Convertible Notes. In addition, if any such convertible notes hedge and warrant transactions fail to
become effective, each Option Counterparty may unwind its hedge position with respect to our common stock, which could
adversely affect the value of our common stock and the value of the Convertible Notes.
We are subject to counterparty risk with respect to the convertible notes hedge transactions.
Each Option Counterparty to the convertible notes hedge transactions is a financial institution whose obligation to perform
under the convertible notes hedge transaction will not be secured by any collateral. If an Option Counterparty becomes subject
to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at
that time under our transactions with the Option Counterparty. Our exposure will generally correlate to the increase in the
market price and in the volatility of our common stock. In addition, upon a default by an Option Counterparty, we may suffer
adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. Although these
counterparties are large, reputable U.S. financial institutions, we can provide no assurances as to the financial stability or
viability of any Option Counterparty.
14
(iii) Risks Related to Our Acquisition Strategy
Our financial performance is subject to the risks inherent in any acquisition, including the effects of increased borrowing
and integration of newly acquired businesses or product lines.
A key element of our business strategy has been to expand through acquisitions and we may seek to pursue additional
acquisitions in the future. Our success in pursuing acquisitions depends on our ability to identify target companies or product
lines that are available for sale, and, negotiating successful terms with the sellers, as the sellers may also be negotiating with
other bidders with greater financial resources than we have. Even when we win a bid, our success is also dependent in part
upon our ability to integrate acquired companies or product lines into our existing operations. We may not have sufficient
management and other resources to accomplish the integration of our past and future acquisitions, which may strain our
relationship with customers, suppliers, distributors, personnel or others. There can be no assurance that we will be able to
identify and make acquisitions, or that we will be able to obtain financing for such acquisitions, on acceptable terms. In
addition, while we are generally entitled to customary indemnification from sellers of businesses or coverage from
representation and warranty insurance for any difficulties that may have arisen prior to our acquisition of each business,
acquisitions may involve exposure to unknown liabilities and the amount and time for claiming under these indemnification
provisions is often limited. As a result, our financial performance is now, and will continue to be, subject to various risks
associated with the acquisition of businesses, including the financial effects associated with any increased borrowing required to
fund such acquisitions or with the integration of such businesses.
The terms of any future preferred equity or debt financing may give holders of any preferred securities or debt securities
rights that are senior to rights of our common shareholders or impose more stringent operating restrictions on our company.
Debt or equity financing may not be available to us on acceptable terms. If we incur additional debt or raise equity through the
issuance of preferred stock or convertible securities, the terms of the debt or the preferred stock issued may give the holders
rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The
terms of the debt may also impose additional and more stringent restrictions on our operations. If we raise funds through the
issuance of additional equity, the ownership percentage of our existing shareholders would be diluted.
(iv) Other Risks Related to Our Business
We could experience a failure of a key information technology system, process or site or a breach of information security,
including a cybersecurity breach or failure of one or more key information technology systems, networks, processes,
associated sites or service providers, and could potentially become liable for a breach of various data privacy regulations.
We rely extensively on information technology (“IT”) systems for the storage, processing, and transmission of our electronic,
business-related, information assets used in or necessary to conduct business. We leverage our internal IT infrastructures, and
those of our business partners, to enable, sustain, and support our global business activities. In addition, we rely on networks
and services, including internet sites, data hosting and processing facilities and tools and other hardware, software and technical
applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist
in conducting our business. The data we store and process may include customer payment information, personal information
concerning our employees, confidential financial information, and other types of sensitive business-related information. In
limited instances, we may also come into possession of information related to patients of our physician customers. Numerous
and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the
confidentiality, availability and integrity of our data. In addition, the laws and regulations governing security of data on IT
systems and otherwise collected, processed, stored, transmitted, disclosed and disposed of by companies are evolving, adding
another layer of complexity in the form of new requirements. We have made, and continue to make investments, seeking to
address these threats, including monitoring of networks and systems, hiring of experts, employee training and security policies
for employees and third-party providers. The techniques used in these attacks change frequently and may be difficult to detect
for periods of time and difficult to anticipate by implementing adequate preventative measures.
Our worldwide operations mean that we are subject to laws and regulations, including data protection and cybersecurity laws
and regulations, in many jurisdictions. For example, the European Union ("EU") General Data Protection Regulation ("GDPR")
requires us to manage personal data in the EU and may impose fines of up to four percent of our global revenue in the event of
certain violations. Likewise, the California Consumer Privacy Act imposes obligations on companies that conduct business in
California, and meet other requirements, with respect to the collection or sale of specified personal information. Other
jurisdictions are also implementing or proposing a variety of data privacy laws and regulations. Further, there has been a
developing trend of civil lawsuits and class actions relating to breaches of consumer data held by large companies or incidents
15
arising from other cyber-attacks. Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could
result in actions by regulatory bodies and/or civil litigation, any of which could materially and adversely affect our business,
results of operations, financial condition, cash flows, reputation or competitive position.
The costs of attempting to protect IT systems and data may increase, and there can be no assurance that these added security
efforts will prevent all breaches of our IT systems or thefts of our data. If our IT systems are damaged or cease to function
properly, the networks or service providers we rely upon fail to function properly, we fail to comply with an applicable law or
regulation, such as the GDPR, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder
information due to any number of causes ranging from catastrophic events or power outages to improper data handling or
security breaches and our business continuity plans do not effectively address these failures on a timely basis, we may be
exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm, and significant
costs from remediation, litigation and regulatory actions.
We rely on a third party to obtain, process and distribute sports medicine allograft tissue. If such tissue cannot be obtained,
is not accepted by the market or is not accepted under numerous government regulations, our results of operations could be
negatively impacted.
A portion of our orthopedic revenues relate to our share of the service fees from the MTF allograft tissues for which we have
exclusive worldwide sales representation, marketing and promotion rights, as further described in our revenue recognition
policy in Note 1. Our primary costs related to these revenues come from our commission expense and certain marketing costs.
Our ability to increase the service fees may be constrained by certain factors which are outside of our control, such as the
limited supply of donors and donated tissue that meets the quality standards of MTF. Similarly, under the terms of the
agreement, MTF remains responsible for tissue procurement and processing, shipment of tissues and invoicing of service fees
to customers. To the extent MTF’s performance does not meet customer expectations or otherwise fails, CONMED may be
unable to increase the allograft service fees or to find a suitable replacement for MTF on terms that are acceptable.
The FDA and several states have statutory authority to regulate allograft processing and allograft-based materials. The FDA
could identify deficiencies in future inspections of MTF or MTF's suppliers or promulgate future regulatory rulings that could
disrupt our business, reducing profitability.
We distribute some products for third-party companies, and cannot ensure that our rights to distribute such third-party
products will continue indefinitely.
While we generally own the products' designs and rights to the products we sell, in some cases we distribute products for third-
parties. While these third-parties may have business reasons for contracting with us to distribute their products, we may face
the risk that the third-parties may seek alternate distribution partners when their distribution contracts with us expire or are
scheduled for renewal. If we lose the distribution rights to such products, we may not be able to find replacement products that
are acceptable to our customers, or to us.
If we lose our patents or they are held to be invalid, or if our products or services infringe on third party patents, we could
become subject to liability and our competitive position could be harmed.
Much of the technology used in the markets in which we compete is covered by patents. We have numerous U.S. patents and
corresponding international patents on products expiring at various dates from 2021 through 2040 and have additional patent
applications pending. See Item 1 Business “Research and Development” and “Intellectual Property” for a further description of
our patents. The loss of our patents could reduce the value of the related products and any related competitive
advantage. Competitors may also be able to design around our patents and to compete effectively with our products. In
addition, the cost of enforcing our patents against third parties and defending our products against patent infringement actions
by others could be substantial, and we may not prevail.
While we seek to take reasonable steps to avoid infringing on patents we do not own or license, we cannot be sure that our
services and products do not infringe on the intellectual property rights of third parties, and we may have infringement claims
asserted against us. These claims could cost us money, prevent us from offering some services or products, or damage our
reputation. We cannot assure you that:
•
•
•
pending patent applications will result in issued patents;
patents issued to or licensed by us will not be challenged by competitors;
our patents will be found to be valid or sufficiently broad to protect our technology or provide us with a competitive
advantage; or
16
•
we will be successful in defending against pending or future patent infringement claims asserted against our products.
We can be sued for product liability claims and our insurance coverage may be insufficient to cover the nature and amount
of any product liability claims.
Even if our products are properly designed and perform as intended, we may be sued. The nature of our products as medical
devices, and the litigious environment, should be regarded as potential risks which could significantly and adversely affect our
financial condition and results of operations. The insurance we maintain to protect against claims associated with the use of our
products has deductibles and may not adequately cover the amount or nature of any claim asserted against us. We are also
exposed to the risk that our insurers may become insolvent or that premiums may increase substantially. See “Item 3 - Legal
Proceedings” for a further discussion of the risk of product liability actions and our insurance coverage.
Damage to our physical properties as a result of windstorm, earthquake, fire or other natural or man-made disaster may
cause a financial loss and a loss of customers.
Although we maintain insurance coverage for physical damage to our property and the resultant losses that could occur during a
business interruption, we are required to pay deductibles and our insurance coverage is limited to certain caps. For example,
our deductible for windstorm damage to our Florida property amounts to 2% of any loss. Any increase in the frequency or
severity of natural disaster events could result in increased insurance premiums.
Further, while insurance reimburses us for our lost gross earnings during a business interruption, if we are unable to supply our
customers with our products for an extended period of time, there can be no assurance that we will regain the customers’
business once the product supply is returned to normal.
Our significant international operations subject us to foreign currency fluctuations and other risks associated with
operating in countries outside the United States.
A significant portion of our revenues, approximately 44% of 2020 consolidated net sales, were to customers outside the United
States. We have sales subsidiaries in a significant number of countries in Europe as well as Australia, Canada, China, Japan
and Korea. In those countries in which we have a direct presence, our sales are denominated in the local currency and those
sales denominated in local currency amounted to approximately 34% of our total net sales in 2020. The remaining 10% 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 jurisdictions outside the United States, our financial
results may be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the
markets in which we distribute products. While we have implemented a hedging strategy involving foreign currency forward
contracts for 2020, our revenues and earnings are only partially protected from foreign currency translation if the United States
dollar strengthens as compared with currencies such as the Euro. Further, as of the date of this Form 10-K, we have not entered
into any foreign currency forward contracts beyond 2022. Our international presence exposes us to certain other inherent risks,
including:
•
•
•
•
•
•
•
•
imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other
payments by international subsidiaries;
imposition or increase of withholding and other taxes on remittances and other payments by international subsidiaries;
trade barriers and tariffs;
compliance with economic sanctions, trade embargoes, export controls, and the customs laws and regulations of the
many countries in which we operate;
political risks, including political instability;
reliance on third parties to distribute our products;
hyperinflation in certain countries outside the United States; and
imposition or increase of investment and other restrictions by foreign governments.
We cannot assure you that such risks will not have a material adverse effect on our business and results of operations.
17
Our new products may fail to achieve expected levels of market acceptance.
New product introductions may fail to achieve market acceptance. The degree of market acceptance for any of our products
will depend upon a number of factors, including:
•
•
•
•
•
•
our ability to develop and introduce new products and product enhancements in the time frames we currently estimate;
our ability to successfully implement new technologies;
the market’s readiness to accept new products;
having adequate financial and technological resources for future product development and promotion;
the efficacy of our products; and
the prices of our products compared to the prices of our competitors’ products.
If our new products do not achieve market acceptance, we may be unable to recover our investments and may lose business to
competitors.
In addition, some of the companies with which we now compete, or may compete in the future, have or may have more
extensive research, marketing and manufacturing capabilities and significantly greater technical and personnel resources than
we do, and may be better positioned to continue to improve their technology in order to compete in an evolving industry. See
“Products” in Item 1 - Business for a further discussion of these competitive forces.
Our Board of Directors may, in the future, limit or discontinue payment of a dividend on common stock.
We have paid a quarterly dividend to our shareholders since 2012. However, we may not pay such dividends in the future at
the prior rate, or at all. All decisions regarding our payment of dividends will be made by our Board of Directors from time to
time, and are subject to an evaluation of our financial condition, results of operations and capital requirements, applicable law,
industry practice, contractual restraints and other business considerations. In addition, our senior credit agreement may
restrict our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit
or prohibit dividend payments. We may not have sufficient surplus or net profits under Delaware law to be able to pay any
dividends, which may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of
capital expenditures or increases in reserves.
Anti-takeover provisions in our organizational documents and Delaware law could delay or prevent a change in control.
Provisions of our certificate of incorporation and bylaws may delay or prevent a merger or acquisition that a shareholder may
consider favorable. These provisions include:
• the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those
shares, including preferences and voting rights, without shareholder approval, which could be used to significantly dilute
the ownership of a hostile acquirer;
• the requirement that a special meeting of shareholders may be called only by the board of directors, the chair of the board
of directors, the president, or stockholders holding at least 25% of our outstanding stock (subject to certain procedural
and informational requirements), which may delay the ability of our shareholders to force consideration of a proposal or
to take action;
• the procedural safeguards in place in connection with stockholder action by written consent, including a requirement that
stockholders of at least 25% of our outstanding common stock request that the board of directors set a record date to
determine the stockholders entitled to act by written consent;
• providing indemnification and exculpation rights to our directors and officers;
• advance notice procedures that shareholders must comply with in order to nominate candidates to our board of directors or
to propose matters to be acted upon at a shareholders’ meeting, which may discourage or deter a potential acquirer from
conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control
of us; and
• exclusive forum provisions, including provisions providing for the Court of Chancery of the State of Delaware as the
exclusive forum for bringing certain actions.
As a Delaware corporation, we are also subject to Section 203 of the Delaware General Corporation Law, which provides that
we may not engage in a business combination, such as a merger, consolidation, recapitalization, asset sale or disposition of
stock, with any "interested stockholder" for a period of three years from the date that the interested stockholder first became an
interested stockholder unless certain conditions are met.
18
Any provision of our certificate of incorporation and bylaws or Delaware law that has the effect of delaying or deterring a
change in control could limit the opportunity for our shareholders to receive a premium for their shares of our common stock,
and could also affect the price that some investors are willing to pay for our common stock.
Environmental laws and regulations and climate change initiatives could materially and adversely affect our business,
financial condition, and results of operations.
Our business and facilities and those of our suppliers are subject to a number of federal, state, local and international laws and
regulations governing the protection of human health and the environment. In addition, concern over climate change and
sustainability has led to foreign and domestic legislative and regulatory initiatives directed at limiting carbon dioxide and other
greenhouse gas emissions. A failure to comply with current or future environmental laws and regulations could result in fines
or penalties. Any such expenses or liability could have a material adverse effect on our financial condition, results of
operations or cash flows.
Our ability to attract and retain qualified employees is critical to our success.
CONMED’s employees are its most important resource, and in many areas of the medical industry, competition for qualified
personnel is intense. CONMED seeks to attract talented and diverse new employees and retain and motivate its existing
employees. If we are unable to continue to attract or retain qualified employees, including our executives, CONMED’s
performance, including its competitive position, could be materially and adversely affected.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Facilities
The following table sets forth certain information with respect to our principal operating facilities. We believe that our
facilities are generally well maintained, are suitable to support our business and adequate for present and anticipated needs.
Location
Square Feet
Own or Lease
Lease Expiration
Utica, NY
Largo, FL
Chihuahua, Mexico
Chihuahua, Mexico
Lithia Springs, GA
Brussels, Belgium
Mississauga, Canada
Greenwood Village, CO
Westborough, MA
Frenchs Forest, Australia
500,000
278,000
207,720
40,626
188,400
58,276
22,421
22,162
19,515
16,959
Own
Own
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
—
—
October 2024
March 2028
January 2025
June 2024
December 2023
July 2024
November 2025
July 2025
Our principal manufacturing facilities are located in Utica, NY, Largo, FL and Chihuahua, Mexico. Lithia Springs,
GA and Brussels, Belgium are our principal distribution centers. We also maintain sales and administrative offices in countries
throughout the world.
Item 3. Legal Proceedings
We are involved in various proceedings, legal actions and claims arising in the normal course of business, including
proceedings related to product, labor and intellectual property and other matters that are more fully described in Note 13. We
are not a party to any pending legal proceedings other than ordinary routine litigation incidental to our business.
Item 4. Mine Safety Disclosures
Not applicable.
19
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock, par value $.01 per share, is traded on the New York Stock Exchange ("NYSE"), effective
February 10, 2020, under the symbol “CNMD”. Prior to this date, our common stock was traded on the NASDAQ Global
Market under the same symbol. At February 1, 2021, there were 518 registered holders of our common stock and
approximately 31,636 accounts held in “street name”.
Our Board of Directors has authorized a share repurchase program; see Note 9.
The Board of Directors declared a quarterly cash dividend of $0.20 per share in 2019 and 2020. The fourth quarter
dividend for 2020 was paid on January 5, 2021 to shareholders of record as of December 15, 2020. The total dividend payable
at December 31, 2020 was $5.8 million and is included in other current liabilities in the consolidated balance sheet. Future
decisions as to the payment of dividends will be at the discretion of the Board of Directors. See "Item 1A. Risk Factors - Other
Risk Factors Related to our Business - Our Board of Directors may, in the future, limit or discontinue payment of a dividend on
common stock."
Refer to Item 12 for information relating to compensation plans under which equity securities of CONMED
Corporation are authorized for issuance.
20
Performance Graph
The performance graph below compares the yearly percentage change in the Company’s Common Stock with the
cumulative total return of the S&P 500 Index, NASDAQ Composite Index and the cumulative total return of the Standard &
Poor’s Health Care Equipment Index. The Company added the S&P 500 Index to the graph because the Company changed its
listing from the NASDAQ Global Market to the NYSE in February 2020 and believes the S&P 500 Index is a more appropriate
index for comparison to our stock performance. In future years, the Company plans to discontinue the use of the NASDAQ
Composite Index. In each case, the cumulative total return assumes reinvestment of dividends into the same class of equity
securities at the frequency with which dividends are paid on such securities during the applicable fiscal year.
21
Item 6. Selected Financial Data
The following table sets forth selected historical financial data for the years ended December 31, 2020, 2019, 2018,
2017 and 2016. The financial data set forth below should be read in conjunction with the information under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Form 10-K and the
Consolidated Financial Statements of the Company and the notes thereto.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
Statements of Operations Data (1):
Net sales
Cost of sales
Gross profit
Selling and administrative expense
Research and development expense
Income from operations
Interest expense
Other expense
Income before income taxes
Provision (benefit) for income taxes
Net income
Per Share Data:
Basic earnings per share
Diluted earnings per share
Dividends per share of common stock
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
2020
Years Ended December 31,
2018
2019
2017
2016
$ 862,459 $ 955,097 $ 859,634 $ 796,392 $ 763,520
355,190
408,330
338,400
32,254
37,676
15,359
2,942
19,375
4,711
14,664
390,524
469,110
355,617
42,188
71,305
20,652
—
50,653
9,799
40,854 $
365,351
431,041
351,799
32,307
46,935
18,203
—
28,732
(26,755)
55,487 $
430,382
524,715
400,141
45,460
79,114
42,701
5,188
31,225
2,605
28,620 $
402,159
460,300
373,817
40,473
46,010
44,052
355
1,603
(7,914)
9,517 $
$
$
$
$
$
0.33 $
1.01 $
1.45 $
1.99 $
0.53
0.32 $
0.97 $
1.41 $
1.97 $
0.52
0.80 $
0.80 $
0.80 $
0.80 $
0.80
72,625 $
13,013
72,323 $
20,066
60,761 $
16,507
57,506 $
12,842
54,267
14,753
27,356 $
25,856 $
17,511 $
32,622 $
$
1,751,673
852,434
709,038
1,775,095
876,541
710,467
1,369,138
545,924
662,270
1,357,961
576,526
631,432
27,428
1,328,983
634,455
580,576
(1)
Results of operations of acquired businesses have been recorded in the financial statements since the date of
acquisition.
22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with Selected Financial Data (Item 6), and our Consolidated
Financial Statements and related notes contained elsewhere in this report.
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons
between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included
in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Overview of CONMED Corporation
CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides
surgical devices and equipment for minimally invasive procedures. The Company’s products are used by surgeons and other
healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and
gastroenterology.
Our product lines consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine
instrumentation and small bone, large bone and specialty powered surgical instruments as well as, imaging systems for use in
minimally invasive surgery procedures including 2DHD and 3DHD vision technologies and service fees related to the
promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical
instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as
well as electrosurgical generators and related instruments. These product lines as a percentage of consolidated net sales are as
follows:
Orthopedic surgery
General surgery
Consolidated net sales
2020
2019
2018
43 %
57
100 %
49 %
51
100 %
52 %
48
100 %
A significant amount of our products are used in surgical procedures with approximately 82% of our revenues derived
from the sale of single-use products. Our capital equipment offerings also facilitate the ongoing sale of related single-use
products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products
in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to
customers and through distributors. International sales approximated 44% in 2020, 46% in 2019 and 48% in 2018.
COVID-19
Our business has been significantly impacted by the emergence of the COVID-19 pandemic, with the Company
experiencing lower sales in 2020 compared to 2019, first in the Asia/Pacific Rim and later in the United States, Europe and
elsewhere as temporary closures occurred and hospitals and surgery centers postponed many non-urgent surgical procedures to
minimize the risk of infection. In compliance with various governmental orders, beginning in March we restricted access to our
main facilities to only essential personnel required to be on-site while maintaining production and distribution. We expect
revenues to increase in 2021 as compared to 2020. We expect the United States to rebound faster than our international markets
based on the expected timing of increases in procedural volumes and general surgery rebounding faster than orthopedic surgery
due to the nature of the products. However, the extent and duration of the adverse impact of COVID-19 on our business are
still uncertain, rapidly changing and are subject to factors outside of our control, see "Item 1A. Risk Factors" for more
information. For additional discussion regarding COVID 19, see Liquidity and Capital Resources below.
Buffalo Filter Acquisition
On February 11, 2019, we acquired Buffalo Filter and all of the issued and outstanding common stock of Palmerton
Holdings, Inc. from Filtration Group FGC LLC (the “Buffalo Filter Acquisition”) for approximately $365 million, in cash.
Buffalo Filter develops, manufactures and markets smoke evacuation technologies that are complementary to our general
surgery offering. See Note 2 for further information on this business acquisition.
We financed the purchase price for the Buffalo Filter Acquisition using a combination of the issuance of $345.0
million of 2.625% convertible notes due 2024 issued on January 29, 2019 (the Convertible Notes”) and the incurrence of
23
indebtedness under our sixth amended and restated senior secured credit agreement, which closed on February 7, 2019. Refer
to Financing Cash Flows and Note 7 for further details.
Critical Accounting Policies
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 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. Actual results may or may not differ from these estimates.
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. Factors that contribute to the recognition of goodwill include synergies that are expected to
increase net sales and profits; acquisition of a talented workforce; cost savings opportunities; the strategic benefit of expanding
our presence in core and adjacent markets; and diversifying our product portfolio. Customer and distributor relationships,
trademarks, tradenames, developed technology, patents and other intangible assets primarily represent allocations of purchase
price to identifiable intangible assets of acquired businesses. Sales representation, marketing and promotional rights represent
intangible assets created under our agreement with Musculoskeletal Transplant Foundation (“MTF”). Determining the fair
value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates
include the amount and timing of projected future cash flows of each project or technology, revenue growth rates, projected
cost of sales, customer attrition rates, the discount rate used to discount those cash flows to present value, the assessment of the
asset’s useful life, and the consideration of legal, technical, regulatory, economic, and competitive risks. As these are
significant estimates, we would obtain the assistance of a third-party valuation specialist in estimating fair values of intangible
assets for significant acquisitions.
Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to at least annual
impairment testing. It is our policy to perform our annual impairment testing in the fourth quarter. The identification and
measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based
on the best information available as of the date of the assessment. We completed our goodwill impairment testing of our single
reporting unit during the fourth quarter of 2020. We performed our impairment test utilizing the market capitalization approach
to determine whether the fair value of a reporting unit is less than its carrying amount. Based upon our assessment, the fair
value of our reporting unit continues to exceed carrying value.
For our indefinite-lived intangible assets, trademarks and tradenames, we performed our impairment testing as of the
fourth quarter of 2020 utilizing the relief from royalty income based approach to determine whether the fair value is less than its
carrying amount. A considerable amount of management judgment and assumptions are required in performing the impairment
testing. The key assumptions used in the impairment testing were long-term revenue growth projections, royalty rates, discount
rates and general industry, market and macro-economic conditions. Based upon our assessment, the fair value continues to
exceed carrying value.
Intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each
reporting period to determine whether events and circumstances warrant a revision to the remaining period of
amortization. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The carrying amount of an intangible asset subject to
amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the
asset. An impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value.
See Note 6 for further discussion of goodwill and other intangible assets.
Pension Plan
We sponsor a defined benefit pension plan (the “pension plan”) that was frozen in 2009. It covered substantially all
our United States based employees at the time it was frozen. In conjunction with the pension plan, we recorded a pension
benefit obligation totaling $101.2 million as of December 31, 2020. In accounting for this pension plan, we are required to
make a number of assumptions, including the expected rate of return on plan assets and discount rate. In determining the
expected rate of return on plan assets, we consider the relative weighting of plan assets, the historical performance of total plan
24
assets and individual asset classes and economic and other indicators of future performance. The discount rate represents the
interest rate used in estimating the present value of projected cash flows to settle the Company’s pension obligations. The
discount rate assumption is determined by using a full yield curve approach, which involves applying the specific spot rates
along the yield curve used in the determination of the benefit obligation that correlates to the relevant projected cash flows. See
Note 12 for further discussion of the pension plan.
Consolidated Results of Operations
The following table presents, as a percentage of net sales, certain categories included in our consolidated statements of
comprehensive income for the periods indicated:
Net sales
Cost of sales
Gross profit
Selling and administrative expense
Research and development expense
Income from operations
Interest expense
Other expense
Income before income taxes
Provision (benefit) for income taxes
Net income
Net Sales
Years Ended December 31,
2019
100.0 %
45.1
54.9
41.9
2020
100.0 %
46.6
53.4
43.3
2018
100.0 %
45.4
54.6
41.4
4.7
5.3
5.1
—
0.2
(0.9)
1.1 %
4.8
8.3
4.5
0.5
3.3
0.3
3.0 %
4.9
8.3
2.4
—
5.9
1.1
4.8 %
The following table presents net sales by product line for the years ended December 31, 2020, 2019 and 2018:
Constant
Currency a
-18.4 %
-0.7 %
-9.3 %
-6.6 %
-19.6 %
-9.3 %
2020
2019
As
Reported
% Change from
2020 to 2019
Impact of
Foreign
Currency
Orthopedic surgery
General surgery
Net sales
Single-use products
Capital products
Net sales
$
$
$
$
374.7 $
487.8
862.5 $
703.0 $
159.5
862.5 $
463.3
491.8
955.1
756.3
198.8
955.1
-19.1 %
-0.8 %
-9.7 %
-7.0 %
-19.8 %
-9.7 %
0.7 %
0.1 %
0.4 %
0.4 %
0.2 %
0.4 %
25
2019
2018
As
Reported
% Change from
2019 to 2018
Impact of
Foreign
Currency
Orthopedic surgery
General surgery
Net sales
Single-use products
Capital products
Net sales
$
$
$
$
463.3 $
491.8
955.1 $
756.3 $
198.8
955.1 $
446.7
412.9
859.6
681.1
178.5
859.6
3.7 %
19.1 %
11.1 %
11.0 %
11.3 %
11.1 %
0.8 %
0.3 %
0.6 %
0.6 %
0.7 %
0.6 %
Constant
Currency a
4.5 %
19.4 %
11.7 %
11.6 %
12.0 %
11.7 %
(a) Refer to Non-GAAP Financial Measures below for further details.
Net sales decreased 9.7% to $862.5 million in 2020 from $955.1 million in 2019. Net sales decreased across all
product lines in 2020 as a result of the COVID-19 pandemic.
•
•
Orthopedic surgery sales decreased 19.1% in 2020 to $374.7 million from $463.3 million in 2019 primarily driven by
deferral of non-urgent surgeries in hospitals and surgery centers as a result of the COVID-19 pandemic. A significant
portion of this decline was driven by a reduction in capital equipment purchases as hospitals and surgery centers
conserved cash and deferred capital outlays.
General surgery sales decreased 0.8% in 2020 to $487.8 million from $491.8 million in 2019. The decrease was a
result of the deferral of non-urgent surgeries in hospitals and surgery centers as a result of the COVID-19 pandemic.
We believe the deferral of non-urgent procedures has had a lesser impact on our general surgery lines as a result of the
nature of the products and procedures in which they are used and this belief was borne out in the second half of the
year as we experienced sequential growth from the third to the fourth quarter, including continued growth in our
Buffalo Filter® and AirSeal® products throughout 2020.
Cost of Sales
Cost of sales was $402.2 million in 2020 compared to $430.4 million in 2019. Gross profit margins were 53.4% in
2020 and 54.9% in 2019. The decrease in gross profit margin of 1.5 percentage points in 2020 was driven by the following:
•
•
•
•
•
$6.6 million in costs related to plant underutilization due to abnormally low production as a result of decreased sales
caused by the COVID-19 pandemic;
an increase of $1.1 million in costs related to the consolidation of certain manufacturing operations related to winding
down operations at certain locations and moving production lines to other facilities ($4.0 million in 2020 compared to
$2.9 million in 2019);
an increase of $1.5 million in business acquisition costs ($2.8 million in 2020 compared to $1.3 million in 2019);
$2.2 million in costs related to product rationalization; and
$1.1 million in restructuring costs related to a voluntary separation arrangement as a result of the COVID-19
pandemic.
Refer to Note 14 for further details.
Selling and Administrative Expense
Selling and administrative expense was $373.8 million in 2020 compared to $400.1 million in 2019. Selling and
administrative expense as a percentage of net sales was 43.3% in 2020 and 41.9% in 2019.
26
The decrease in selling and administrative expense in 2020 was driven mainly by actions taken to reduce expenses in
response to the COVID-19 pandemic. We experienced reduced travel due to safety measures put in place and reduced trade
show costs as shows were cancelled during the year. We also had lower commission costs during 2020 as sales declined
compared to the prior year. In addition, during 2020, we incurred $4.8 million in severance costs related to a voluntary
termination program and costs associated with the restructuring of our sales force, a $2.1 million write-off of field inventory
used for customer demonstration and evaluation of products resulting from the product rationalization initiative and $1.2
million in acquisition and integration costs relating to the Buffalo Filter acquisition compared to $13.1 million in acquisition
and integration costs in 2019. Refer to Note 14 for further details.
Research and Development Expense
Research and development expense was $40.5 million in 2020 and $45.5 million in 2019. As a percentage of net sales,
research and development expense was 4.7% in 2020 and 4.8% in 2019. The lower spend in 2020 was driven by cost cutting
measures in light of the COVID-19 pandemic while still investing in key projects.
Interest Expense
Interest expense increased to $44.1 million in 2020 compared to $42.7 million in 2019. The weighted average interest
rates on our borrowings were 3.65% in 2020 decreasing from 3.71% in 2019. The increase in interest expense during 2020 was
primarily due to an increase in non-cash interest expense offset by a decrease in outstanding debt balances and slightly lower
interest rates.
Other Expense
Other expense during the year ended December 31, 2020 related to non-service pension costs. Other expense during
the year ended December 31, 2019 was mainly related to costs associated with our sixth amended and restated senior credit
agreement entered into on February 7, 2019 as further described in Note 7. These costs included a $3.6 million charge related
to commitment fees paid to certain of our lenders, which provided a financing commitment for the Buffalo Filter acquisition,
and a loss on the early extinguishment of debt of $0.3 million. Also included in 2019 were non-service pension costs.
Provision for Income Taxes
A provision (benefit) for income taxes was recorded at an effective rate of (493.9)% and 8.3% in 2020 and 2019,
respectively, as compared to the federal statutory rate of 21.0%. The lower effective tax rate in 2020 was primarily the result of
federal tax items having a greater benefit due to lower book income in 2020 as compared to 2019 as well as the benefit relating
to the final issuance of tax regulations regarding United States tax on foreign earnings at different rates. A reconciliation of the
United States statutory income tax rate to our effective tax rate is included in Note 8.
Non-GAAP Financial Measures
Net sales on a "constant currency" basis is a non-GAAP measure. The Company analyzes net sales on a constant
currency basis to better measure the comparability of results between periods. To measure percentage sales growth in constant
currency, the Company removes the impact of changes in foreign currency exchange rates that affect the comparability and
trend of net sales.
Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure
with other companies' non-GAAP financial measures having the same or similar names. This adjusted financial measure should
not be considered in isolation or as a substitute for reported net sales growth, the most directly comparable GAAP financial
measure. This non-GAAP financial measure is an additional way of viewing net sales that, when viewed with our GAAP
results, provides a more complete understanding of our business. The Company strongly encourages investors and shareholders
to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Liquidity and Capital Resources
Our liquidity needs arise primarily from capital investments, working capital requirements and payments on
indebtedness under the amended and restated senior credit agreement, described below. We have historically met these
liquidity requirements with funds generated from operations and borrowings under our revolving credit facility. In addition, we
have historically used term borrowings, including borrowings under the sixth amended and restated senior credit agreement and
borrowings under separate loan facilities, in the case of real property purchases, to finance our acquisitions. We also have the
27
ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering.
As a result of the COVID-19 pandemic, we experienced lower sales in 2020, however as noted above we expect
revenues to increase in 2021. On April 17, 2020 we amended our senior credit agreement to suspend our required leverage
ratios for up to four quarters. On November 20, 2020, we entered into a third amendment under our senior credit agreement to
lower the applicable margin on loans and lower the interest floor on Eurocurrency loans agreed upon in April as actual and
forecasted results are expected to be better than anticipated. We have certain minimum liquidity and fixed charge coverage ratio
requirements with which we were in compliance with as of December 31, 2020. Management believes that cash flow from
operations, including cash and cash equivalents on hand and available borrowing capacity under our revolving credit facility,
will be adequate to meet our liquidity needs for the foreseeable future. We have undertaken steps to reduce our spending and
expenses in light of our expectation that our revenues will be depressed over the next several months. While we expect that we
will be well positioned when surgeries begin to return to their pre-pandemic levels, we are unable to predict with certainty how
long the COVID-19 pandemic will last, or how severe its economic impact will be. Even after the COVID-19 pandemic and
government responses thereto have subsided, residual economic and other effects may have an impact on the demand for post-
pandemic surgery levels that are difficult to predict. If the downturn is more severe and prolonged than we currently expect, we
may need to take further steps to reduce our costs, or to refinance our debt.
We had total cash on hand at December 31, 2020 of $27.4 million, of which approximately $26.3 million was held by
our foreign subsidiaries outside the United States with unremitted earnings. During 2020, we redeployed $15.8 million of cash
from certain non-U.S. subsidiaries primarily for U.S. debt reduction which consisted primarily of earnings that were taxed in
2017 as part of the deemed repatriation toll charge implemented by Tax Reform. We may repatriate funds from certain foreign
subsidiaries in the future. Refer to Note 8 for further details.
Operating Cash Flows
Our net working capital position was $226.5 million at December 31, 2020. Net cash provided by operating activities
was $64.5 million in 2020 and $95.1 million in 2019 generated on net income of $9.5 million in 2020 and $28.6 million in
2019. The decrease in cash provided by operating activities in 2020 as compared to 2019 was mainly driven by lower sales
and net income in 2020 resulting from the COVID-19 pandemic. Significant impacts to operating cash flows in 2020 include
increases from accounts receivable as fourth quarter sales in 2020 were lower than the same period in 2019 offset by decreases
in operating cash flow caused by higher inventories on lower sales compared to the same period a year ago. Use of cash in
other assets declined in 2020 compared to 2019 as lower sales force activity caused by the pandemic resulted in lower field
inventory requirements.
Investing Cash Flows
Net cash used in investing activities decreased to $13.6 million in 2020 compared to $387.7 million in 2019 primarily
due to the $365 million payment for the Buffalo Filter acquisition in 2019 and $3.2 million in cash received from the sale of a
facility during 2020. Capital expenditures were $13.0 million and $20.1 million in 2020 and 2019, respectively.
Financing Cash Flows
Financing activities in 2020 used cash of $52.1 million compared to providing cash of $300.9 million in 2019. Below
is a summary of the significant financing activities:
•
•
During 2019, we received proceeds of $345.0 million related to the issuance of 2.625% convertible notes as further
described below.
During 2019, we entered into a $265.0 million term loan in conjunction with the refinancing of our senior credit
agreement. This new term loan replaced the previous term loan and resulted in payments of $13.3 million during
the year ended December 31, 2020 compared to $110.7 million in net proceeds in the prior year.
• We had net repayments on our revolving line of credit of $13.0 million and $92.0 million in 2020 and 2019,
•
respectively.
In 2019, we paid $51.2 million to purchase hedges related to our convertible notes. Partially offsetting this, were
proceeds of $30.6 million from the issuance of warrants as further described below.
• We paid $2.7 million and $6.5 million in 2020 and 2019, respectively, in contingent consideration related to prior
•
acquisitions.
In 2020, we paid debt issuance costs of $3.2 million in connection with the April 17, 2020 and November 20, 2020
amendments of our sixth amended and restated senior credit agreement as further described below compared to $16.2
million in 2019 related to the sixth amended and restated senior credit agreement and 2.625% convertible notes.
28
On February 7, 2019, we entered into a sixth amended and restated senior credit agreement consisting of: (a) a $265.0
million term loan facility and (b) a $585.0 million revolving credit facility. The revolving credit facility will terminate and the
loans outstanding under the term loan facility will mature on the earlier of (i) February 7, 2024 or (ii) 91 days prior to the
earliest scheduled maturity date of the 2.625% convertible notes due in 2024 described below, (if, as of such date, more than
$150.0 million in aggregate principal amount of such convertible notes (or any refinancing thereof) remains outstanding). The
term loan facility is payable in quarterly installments increasing over the term of the facility. Proceeds from the term loan
facility and borrowings under the revolving credit facility were used to repay the then existing senior credit agreement and in
part to finance the acquisition of Buffalo Filter. As noted above, on April 17, 2020, we amended our sixth amended and
restated senior credit agreement to suspend our required leverage ratios for up to four quarters. On November 20, 2020, we
entered into a third amendment under our senior credit agreement to lower the applicable margin on the loans and lower the
interest floor on Eurocurrency loans agreed upon in April as forecasted results are expected to be better than anticipated. We
have certain minimum liquidity and fixed charge coverage ratio requirements. Interest rates are adjusted so that the applicable
margin for base rate loans is 2.00% per annum and for Eurocurrency rate loans is 3.00% per annum, and the applicable
commitment fee rate for the revolving credit facility is 0.50%. Following the suspension period, the applicable margin will
depend upon CONMED’s consolidated senior secured leverage ratio, using the pricing grid set forth in the November 2020
amendment. Interest rates were at LIBOR (subject to 0.50% floor) plus an interest rate margin of 3.00% (3.50% at
December 31, 2020).
There were $241.8 million in borrowings outstanding on the term loan facility as of December 31, 2020. There were
$207.0 million in borrowings outstanding under the revolving credit facility as of December 31, 2020. Our available
borrowings on the revolving credit facility at December 31, 2020 were $375.5 million with approximately $2.5 million of the
facility set aside for outstanding letters of credit.
The sixth amended and restated senior credit agreement is collateralized by substantially all of our personal property
and assets. The sixth amended and restated senior credit agreement contains covenants and restrictions which, among other
things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain
indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and
restrictions as of December 31, 2020. We are also required, under certain circumstances, to make mandatory prepayments from
net cash proceeds from any issuance of equity and asset sales.
On January 29, 2019, we issued $345.0 million in 2.625% convertible notes due in 2024 (the "Notes"). Interest is
payable semi-annually in arrears on February 1 and August 1 of each year, commencing August 1, 2019. The Notes will
mature on February 1, 2024, unless earlier repurchased or converted. The Notes represent subordinated unsecured obligations
and are convertible under certain circumstances, as defined in the indenture, into a combination of cash and CONMED common
stock. The Notes may be converted at an initial conversion rate of 11.2608 shares of our common stock per $1,000 principal
amount of Notes (equivalent to an initial conversion price of approximately $88.80 per share of common stock). Holders of the
Notes may convert the Notes at their option at any time on or after November 1, 2023 through the second scheduled trading day
preceding the maturity date. Holders of the Notes will also have the right to convert the Notes prior to November 1, 2023, but
only upon the occurrence of specified events. The conversion rate is subject to anti-dilution adjustments if certain events occur.
A portion of the net proceeds from the offering of the Notes were used as part of the financing for the Buffalo Filter acquisition
and $21.0 million were used to pay the cost of certain convertible notes hedge transactions as further described below.
In connection with the offering of the Notes, we entered into convertible notes hedge transactions with a number of
financial institutions (each, an “option counterparty”). The convertible notes hedge transactions cover, subject to anti-dilution
adjustments substantially similar to those applicable to the Notes, the number of shares of our common stock underlying the
Notes. Concurrently with entering into the convertible notes hedge transactions, we also entered into separate warrant
transactions with each option counterparty whereby we sold to such option counterparty warrants to purchase, subject to
customary anti-dilution adjustments, the same number of shares of our common stock.
The convertible notes hedge transactions are expected generally to reduce the potential dilution upon conversion of the
Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the
case may be, in the event that the market price per share of our common stock, as measured under the terms of the convertible
notes hedge transactions, is greater than the strike price ($114.92) of the convertible notes hedge transactions, which initially
corresponds to the conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those
applicable to the conversion rate of the Notes. If, however, the market price per share of our common stock, as measured under
the terms of the warrant transactions, exceeds the strike price of the warrants, there would nevertheless be dilution to the extent
that such market price exceeds the strike price of the warrants, unless we elect to settle the warrants in cash.
29
Our Board of Directors has authorized a $200.0 million share repurchase program. Through December 31, 2020, we
have repurchased a total of 6.1 million shares of common stock aggregating $162.6 million under this authorization and have
$37.4 million remaining available for share repurchases. The repurchase program calls for shares to be purchased in the open
market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any
time. We have not purchased any shares of common stock under the share repurchase program during 2020. We have financed
the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our
revolving credit facility.
Management believes that cash flow from operations, including cash and cash equivalents on hand and available
borrowing capacity under our sixth amended and restated senior credit agreement, will be adequate to meet our anticipated
operating working capital requirements, debt service, funding of capital expenditures, dividend payments and common stock
repurchases in the foreseeable future. See “Item 1A. Risk Factors - Risks Related to Our Indebtedness."
Contractual Obligations
The following table summarizes our contractual obligations for the next five years and thereafter (amounts in
thousands) as of December 31, 2020. Purchase obligations represent purchase orders for goods and services placed in the
ordinary course of business.
Payments Due by Period
1-3
Years
Less than
1 Year
3-5
Years
More than
5 Years
Total
Long-term debt
Purchase obligations
Lease obligations
Total contractual obligations
$ 793,812 $
93,606
25,203
18,219 $ 430,593 $ 345,000 $
91,124
7,666
2,482
12,097
—
4,714
$ 912,621 $ 117,009 $ 445,172 $ 349,714 $
—
—
726
726
In addition to the above contractual obligations, we are required to make periodic interest payments on our long-term
debt obligations (see additional discussion under Item 7A. “Quantitative and Qualitative Disclosures About Market Risk—
Interest Rate Risk” and Note 7). The above table also does not include unrecognized tax benefits of approximately $0.2
million, the timing and certainty of recognition for which is not known (See Note 8).
Stock-based Compensation
We have reserved shares of common stock for issuance to employees and directors under two shareholder-approved
share-based compensation plans (the "Plans"). The Plans provide for grants of stock options, stock appreciation rights
(“SARs”), dividend equivalent rights, restricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and
other equity-based and equity-related awards. The exercise price on all outstanding stock options and SARs is equal to the
quoted fair market value of the stock at the date of grant. RSUs and PSUs are valued at the market value of the underlying
stock on the date of grant. Stock options, SARs, RSUs and PSUs are generally non-transferable other than on death and
generally become exercisable over a four to 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 9). Total pre-tax stock-based compensation
expense recognized in the consolidated statements of comprehensive income was $13.1 million, $11.8 million and $10.0
million for the years ended December 31, 2020, 2019 and 2018, respectively.
Other Matters
Through April 1, 2020, our credit facility allowed us to seek to sell products to certain customers in Iran in compliance
with applicable laws and regulations and subject to certain terms and conditions, including pre-approval by us and our lenders
of the identity of any distributor and prior review of each of the end-customers. We had sales to a third-party distributor in Iran
during the first quarter of 2020. We limited such sales into Iran to products that qualified as “medical supplies” within the
meaning of the general license, or covered by specific licenses, provided by the Iranian Transactions and Sanctions Regulations
set forth in the regulations promulgated by the Office of Foreign Assets Control (“OFAC”) of the United States Department of
the Treasury set forth at 31 C.F.R. § 560.530. We have implemented certain controls and processes designed to ensure that the
ultimate end-users for the products are those permitted under the OFAC general license, and that the sales and transactions with
the Iranian distributor otherwise comply with the requirements of the OFAC regulations. The expected revenues and net profits
associated with sales to the Iranian distributor were not material to our overall results of operations.
30
We do not believe that our activities to date have been subject to required disclosure under Section 13(r) of the
Securities Exchange Act of 1934 (the “Exchange Act”), which, among other things, requires disclosure of transactions and
activities knowingly entered into with the Government of Iran that do not benefit from an OFAC license and with certain
designated parties. If, however, activities are in the future discovered to be within the scope of the transactions and activities
captured by Section 13(r) of the Exchange Act, we will make the required disclosures and notices.
New Accounting Pronouncements
See Note 17 for a discussion of new accounting pronouncements.
Item 7A. 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 2020 consolidated net sales were to customers outside the United States. We have
sales subsidiaries in a significant number of countries in Europe as well as Australia, Canada, China, Japan and Korea. In those
countries in which we have a direct presence, our sales are denominated in the local currency amounting to approximately 34%
of our total net sales in 2020. The remaining 10% 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 2020, foreign currency exchange rates, including the effects of the hedging program,
caused sales to decrease by approximately $4.9 million.
We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts. We
account for these forward contracts as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria,
changes in their fair value are not included in current earnings but are included in accumulated other comprehensive
loss. These changes in fair value will be recognized into earnings as a component of sales or cost of sales when the forecasted
transaction occurs.
We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our
currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle
each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts
as hedges and have not applied hedge accounting to them.
Refer to Note 16 for further discussion.
Interest rate risk
At December 31, 2020, we had approximately $448.8 million of variable rate long-term debt outstanding under our
senior credit agreement. Assuming no repayments, if market interest rates for similar borrowings averaged 1.0% more in 2021
than they did in 2020, interest expense would increase, and income before income taxes would decrease by $4.5
million. Comparatively, if market interest rates for similar borrowings average 1.0% less in 2021 than they did in 2020, our
interest expense would decrease, and income before income taxes would increase by $4.5 million.
Item 8. Financial Statements and Supplementary Data
Our 2020 Financial Statements are included in this Form 10-K beginning on page 43 and incorporated by reference
herein.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
There were no changes in or disagreement with accountants on accounting and financial disclosure.
31
Item 9A. Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out by CONMED Corporation’s
management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures
were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial
reporting (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) occurred during the fourth quarter of the year
ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public
Accounting Firm thereon are set forth in Part IV, Item 15 of the Annual Report on Form 10-K.
Item 9B. Other Information
Not applicable.
32
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated herein by reference to the sections captioned “Proposal One:
Election of Directors”, “Directors, Executive Officers, Other Company Officers and Nominees for the Board of Directors”,
“Delinquent Section 16(a) Reports", “Ethics Disclosure” and "Meetings of the Board of Directors and Committees, Leadership
Structure and Risk Oversight” in CONMED Corporation’s definitive Proxy Statement or other informational filing to be filed
with the Securities and Exchange Commission on or about April 9, 2021.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the sections captioned “Compensation
Discussion and Analysis”, “Compensation Committee Report on Executive Compensation”, “Summary Compensation Table”,
“Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal Year-End”, “Option Exercises and Stock Vested”,
“Non-Qualified Deferred Compensation”, “Potential Payments on Termination or Change-in-Control”, “Director
Compensation,” “Pay Ratio” and “Board of Directors and Compensation Committee Interlocks and Insider Participation;
Certain Relationships and Related Transactions” in CONMED Corporation’s definitive Proxy Statement or other informational
filing to be filed with the Securities and Exchange Commission on or about April 9, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to the section captioned “Security Ownership
of Certain Beneficial Owners and Management” in CONMED Corporation’s definitive Proxy Statement or other informational
filing to be filed with the Securities and Exchange Commission on or about April 9, 2021.
Information relating to shareholder approved compensation plans under which equity securities of CONMED
Corporation are authorized for issuance is set forth below:
Equity Compensation Plan Information
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
3,336,232 $
—
3,336,232
66.76
—
66.76
3,788,058
—
3,788,058
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
The number of securities included in column (a) above consists of outstanding stock options, share appreciation rights
(“SARs”) and performance share units, however the weighted-average exercise price in column (b) is for stock options and
SARs only.
During 2018, the Company granted employment inducement awards in conjunction with the hiring of the Executive
Vice President & Chief Financial Officer. This included 48,000 stock options, that would be issued upon exercise, at an
exercise price of $50.61 per share. These shares are not part of a shareholder approved plan and no shares remain available for
future issuance.
33
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the section captioned “Directors,
Executive Officers and Nominees for the Board of Directors” and “Board of Directors and Compensation Committee Interlocks
and Insider Participation; Certain Relationships and Related Transactions” in CONMED Corporation’s definitive Proxy
Statement or other informational filing to be filed with the Securities and Exchange Commission on or about April 9, 2021.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the section captioned “Principal
Accounting Fees and Services” in CONMED Corporation’s definitive Proxy Statement or other informational filing to be filed
with the Securities and Exchange Commission on or about April 9, 2021.
34
PART IV
Item 15. Exhibits, Financial Statement Schedules
Index to Financial Statements
(a)(1) List of Financial Statements
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020,
2019 and 2018
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2020,
2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and
2018
Notes to Consolidated Financial Statements
(2)
List of Financial Statement Schedules
Valuation and Qualifying Accounts (Schedule II) for the Years Ended December 31, 2020,
2019 and 2018
All other schedules have been omitted because they are not applicable, or the required
information is shown in the financial statements or notes thereto.
(3)
List of Exhibits
The exhibits listed on the accompanying Exhibit Index on page 38 below are filed as part of
this Form 10-K.
Page in Form 10-K
43
44
46
47
48
49
51
82
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CONMED CORPORATION
By: /s/ Curt R. Hartman
Curt R. Hartman
(President and Chief
Executive Officer)
Date:
February 22, 2021
36
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ CURT R. HARTMAN
Curt R. Hartman
President, Chief Executive Officer and
Chair of the Board of Directors
/s/ TODD W. GARNER
Todd W. Garner
Executive Vice President
and Chief Financial Officer
/s/ TERENCE M. BERGE
Terence M. Berge
Vice President-
Corporate Controller
February 22, 2021
February 22, 2021
February 22, 2021
/s/ MARTHA GOLDBERG ARONSON
Martha Goldberg Aronson
Lead Independent Director
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
/s/ DAVID BRONSON
David Bronson
/s/ BRIAN P. CONCANNON
Brian P. Concannon
/s/ LAVERNE COUNCIL
Laverne Council
/s/ CHARLES M. FARKAS
Charles M. Farkas
/s/ JEROME J. LANDE
Jerome J. Lande
/s/ BARBARA SCHWARZENTRAUB
Barbara Schwarzentraub
/s/ MARK E. TRYNISKI
Mark E. Tryniski
/s/ JOHN L. WORKMAN
John L. Workman
Director
Director
Director
Director
Director
Director
Director
Director
37
Exhibit No.
Exhibit Index
Description
2.1
3.1
3.2
4.1*
10.1+
10.2*+
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Agreement and Plan of Merger, dated May 21, 2020, by and between CONMED Corporation, a New
York corporation, and CONMED Corporation, a Delaware corporation (Incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 22, 2020).
By-laws of CONMED Corporation, a Delaware corporation (Incorporated by reference to Exhibit 3.2 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May
22, 2020).
Certificate of Incorporation of CONMED Corporation, a Delaware corporation (Incorporated by
reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 22, 2020 ).
Description of the Common Stock of CONMED Corporation, a Delaware corporation.
Employment Agreement between the Company and Curt R. Hartman, dated November 9, 2014
(Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 10, 2014).
Amendment Number 1 to Employment Agreement between CONMED Corporation and Curt R.
Hartman dated December 28, 2020.
Amended and Restated 1999 Long Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the
Company’s Registration Statement on Form S-8 on November 3, 2009).
2002 Employee Stock Purchase Plan (Incorporated by reference to the Company’s Definitive Proxy
Statement for the 2002 Annual Meeting filed with the Securities and Exchange Commission on April 17,
2002).
Amendment to CONMED Corporation 2002 Employee Stock Purchase Plan (Incorporated by reference
to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the year ended December 31,
2005).
CONMED Corporation Amended and Restated 2020 Employee Stock Purchase Plan (incorporated by
reference to Exhibit E of the Registrant’s Proxy Statement on Schedule 14A filed on April 10, 2020).
2006 Stock Incentive Plan (Incorporated by reference to Exhibit 4.3 of the Company’s Registration
Statement on Form S-8 on August 8, 2006).
Amended and Restated 2007 Non-Employee Director Equity Compensation Plan of CONMED
Corporation (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form
S-8 on August 3, 2010).
Amended and Restated Long Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the
Company’s Registration Statement on Form S-8 on July 27, 2012).
CONMED Corporation Executive Severance Plan (Incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on July
27, 2015).
Amended and Restated 2015 Long-Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-8 on October 23, 2015).
38
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
-
-
-
-
-
-
-
-
-
-
-
-
-
Amended and Restated 2016 Non-Employee Director Equity Compensation Plan (Incorporated by
reference to Exhibit 4.3 of the Company's Registration Statement on Form S-8 on October 28, 2016).
Amended and Restated 2020 Non-Employee Director Equity Compensation Plan of CONMED
Corporation (incorporated by reference to Exhibit D of the Registrant’s Proxy Statement on Schedule
14A filed on April 10, 2020).
2018 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.3 of the Registrants Form S-8
filed on November 5, 2018).
Guarantee and Collateral Agreement, dated August 28, 2002, made by CONMED Corporation and
certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated by reference to Exhibit 10.2
of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
First Amendment to Guarantee and Collateral Agreement, dated June 30, 2003, made by CONMED
Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank and the several banks and
other financial institutions or entities from time to time parties thereto (Incorporated by reference to
Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
Second Amendment to Guarantee and Collateral Agreement, dated April 13, 2006, made by CONMED
Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank and the several banks and
other financial institutions or entities from time to time parties thereto (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April
19, 2006).
Third Amendment to Guarantee and Collateral Agreement, dated as of January 17, 2013, made by
CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated
by reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K for the year ended December
31, 2012).
Fourth Amendment to Guarantee and Collateral Agreement, dated as of January 4, 2016, made by
CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated
by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 4, 2016).
Sixth Amended and Restated Credit Agreement, dated February 7, 2019, among CONMED Corporation,
the foreign subsidiary borrowers from time to time party thereto, the several lenders from time to time
party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 7, 2019).
First Amendment, dated as of March 13, 2020, to the Sixth Amended and Restated Credit Agreement,
dated as of February 7, 2019 (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2020).
Second Amendment, dated April 17, 2020, to the Sixth Amendment and Restated Credit Agreement,
dated February 7, 2019, among CONMED Corporation, the foreign subsidiary borrowers from time to
time party thereto, the several lenders from time to time party thereto and JPMorgan Chase Bank, N.A.,
as administrative agent (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on April 20, 2020).
Third Amendment, dated November 20, 2020, to the Sixth Amendment and Restated Credit Agreement,
dated February 7, 2019, among CONMED Corporation, the foreign subsidiary borrowers from time to
time party thereto, the several lenders from time to time party thereto and JPMorgan Chase Bank, N.A.,
as administrative agent (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 23, 2020).
Sports Medicine Joint Development and Distribution Agreement by and between Musculoskeletal
Transplant Foundation, Inc. and CONMED Corporation dated as of January 3, 2012 (Incorporated by
reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated January 3, 2012).
39
10.25+
10.26+
10.27*+
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Employment Agreement between the Company and Patrick Beyer, dated April 25, 2019 (Incorporated
by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-Q for the quarter ended March
31, 2019).
Offer Letter from CONMED Corporation to Todd W. Garner dated January 2, 2018. (Incorporated by
reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 2, 2018).
Amendment Number 1 to Offer Letter from CONMED Corporation to Todd W. Garner dated December
28, 2020.
Stock Option Inducement Award (incorporated by reference to Exhibit 4.3 of the Registrants Form S-8
filed on February 27, 2018).
Restricted Stock Unit Inducement Award (incorporated by reference to Exhibit 4.4 of the Registrants
Form S-8 filed on February 27, 2018).
Securities Purchase Agreement, dated as of December 13, 2018, by and between CONMED Corporation
and Filtration Group FGC LLC (Incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2018).
Indenture, dated as of January 29, 2019, by and between CONMED Corporation and MUFG Union
Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and Barclays Bank PLC (Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and Bank of America, N.A (Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.3 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association,
London Branch (Incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on January 29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and Barclays Bank PLC (Incorporated by reference to Exhibit 10.5 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and Bank of America, N.A (Incorporated by reference to Exhibit 10.6 of the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.7 of the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January
29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association, London
Branch (Incorporated by reference to Exhibit 10.8 of the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 29, 2019).
40
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
14
21*
23*
31.1*
31.2*
32.1*
101.INS*
101.SCH*
101.CAL*
101.DEF*
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Barclays Bank PLC (Incorporated by reference to Exhibit 10.9 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Bank of America, N.A. (Incorporated by reference to Exhibit 10.10 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.11 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
January 29, 2019).
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association,
London Branch (Incorporated by reference to Exhibit 10.12 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Barclays Bank PLC (Incorporated by reference to Exhibit 10.13 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Bank of America, N.A. (Incorporated by reference to Exhibit 10.14 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.15 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association,
London Branch (Incorporated by reference to Exhibit 10.16 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on January 29, 2019).
Code of Ethics. The CONMED code of ethics may be accessed via the Company’s website at http://
www.conmed.com/en/about-us/investors/investor-relations
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Curt R. Hartman pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Todd W. Garner. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of Curt R. Hartman and Todd W. Garner pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document - The instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
41
101.LAB*
101.PRE*
104*
-
-
-
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL
document (included in Exhibit 101)
*
Filed herewith
+ Management contract or compensatory plan or arrangement
42
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, 2020. In making its assessment, management utilized the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework”,
released in 2013. Management has concluded that based on its assessment, CONMED’s internal control over financial
reporting was effective as of December 31, 2020. The effectiveness of the Company’s internal control over financial reporting
as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as stated in their report which appears herein.
/s/ Curt R. Hartman
Curt R. Hartman
President and
Chief Executive Officer
/s/ Todd W. Garner
Todd W. Garner
Executive Vice President and
Chief Financial Officer
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of CONMED Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CONMED Corporation and its subsidiaries (the "Company")
as of December 31, 2020 and 2019, and the related consolidated statements of comprehensive income, shareholders’ equity and
cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial
statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020 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, 2020 based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Change in Accounting Principle
As discussed in Note 17 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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
44
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Pension Benefit Obligation
As described in Note 12 to the consolidated financial statements, the Company’s consolidated pension benefit obligation was
$101.2 million as of December 31, 2020. Management's discount rate assumption is the significant assumption in determining
the projected benefit obligation of the Company’s pension plan. The discount rate assumption is determined by management
using a full yield curve approach, which involves applying the specific spot rates along the yield curve used in the
determination of the benefit obligation that correlates to the relevant projected cash flows.
The principal considerations for our determination that performing procedures relating to the valuation of the pension benefit
obligation is a critical audit matter are (i) the significant judgment by management to determine the pension benefit obligation,
(ii) significant auditor judgment, subjectivity, and effort in evaluating management’s significant assumptions related to the
discount rate, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
valuation of the pension benefit obligation, including controls over management's methodology, significant assumption, and
data. These procedures also included, among others, (i) testing the completeness and accuracy of underlying data used in the
valuation of the pension benefit obligation and (ii) the involvement of professionals with specialized skill and knowledge to
assist in (a) testing management’s process for determining the pension benefit obligation, (b) evaluating the appropriateness of
the methodology used by management, and (c) evaluating the reasonableness of the discount rate.
/s/ PricewaterhouseCoopers LLP
Rochester, New York
February 22, 2021
We have served as the Company’s auditor since 1982.
45
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2020 and 2019
(In thousands except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $3,876 in 2020 and $2,786 in 2019
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Deferred income taxes
Goodwill
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
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Shareholders' equity:
Preferred stock, par value $.01 per share; authorized
500,000 shares, none issued or outstanding
Common stock, par value $.01 per share; 100,000,000
authorized; 31,299,194 issued in 2020 and 2019, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Treasury stock, at cost;
2,410,045 and 2,876,729 shares in
2020 and 2019, respectively
Total shareholders' equity
Total liabilities and shareholders' equity
2020
2019
$
27,356
$
25,856
$
$
177,152
194,868
17,278
416,654
111,407
6,842
618,440
501,537
96,793
1,751,673
18,415
53,310
50,171
68,305
190,201
735,221
57,875
59,338
1,042,635
$
$
189,097
164,616
17,794
397,363
118,883
5,659
618,042
532,800
102,348
1,775,095
13,596
55,968
53,690
64,833
188,087
755,211
74,488
46,842
1,064,628
—
—
313
382,628
457,417
(63,681)
313
379,324
470,844
(59,277)
(67,639)
709,038
1,751,673
$
(80,737)
710,467
1,775,095
$
The accompanying notes are an integral part of the consolidated financial statements.
46
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2020, 2019 and 2018
(In thousands except per share amounts)
Net sales
Cost of sales
Gross profit
2020
2019
2018
$
862,459 $
955,097 $
859,634
402,159
430,382
390,524
460,300
524,715
469,110
Selling and administrative expense
373,817
400,141
355,617
Research and development expense
40,473
45,460
42,188
Operating expenses
Income from operations
Interest expense
Other expense
414,290
445,601
397,805
46,010
79,114
71,305
44,052
42,701
20,652
355
5,188
—
Income before income taxes
1,603
31,225
50,653
Provision (benefit) for income taxes
(7,914)
2,605
9,799
Net income
Per share data:
Basic
Diluted
Other comprehensive income (loss), before income tax:
Foreign currency translation adjustments
Pension liability
Cash flow hedging
Other comprehensive income (loss), before income tax
Provision (benefit) for income taxes related to items in other
comprehensive income
Other comprehensive income (loss), net of income tax
Comprehensive income
$
9,517 $
28,620 $
40,854
$
$
$
$
$
0.33 $
0.32 $
1.01 $
0.97 $
1.45
1.41
6,963 $
(6,499)
(8,489)
(8,025)
25 $
35
(4,736)
(4,676)
(8,369)
(885)
10,985
1,731
(3,621)
(4,404) $
(1,136)
(3,540) $
2,441
(710)
5,113 $
25,080 $
40,144
The accompanying notes are an integral part of the consolidated financial statements.
47
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2020, 2019 and 2018
(In thousands)
Common Stock
Shares
Amount
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2017
31,299 $
313 $ 333,795 $ 440,085 $
(49,078) $
Treasury
Stock
(93,683) $
Shareholders’
Equity
Common stock issued under employee
plans
Stock-based compensation
Dividends on common stock ($.80 per
share)
Comprehensive income (loss):
Foreign currency translation adjustments
Pension liability, net
Cash flow hedging gain, net
Net income
Total comprehensive income
Cumulative effect of change in accounting
principle(1)
Balance at December 31, 2018
31,299 $
Common stock issued under employee
plans
Stock-based compensation
Dividends on common stock ($.80 per
share)
Convertible notes discount, net
Convertible notes debt issuance costs
Convertible notes hedge, net
Issuance of warrants
Comprehensive income (loss):
Foreign currency translation adjustments
Pension liability, net
Cash flow hedging loss, net
Net income
Total comprehensive income
Balance at December 31, 2019
Common stock issued under employee
plans
Stock-based compensation
Dividends on common stock ($.80 per
share)
Comprehensive income (loss):
Foreign currency
translation adjustments
Pension liability, net
Cash flow hedging loss, net
Net income
Total comprehensive income
Balance at December 31, 2020
(2,094)
10,037
4,788
(22,477)
40,854
(8,369)
(672)
8,331
(88,895) $
8,158
6,389
313 $ 341,738 $ 464,851 $
(5,949)
(55,737) $
(22,627)
(3,843)
11,779
39,145
(1,233)
(38,829)
30,567
25
27
(3,592)
28,620
31,299 $
313 $ 379,324 $ 470,844 $
(59,277) $
(80,737) $
(9,807)
13,111
13,098
(22,944)
9,517
6,963
(4,929)
(6,438)
31,299 $
313 $ 382,628 $ 457,417 $
(63,681) $
(67,639) $
631,432
2,694
10,037
(22,477)
40,144
440
662,270
4,315
11,779
(22,627)
39,145
(1,233)
(38,829)
30,567
25,080
710,467
3,291
13,111
(22,944)
5,113
709,038
(1)We recorded the cumulative impact of adopting ASU 2014-09, Revenue from Contracts with Customers, (and its amendments) and ASU 2018-02, Income
Statement - Reporting Comprehensive Income (Topic 220) in 2018.
The accompanying notes are an integral part of the consolidated financial statements.
48
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2020, 2019 and 2018
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2020
2019
2018
$
9,517 $
28,620 $
40,854
Depreciation
Amortization of debt discount
Amortization of deferred debt issuance costs
Amortization
Stock-based compensation
Impairment charges
Deferred income taxes
Loss on early extinguishment of debt
Increase (decrease) in cash flows from changes in assets and
liabilities, net of acquired assets:
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 and asset acquisitions, net of cash acquired
Proceeds from sale of a facility
Purchases of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities:
Payments on term loan
Proceeds from term loan
Payments on revolving line of credit
Proceeds from revolving line of credit
Proceeds from convertible notes
Payments on mortgage notes
Payments related to contingent consideration
Payments related to debt issuance costs
Dividends paid on common stock
Purchases of convertible notes hedges
Proceeds from issuance of warrants
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
18,044
9,692
3,723
54,581
13,111
—
(14,234)
—
13,920
(30,397)
(2,977)
(1,644)
(4,123)
(8,170)
3,488
55,014
64,531
18,688
8,302
3,454
53,635
11,779
312
(6,310)
300
(13,943)
(117)
38
(1,867)
9,957
(22,263)
4,548
66,513
95,133
18,530
—
1,042
42,231
10,037
4,212
2,063
—
(17,460)
(15,037)
12,109
(2,193)
9,044
(24,216)
(6,515)
33,847
74,701
(3,852)
3,227
(13,013)
(13,638)
(367,596)
—
(20,066)
(387,662)
—
—
(16,507)
(16,507)
(13,250)
—
(212,000)
199,000
—
—
(2,671)
(3,153)
(22,818)
—
—
2,833
(52,059)
(154,312)
265,000
(484,000)
392,000
345,000
(836)
(6,466)
(16,210)
(22,600)
(51,198)
30,567
3,936
300,881
(13,125)
—
(168,000)
153,000
—
(1,574)
(21,323)
(913)
(22,443)
—
—
2,113
(72,265)
2,666
1,500
(7)
(1,040)
8,345
(15,111)
25,856
17,511
32,622
Cash and cash equivalents at end of year
$
27,356 $
25,856 $
17,511
49
Non-cash investing and financing activities:
Contractual obligations from asset acquisition
Dividends payable
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes
2020
2019
2018
$
— $
5,775
5,639 $
5,684
8,360
5,626
$
30,448 $
9,120
27,274 $
10,576
19,660
11,048
The accompanying notes are an integral part of the consolidated financial statements.
50
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Note 1 — Operations and Significant Accounting Policies
Organization and operations
CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides
surgical devices and equipment for minimally invasive procedures. The Company’s products are used by surgeons and other
healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and
gastroenterology.
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. The Company considered COVID-19 related impacts on its estimates, as
appropriate, within its consolidated financial statements and there may be changes to those estimates in future periods. The
Company believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties
surrounding the severity and duration of the COVID-19 pandemic. Due to the inherent uncertainty involved in making
estimates, actual results reported in future periods may differ from those estimates.
Cash and cash equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost and net realizable value determined on the FIFO (first-in, first-out) cost
method.
We write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of
current carrying costs. We make estimates regarding the future recoverability of the costs of our products and record a
provision for excess and obsolete inventories based on historical experience and expected future trends.
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
12 to 40 years
Shorter of life of asset or life of lease
2 to 15 years
51
Leases
The Company leases various manufacturing facilities, office facilities and equipment under operating and finance
leases. We determine if an arrangement is a lease at inception. Right-of-use ("ROU") assets represent our right to use an
underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease
payments over the lease term. We use the implicit rate when readily determinable. As most of our leases do not provide an
implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining
the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease
term. Certain of our leases include variable lease payments, mainly when a lease is tied to an index rate. These variable lease
payments are recorded as expense in the period incurred and are not material.
The Company has lease agreements with lease and non-lease components, which we account for separately. For
certain equipment leases, we apply a portfolio approach to efficiently account for the operating lease ROU assets and lease
liabilities. We also elected the short-term lease exemption and do not recognize leases with terms less than one year on the
balance sheet. The related short-term lease expense is not material.
Our leases have remaining lease terms of one year to ten years, some of which include options to extend the leases for
up to five years, and some of which include options to terminate the leases within one year. We only account for such
extensions or early terminations when it is reasonably certain we will exercise such options. Refer to Note 5 for further detail
on leases.
The Company places certain of our capital equipment with customers on a loaned basis and at no charge in exchange
for commitments to purchase related single-use products over time periods generally ranging from one to three years. Placed
equipment is loaned and subject to return if minimum single-use purchases are not met. The Company accounts for these
placements as operating leases but applies a practical expedient and does not separate the non-lease and lease components from
the combined component. Accordingly, the Company accounts for the combined component as a single performance obligation
with revenue recognized upon shipment of the related single use-products. The cost of the equipment is amortized over its
estimated useful life which is generally five years.
Goodwill and other 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. Factors that contribute to the recognition of goodwill include synergies expected to increase
net sales and profits; acquisition of a talented workforce; cost savings opportunities; the strategic benefit of expanding our
presence in core and adjacent markets; and diversifying our product portfolio. Customer and distributor relationships,
trademarks, tradenames, developed technology, patents and other intangible assets primarily represent allocations of purchase
price to identifiable intangible assets of acquired businesses. Sales representation, marketing and promotional rights represent
intangible assets created under our agreement with Musculoskeletal Transplant Foundation (“MTF”).
Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to at least annual
impairment testing. It is our policy to perform our annual impairment testing in the fourth quarter. The identification and
measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based
on the best information available as of the date of the assessment. We completed our goodwill impairment testing of our single
reporting unit during the fourth quarter of 2020. We performed our impairment test utilizing the market capitalization approach
to determine whether the fair value of a reporting unit is less than its carrying amount. Based upon our assessment, the fair
value of our reporting unit continues to exceed carrying value.
For our indefinite-lived intangible assets, trademarks and tradenames, we performed our impairment testing as of the
fourth quarter of 2020 utilizing the relief from royalty income based approach to determine whether the fair value is less than
its carrying amount. A considerable amount of management judgment and assumptions are required in performing the
impairment testing. The key assumptions used in the impairment testing were long-term revenue growth projections, royalty
rates, discount rates and general industry, market and macro-economic conditions. Based upon our assessment, the fair value
continues to exceed carrying value.
Intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each
reporting period to determine whether events and circumstances warrant a revision to the remaining period of
52
amortization. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The carrying amount of an intangible asset subject to
amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the
asset. An impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value.
Other long-lived assets
We review other long-lived assets consisting of property, plant and equipment and field inventory for impairment
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.
The Company maintains field inventory consisting of capital equipment for customer demonstration and evaluation
purposes. Field inventory is generally not sold to customers but rather continues to be used over its useful life for
demonstration, evaluation and loaner purposes. An annual wear and tear provision has been recorded on field inventory. The
net book value of such equipment at December 31, 2020 and 2019 is $43.3 million and $50.3 million, respectively.
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 loss. Transaction gains and losses are included in net income.
Foreign exchange and hedging activity
We manage our foreign currency transaction risks through the use of forward contracts to hedge forecasted cash flows
associated with foreign currency transaction exposures. We account for these forward contracts as cash flow hedges. To the
extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings
but are included in accumulated other comprehensive loss. These changes in fair value will be reclassified into earnings as a
component of sales or cost of sales when the forecasted transaction occurs.
We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our
currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle
each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts
as hedges and have not applied hedge accounting to them. We record these forward contracts at fair value with resulting gains
and losses included in selling and administrative expense in the consolidated statements of comprehensive income.
Income taxes
Deferred income tax assets and liabilities are based on the difference between the financial statement and tax basis of
assets and liabilities and operating loss and tax credit carryforwards as measured by the enacted tax rates that are anticipated to
be in effect in the respective jurisdictions when these differences reverse. The deferred income tax provision generally
represents the net change in the assets and liabilities for deferred income taxes. A valuation allowance is established when it is
necessary to reduce deferred income tax assets to amounts for which realization is likely. In assessing the need for a valuation
allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability
of tax loss carryforwards following tax law ordering rules. Valuation allowances related to deferred tax assets may be impacted
by changes to tax laws, changes to statutory tax rates, reversal of temporary differences and ongoing and future taxable income
levels.
Deferred income taxes are not provided on the unremitted earnings of certain subsidiaries outside of the United States
earned after December 31, 2017 as it is expected that these earnings are permanently reinvested. Such earnings may become
taxable upon a repatriation of assets from a subsidiary or the sale or liquidation of a subsidiary. Deferred income taxes are
provided when the Company no longer considers subsidiary earnings to be permanently invested, such as in situations where
the Company’s subsidiaries plan to make future dividend distributions.
53
Revenue recognition
The Company recognizes revenue when we have satisfied a performance obligation by transferring a promised good or
service (that is an asset) to a customer. An asset is transferred when the customer obtains control of that asset. The following
policies apply to our major categories of revenue transactions:
•
Revenue is recognized when product is shipped at which point the performance obligation is satisfied and the customer
obtains control of the product.
• We place certain of our capital equipment with customers on a loaned basis and at no charge in exchange for
commitments to purchase related single-use products over time periods generally ranging from one to three years. In
these circumstances, no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject
to return if certain minimum single-use purchases are not met. Revenue is recognized upon the sale and shipment of
the related single-use products. The cost of the equipment is amortized over its estimated useful life which is generally
five years.
• We recognize revenues in accordance with the terms of our agreement with MTF on a net basis as our role is that of an
agent earning a commission or fee. MTF is responsible for the sourcing, processing and distribution of allograft tissue
for sports medicine procedures while the Company represents, markets and promotes MTF’s sports medicine allograft
tissues to customers. The Company is paid a fee by MTF which is calculated as a percentage of the net amounts
invoiced by MTF to customers for sports medicine allograft tissues. The Company accounts for the services provided
to MTF as a series of distinct performance obligations and each service is recognized over time as MTF
simultaneously receives and consumes the benefit.
•
•
•
Product returns are only accepted at the discretion of the Company and in accordance with our “Returned Goods
Policy”. Historically, the level of product returns has not been significant. We accrue for sales returns, rebates and
allowances based upon an analysis of historical customer returns and credits, rebates, discounts and current market
conditions.
Our terms of sale to customers generally do not include any obligations to perform future services. Limited warranties
are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based
upon an analysis of historical data.
Amounts billed to customers related to shipping and handling have been included in net sales. Shipping and handling
costs included in selling and administrative expense were $14.6 million, $15.4 million and $14.0 million for 2020,
2019 and 2018, 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. We do so by applying historical loss rates to our accounts receivable aging schedule to estimate expected
credit losses. We further adjusted expected credit losses for specifically identified and forecasted credit losses.
Historically, losses on accounts receivable have not been material. Management believes that the allowance for
doubtful accounts is adequate to provide for probable losses resulting from accounts receivable.
• We sell extended warranties to customers that are typically for a period of one to three years. The related revenue is
recorded as a contract liability and recognized over the life of the contract on a straight-line basis, which is reflective
of our obligation to stand ready to provide repair services.
Please refer to Note 10 for further detail on revenue.
54
Earnings per share
Basic earnings per share (“basic EPS”) is computed by dividing net income by the weighted average number of
common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive
potential shares outstanding resulting from employee stock options, restricted stock units, performance share units and stock
appreciation rights during the period. The following table sets forth the computation of basic and diluted earnings per share at
December 31, 2020, 2019 and 2018, respectively:
Net income
2020
2019
2018
$ 9,517 $ 28,620 $ 40,854
Basic-weighted average shares outstanding
28,581
28,325
28,118
Effect of dilutive potential securities
883
1,170
772
Diluted-weighted average shares outstanding
29,464
29,495
28,890
Net income (per share)
Basic
Diluted
$
0.33 $
0.32
1.01 $
0.97
1.45
1.41
The shares used in the calculation of diluted EPS exclude options and stock appreciation rights ("SARs") to purchase
shares where the exercise price was greater than the average market price of common shares for the year and the effect of the
inclusion would be anti-dilutive. Such shares aggregated approximately 1.4 million, 0.7 million and 0.7 million at
December 31, 2020, 2019 and 2018, respectively. As more fully described in Note 7, our 2.625% convertible notes due in 2024
(the “Notes”) are convertible under certain circumstances, as defined in the indenture, into a combination of cash and
CONMED common stock. The calculation of diluted EPS would include potential diluted shares upon conversion of the Notes
when the average market price per share of our common stock for the period, is greater than the conversion price of the Notes
of $88.80. During the years ended December 31, 2020 and 2019, our average share price has not exceeded the conversion price
of the Notes; therefore, under the net share settlement method, there were no potential shares issuable under the Notes to be
used in the calculation of diluted EPS. We intend to settle in cash the principal outstanding and use the treasury stock method
when calculating their potential dilutive effect, if any. We have entered into convertible notes hedge transactions to increase the
effective conversion price of the Notes to $114.92. However, our convertible notes hedges are not included when calculating
potential dilutive shares since their effect is always anti-dilutive.
Stock-based compensation
All share-based payments to employees, including grants of employee stock options, restricted stock units,
performance share units and stock appreciation rights are recognized in the financial statements based at their fair
values. Compensation expense is generally recognized using a straight-line method over the vesting period. Compensation
expense for performance share units is recognized using the graded vesting method.
We issue shares under our stock based compensation plans out of treasury stock whereby treasury stock is reduced by
the weighted average cost of such treasury stock. To the extent there is a difference between the cost of the treasury stock and
the exercise price of shares issued under stock based compensation plans, we record gains to paid in capital; losses are recorded
to paid in capital to the extent any gain was previously recorded, otherwise the loss is recorded to retained earnings.
55
Accumulated other comprehensive loss
Accumulated other comprehensive loss consists of the following:
Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Foreign
Currency
Translation
Adjustments
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2017
$
(3,530) $
(25,813) $
(19,735) $
(49,078)
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive income before tax(a)
Income tax
7,639
(2,711)
(8,369)
(3,441)
913
(221)
2,689
(650)
—
—
3,602
(871)
Net current-period other comprehensive income (loss)
8,331
(672)
(8,369)
(710)
Cumulative effect of change in accounting principle(b)
(716)
(5,233)
—
(5,949)
Balance, December 31, 2018
$
4,085 $
(31,718) $
(28,104) $
(55,737)
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive income (loss) before tax(a)
Income tax
2,936
(2,158)
(8,607)
2,079
2,881
(696)
Net current-period other comprehensive income (loss)
(3,592)
27
25
—
—
25
803
(5,726)
1,383
(3,540)
Balance, December 31, 2019
$
493 $
(31,691) $
(28,079) $
(59,277)
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive income (loss) before tax(a)
Income tax
(5,393)
(7,068)
6,963
(5,498)
(1,378)
333
2,821
(682)
—
—
1,443
(349)
Net current-period other comprehensive income (loss)
(6,438)
(4,929)
6,963
(4,404)
Balance, December 31, 2020
$
(5,945) $
(36,620) $
(21,116) $
(63,681)
(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income components are included in sales or cost of sales and as a
component of net periodic pension cost, respectively. Refer to Note 16 and Note 12, respectively, for further details.
(b) We recorded the cumulative impact of adopting ASU 2018-02 in 2018, which allows for the elimination of the stranded tax effects of Tax Reform through a
reclassification between accumulated other comprehensive income (loss) and retained earnings.
Note 2 – Business Acquisitions
On February 11, 2019 we acquired Buffalo Filter, LLC and all of the issued and outstanding common stock of
Palmerton Holdings, Inc. from Filtration Group FGC LLC (the "Buffalo Filter Acquisition") for approximately $365 million in
cash. Buffalo Filter develops, manufactures and markets smoke evacuation technologies that are complementary to our general
56
surgery offering. The business combination was funded through a combination of cash on hand and long-term borrowings as
further described in Note 7.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of
the Buffalo Filter Acquisition.
Cash
Accounts receivable
Inventory
Other current assets
Current assets
Property, plant & equipment
Deferred income taxes
Goodwill
Customer relationships
Developed technology
Trademarks & tradenames
Other non-current assets
Total assets acquired
Current liabilities assumed
Total liabilities assumed
Net assets acquired
$
$
$
119
4,587
4,582
146
9,434
4,036
80
215,793
124,000
9,000
7,000
166
369,509
4,462
4,462
365,047
The goodwill recorded as part of the acquisition primarily represents revenue synergies, as well as operating
efficiencies and cost savings. The goodwill deductible for tax purposes is $215.8 million. The weighted amortization period for
intangibles acquired is 16 years. Customer relationships were valued using the multi-period excess earnings model, and are
being amortized over a weighted average life of 16 years. Developed technology and trademarks and tradenames were valued
using the relief from royalty method, and are being amortized over a weighted average life of 10 and 20 years, respectively.
Significant judgment was applied in estimating the fair value of the customer relationships intangible asset acquired, which
involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections,
including revenue growth rates, customer attrition rates, the discount rate and projected cost of sales.
The unaudited pro forma information for the years ended December 31, 2019 and 2018, assuming the Buffalo Filter
Acquisition occurred as of January 1, 2018 are presented below. This information 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 Buffalo Filter
acquisition occurred on the dates indicated, or which may result in the future.
Net sales
Net income
2019
2018
$
960,115 $
898,545
44,361
10,407
These pro forma results include certain adjustments, primarily due to increases in amortization expense due to fair
value adjustments of intangible assets, increases in interest expense due to additional borrowings incurred to finance the
acquisition, and acquisition related costs including transaction costs such as legal, accounting, valuation and other professional
services as well as integration costs such as severance and retention.
Acquisition related costs included in the determination of pro forma net income for the year ended December 31,
2018 were $1.3 million in cost of goods sold and $13.1 million in selling and administrative expense on the consolidated
statement of comprehensive income. Such amounts are excluded from the determination of pro forma net income for the year
ended December 31, 2019.
57
Net sales associated with Buffalo Filter of $49.6 million have been recorded in the consolidated statement of
comprehensive income for the year ended December 31, 2019. It is impracticable to determine the earnings recorded in the
consolidated statement of comprehensive income for the year ended December 31, 2019 as these amounts are not separately
measured.
On December 4, 2019, we acquired, through a share purchase agreement, the operations of a distributor for total
estimated consideration of approximately $13.9 million. The purchase price included $4.1 million of identifiable intangible
assets and $0.7 million of goodwill. Pro forma results of operations for the acquisition have not been presented as they are not
material to our results of operations, either individually or in aggregate, for the period ended December 31, 2019.
Note 3 — Inventories
Inventories consist of the following at December 31:
Raw materials
Work in process
Finished goods
Note 4 — Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
Land
Building and improvements
Machinery and equipment
Construction in progress
Less: Accumulated depreciation
2020
2019
$
71,807 $
15,864
107,197
51,103
15,142
98,371
$ 194,868 $ 164,616
2020
2019
$
4,027 $
93,886
243,810
15,680
357,403
(245,996)
4,686
95,632
233,140
13,318
346,776
(227,893)
$ 111,407 $ 118,883
Internal-use software, included in gross machinery and equipment at December 31, 2020 and 2019 was $50.3 million
and $49.6 million, respectively, with related accumulated depreciation of $42.9 million and $38.7 million, respectively.
Internal use software depreciation expense was $4.7 million, $4.8 million and $4.7 million for the years ended December 31,
2020, 2019 and 2018, respectively. Also, during 2020, we sold a vacant facility for $3.2 million.
58
Note 5 – Leases
Lease costs for the year ended December 31, consist of the following:
Operating lease cost:
Straight-line lease cost
Right-of-use asset impairment cost
Total operating lease cost
Finance lease cost:
Depreciation
Interest on lease liabilities
Total finance lease cost
Total lease cost
2020
2019
$
7,255 $
—
7,255
355
33
388
7,780
312
8,092
238
27
265
$
7,643 $
8,357
Rent expense on operating leases was approximately $8.7 million for the year ended December 31, 2018 in accordance
with ASC 840. During 2018, we entered into capital lease obligations of $0.2 million, in connection with the purchase of
equipment, in accordance with ASC 840.
Supplemental balance sheet information related to leases as of December 31, is as follows:
Operating leases
Other assets (net of lease impairment of $1,001 at December 31, 2019)
Other current liabilities
Other long-term liabilities
Total operating lease liabilities
Finance leases
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
Current portion of long-term debt
Long-term debt
Total finance lease liabilities
Weighted average remaining lease term (in years)
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
2020
2019
$
$
$
$
$
$
$
21,659
7,469
14,756
22,225
1,762
(825)
937
197
390
587
$
$
$
$
$
$
$
23,099
7,268
17,096
24,364
1,684
(479)
1,205
346
490
836
3.76 years
3.22 years
4.43 years
3.61 years
5.00 %
4.93 %
4.84 %
4.70 %
59
Supplemental cash flow information related to leases for the year ended December 31, was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Maturities of lease liabilities as of December 31, 2020 are as follows:
2020
2019
$
7,535 $
373
4,242
76
8,459
380
12,800
563
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less imputed interest
Total lease liabilities
Finance Lease
Operating Lease
$
197 $
254
129
38
2
—
620
7,469
6,792
4,922
3,676
998
726
24,583
(33)
(2,358)
$
587 $
22,225
As of December 31, 2020, we have not entered into any operating or finance leases that have not yet commenced.
Note 6 – 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,
Goodwill resulting from business combinations
Goodwill adjustment resulting from business combinations
Foreign currency translation
Balance as of December 31,
2020
2019
$ 618,042 $ 400,440
—
217,482
(1,009)
—
1,407
120
$ 618,440 $ 618,042
During 2019, the Company acquired Buffalo Filter as further described in Note 2. Goodwill resulting from the
acquisition amounted to $215.8 million and acquired intangible assets including customer and distributor relationships,
developed technology and trademarks and tradenames amounted to $140.0 million. Total accumulated goodwill impairment
losses aggregated $107.0 million at December 31, 2020 and 2019, respectively. During 2019, the Company acquired a
60
distributor as further described in Note 2 resulting in identifiable intangible assets of $4.1 million and goodwill. During 2020,
the Company recorded a measurement period adjustment related to the acquired distributor.
Other intangible assets consist of the following:
December 31, 2020
December 31, 2019
Weighted
Average
Amortization
Period
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
24
25
15
16
$ 342,639 $
(134,555) $ 342,568 $
(115,311)
149,376
(54,000) 149,376
(48,000)
73,516
(48,882) 70,646
(46,456)
106,604
(19,705) 106,604
(13,171)
Intangible assets with definite lives:
Customer and distributor relationships
Sales representation, marketing and promotional
rights
Patents and other intangible assets
Developed technology
Intangible assets with indefinite lives:
Trademarks and tradenames
86,544
—
86,544
—
22
$ 758,679 $
(257,142) $ 755,738 $
(222,938)
Amortization expense related to intangible assets which are subject to amortization totaled $34.2 million, $32.3 million
and $23.2 million for the years ending December 31, 2020, 2019 and 2018, respectively, and is included as a reduction of
revenue (for amortization related to our sales representation, marketing and promotional rights) and in selling and
administrative expense (for all other intangible assets) in the consolidated statements of comprehensive income. Included in
developed technology is $1.6 million, $6.5 million and $21.3 million of earn-out consideration that was paid during 2020, 2019
and 2018, respectively, and an additional accrual of $6.0 million that is considered probable as of December 31, 2020
associated with a prior asset acquisition. The accrual is recorded in other current and other long-term liabilities at
December 31, 2020.
The estimated amortization expense related to intangible assets at December 31, 2020 and for each of the five
succeeding years is as follows:
2021
2022
2023
2024
2025
Amortization
included in
expense
Amortization
recorded as a
reduction of
revenue
$
27,535 $
26,377
25,609
24,794
25,046
6,000 $
6,000
6,000
6,000
6,000
Total
33,535
32,377
31,609
30,794
31,046
61
Note 7 — Long Term Debt
Long-term debt consists of the following at December 31:
Revolving line of credit
Term loan, net of deferred debt issuance costs of $1,668 and $1,528 in 2020 and 2019,
respectively
2.625% convertible notes, net of deferred debt issuance costs of $5,475 and $7,252 in
2020 and 2019, respectively, and unamortized discount of $33,620 and $43,312 in 2020
and 2019, respectively
Financing leases
Total debt
Less: Current portion
Total long-term debt
2020
2019
$
207,000 $
220,000
240,145
253,535
305,904
587
753,636
18,415
735,221 $
294,436
836
768,807
13,596
755,211
$
On February 7, 2019, we entered into a sixth amended and restated senior credit agreement consisting of: (a) a $265.0
million term loan facility and (b) a $585.0 million revolving credit facility. The revolving credit facility will terminate and the
loans outstanding under the term loan facility will mature on the earlier of (i) February 7, 2024 or (ii) 91 days prior to the
earliest scheduled maturity date of the 2.625% convertible notes due in 2024 described below, (if, as of such date, more than
$150.0 million in aggregate principal amount of such convertible notes (or any refinancing thereof) remains outstanding). The
term loan facility is payable in quarterly installments increasing over the term of the facility. Proceeds from the term loan
facility and borrowings under the revolving credit facility were used to repay the then existing senior credit agreement and in
part to finance the acquisition of Buffalo Filter. On April 17, 2020. we amended our sixth amended and restated senior credit
agreement to suspend our required leverage ratios for up to four quarters as a result of the potential impact from the COVID-19
pandemic. On November 20, 2020, we entered into a third amendment under our senior credit agreement to lower the
applicable margin on the loans and lower the interest floor on Eurocurrency loans agreed upon in April. Interest rates are
adjusted so that the applicable margin for base rate loans is 2.00% per annum and for Eurocurrency rate loans is 3.00% per
annum, and the applicable commitment fee rate for the revolving credit facility is 0.50%. Following the suspension period, the
applicable margin will depend upon CONMED’s consolidated senior secured leverage ratio, using the pricing grid set forth in
the amendment. Interest rates were at LIBOR (subject to 0.50% floor) plus an interest rate margin of 3.00% (3.50% at
December 31, 2020).
There were $241.8 million in borrowings outstanding on the term loan facility as of December 31, 2020. There were
$207.0 million in borrowings outstanding under the revolving credit facility as of December 31, 2020. Our available
borrowings on the revolving credit facility at December 31, 2020 were $375.5 million with approximately $2.5 million of the
facility set aside for outstanding letters of credit.
The sixth amended and restated senior credit agreement is collateralized by substantially all of our personal property
and assets. The sixth amended and restated senior credit agreement contains covenants and restrictions which, among other
things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain
indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and
restrictions as of December 31, 2020. We are also required, under certain circumstances, to make mandatory prepayments from
net cash proceeds from any issuance of equity and asset sales.
On January 29, 2019, we issued $345.0 million in 2.625% convertible notes due in 2024 (the "Notes"). Interest is
payable semi-annually in arrears on February 1 and August 1 of each year, commencing August 1, 2019. The Notes will
mature on February 1, 2024, unless earlier repurchased or converted. The Notes represent subordinated unsecured obligations
and are convertible under certain circumstances, as defined in the indenture, into a combination of cash and CONMED common
stock. The Notes may be converted at an initial conversion rate of 11.2608 shares of our common stock per $1,000 principal
amount of Notes (equivalent to an initial conversion price of approximately $88.80 per share of common stock). Holders of the
Notes may convert the Notes at their option at any time on or after November 1, 2023 through the second scheduled trading day
preceding the maturity date. Holders of the Notes will also have the right to convert the Notes prior to November 1, 2023, but
only upon the occurrence of specified events. The conversion rate is subject to anti-dilution adjustments if certain events occur.
A portion of the net proceeds from the offering of the Notes were used as part of the financing for the Buffalo Filter acquisition
and $21.0 million were used to pay the cost of certain convertible notes hedge transactions as further described below.
62
Our effective borrowing rate for nonconvertible debt at the time of issuance of the Notes was estimated to be 6.14%,
which resulted in $51.6 million of the $345.0 million aggregate principal amount of Notes issued, or $39.1 million after taxes,
being attributable to equity. For the years ended December 31, 2020 and 2019, we have recorded interest expense related to the
amortization of debt discount on the Notes of $9.7 million and $8.3 million, respectively, at the effective interest rate of
6.14%. The debt discount on the Notes is being amortized through February 2024. For the year ended December 31, 2020 and
2019, we have recorded interest expense on the Notes of $9.1 million and $8.4 million, respectively, at the contractual coupon
rate of 2.625%.
In connection with the offering of the Notes, we entered into convertible notes hedge transactions with a number of
financial institutions (each, an “option counterparty”). The convertible notes hedge transactions cover, subject to anti-dilution
adjustments substantially similar to those applicable to the Notes, the number of shares of our common stock underlying the
Notes. Concurrently with entering into the convertible notes hedge transactions, we also entered into separate warrant
transactions with each option counterparty whereby we sold to such option counterparty warrants to purchase, subject to
customary anti-dilution adjustments, the same number of shares of our common stock.
The convertible notes hedge transactions are expected generally to reduce the potential dilution upon conversion of the
Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the
case may be, in the event that the market price per share of our common stock, as measured under the terms of the convertible
notes hedge transactions, is greater than the strike price ($114.92) of the convertible notes hedge transactions, which initially
corresponds to the conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those
applicable to the conversion rate of the Notes. If, however, the market price per share of our common stock, as measured under
the terms of the warrant transactions, exceeds the strike price of the warrants, there would nevertheless be dilution to the extent
that such market price exceeds the strike price of the warrants, unless we elect to settle the warrants in cash.
The scheduled maturities of long-term debt outstanding at December 31, 2020 are as follows:
2021
2022
2023
2024
2025
Thereafter
$
18,219
24,843
405,750
345,000
—
—
The above amounts exclude debt discount,deferred debt issuance costs and financing leases.
Note 8 — Income Taxes
The provision (benefit) for income taxes for the years ended December 31, 2020, 2019 and 2018 consists of the
following:
Current tax expense (benefit):
Federal
State
Foreign
Deferred income tax expense (benefit):
Federal
State
Foreign
2020
2019
2018
$
(729) $
86
6,963
6,320
(12,253)
(1,173)
(808)
(14,234)
96 $
444
8,375
8,915
(3,970)
(938)
(1,402)
(6,310)
(1,077)
777
8,036
7,736
4,478
62
(2,477)
2,063
Provision (benefit) for income taxes
$
(7,914) $
2,605 $
9,799
63
A reconciliation between income taxes computed at the statutory federal rate and the provision (benefit) for income
taxes for the years ended December 31, 2020, 2019 and 2018 follows:
Tax provision at statutory rate based on income before income taxes
21.0 %
21.0 %
21.0 %
2020
2019
2018
Stock-based compensation
(267.7)
(15.4)
Settlement of taxing authority examinations
Federal research credit
Tax treaty protocols
US tax on worldwide earnings at different rates
Foreign income taxes
Non deductible/non-taxable items
State income taxes, net of federal tax benefit
International tax reform
US tax reform
Other, net
(122.9)
(124.2)
—
(123.7)
129.6
28.6
(24.5)
—
—
(7.7)
(4.0)
(2.9)
7.9
6.4
2.8
0.3
—
—
(10.1)
(0.1)
(1.6)
(0.7)
(2.8)
—
2.9
3.6
(1.4)
1.6
(3.6)
1.8
(1.5)
(493.9) %
8.3 %
19.3 %
The 2017 Tax Cuts and Jobs Act ("Tax Reform") was enacted on December 22, 2017. The Tax Reform included a
number of changes in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative
undistributed foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on
January 1, 2018.
The SEC issued Staff Accounting Bulletin No. 118 to allow for a one-year measurement period to finalize estimated
provisional amounts and the overall assessment of the impacts of Tax Reform. During 2018, the Company finalized its
accounting and recorded $1.3 million of tax expense related to the revaluation of certain deferred tax items. This expense was
offset in part by $0.4 million of tax benefit primarily resulting from finalization of the deemed repatriation toll charge, related
foreign tax credits and adjustments to foreign withholding amounts. The final tax benefit related to Tax Reform was $31.0
million.
The Company has elected to account for Global Intangible Low Tax Income ("GILTI") using the period cost method.
The net impact of GILTI including the allowable GILTI deduction is presented in the rate reconciliation as a component of “US
tax on worldwide earnings at different rates” and is offset in part by the Foreign Derived Intangible Income deduction (“FDII”).
64
The tax effects of the significant temporary differences which comprise the deferred income tax assets and liabilities at
December 31, 2020 and 2019 are as follows:
Assets:
Inventory
Net operating losses
Capitalized research and development
Deferred compensation
Accounts receivable
Compensation and benefits
Accrued pension
Research and development credit
Interest limitation
Convertible notes hedge
Lease liabilities
Other
Less: valuation allowances
Liabilities:
Goodwill and intangible assets
Depreciation
State taxes
Unremitted foreign earnings
Convertible notes debt discount
Lease right-of-use assets
$
2020
2019
4,649 $
22,197
5,187
2,240
2,784
7,540
5,348
13,540
—
6,999
4,452
6,793
(2,721)
79,008
104,119
2,512
9,614
2,423
7,060
4,313
130,041
4,085
3,679
6,201
2,102
2,556
6,049
3,710
10,321
5,702
9,004
5,688
4,336
(1,732)
61,701
102,015
301
11,161
2,619
9,096
5,338
130,530
Net liability
$
(51,033) $
(68,829)
Income before income taxes consists of the following U.S. and foreign income:
U.S. income
Foreign income
Total income
2020
2019
2018
$
$
(16,026) $
17,629
1,603 $
5,332 $
25,893
31,225 $
24,320
26,333
50,653
As of December 31, 2020, the amount of federal net operating loss carryforward was $19.4 million and begins to
expire in 2027. As of December 31, 2020, the amount of federal research credit carryforward available was $13.5
million. These credits begin to expire in 2027.
We have accrued tax liabilities related to the amount of unremitted earnings at December 31, 2017 and certain
subsequent unremitted earnings as these are not considered permanently reinvested. Deferred taxes have not been accrued on
unremitted earnings subsequent to December 31, 2017 that are considered permanently reinvested. The amount of such
untaxed foreign earnings for the periods occurring after December 2017 totaled $22.6 million. If we were to repatriate these
funds, we would be required to accrue and pay taxes on such amounts. The Company has estimated foreign withholding taxes
of $1.5 million would be due if these earnings were repatriated.
65
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 to provide
economic relief in the early wake of the COVID-19 pandemic. The CARES Act includes many measures to assist companies,
including temporary changes to income and non-income-based tax laws. Income tax relief includes temporary favorable
changes to net operating loss and interest expense annual deduction limitations. Additionally, on December 27, 2020, the
Consolidated Appropriations Act was signed into law to enhance and expand provisions of the CARES Act and provide other
taxpayer relief. These provisions did not have a material impact to our 2020 financial results.
The Company is subject to taxation in the United States and various states and foreign jurisdictions. Taxing authority
examinations can involve complex issues and may require an extended period of time to resolve. Our federal income tax
returns have been examined by the Internal Revenue Service (“IRS”) for calendar years ending through 2018.
We recognize tax liabilities in accordance with the provisions for accounting for uncertainty in income taxes. Such
guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return.
The following table summarizes the activity related to our unrecognized tax benefits for the years ending December
31,:
Balance as of January 1,
2020
2019
2018
$
2,170 $
3,073 $
2,943
Increases (decreases) for positions taken in prior periods
Increases for positions taken in current periods
—
—
—
(250)
1,650
1,017
Decreases in unrecorded tax positions related to settlement with the
taxing authorities
(1,970)
(2,404)
(370)
Decreases in unrecorded tax positions related to lapse of statute of
limitations
—
(149)
(267)
Balance as of December 31,
$
200 $
2,170 $
3,073
If the total unrecognized tax benefits of $0.2 million at December 31, 2020 were recognized, it would reduce our
annual effective tax rate. The amount of interest accrued in 2018, 2019 and 2020 related to these unrecognized tax benefits was
not material and is included in the provision (benefit) for income taxes in the consolidated statements of comprehensive
income.
Note 9 – Shareholders’ Equity
On February 29, 2012, the Board of Directors adopted a cash dividend policy and declared an initial quarterly dividend
of $0.15 per share. On October 28, 2013, the Board of Directors increased the quarterly dividend to $0.20 per share. The total
dividend per share was $0.80 for each of 2020, 2019 and 2018. The fourth quarter dividend for 2020 was paid on January 5,
2021 to shareholders of record as of December 15, 2020. The total dividend payable was $5.8 million and $5.7 million at
December 31, 2020 and 2019, respectively, and is included in other current liabilities in the consolidated balance sheet.
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, 2020 and 2019, no
preferred stock had been issued.
Our Board of Directors has authorized a $200.0 million share repurchase program. Through December 31, 2020, we
have repurchased a total of 6.1 million shares of common stock aggregating $162.6 million under this authorization and have
$37.4 million remaining available for share repurchases. The repurchase program calls for shares to be purchased in the open
market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any
time. During 2020, 2019, and 2018 we did not repurchase any shares.
66
We have reserved 7.1 million shares of common stock for issuance to employees and directors under two shareholder
approved share-based compensation plans (the "Plans") of which approximately 3.8 million shares remain available for grant at
December 31, 2020. The exercise price on all outstanding stock options and stock appreciation rights (“SARs”) is equal to the
quoted fair market value of the stock at the date of grant. Restricted stock units (“RSUs”) and performance stock units
(“PSUs”) are valued at the market value of the underlying stock on the date of grant. Stock options, SARs, RSUs and PSUs are
generally non-transferable other than on death and generally become exercisable over a 4 to 5 year period from date of
grant. Stock options and SARs expire 10 years from date of grant. SARs are only settled in shares of the Company’s
stock. The issuance of shares pursuant to the exercise of stock options and SARs and vesting of RSUs and PSUs are from the
Company’s treasury stock.
Total pre-tax stock-based compensation expense recognized in the consolidated statements of comprehensive income
was $13.1 million, $11.8 million and $10.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. These
amounts are included in selling and administrative expense. Tax related benefits of $3.2 million, $2.8 million and $2.3 million
were also recognized for the years ended December 31, 2020, 2019 and 2018, respectively. Cash received from the exercise of
stock options was $13.7 million, $7.7 million and $3.5 million for the years ended December 31, 2020, 2019 and 2018,
respectively, and is reflected in cash flows from financing activities in the consolidated statements of cash flows.
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options and SARs at the
date of grant. Use of a valuation model requires management to make certain assumptions with respect to select model inputs.
Expected volatilities are based upon historical volatility of the Company’s stock over a period equal to the expected life of each
stock option and SAR grant. The risk free interest rate is based on the stock option and SAR grant date for a traded U.S.
Treasury bond with a maturity date closest to the expected life. The expected annual dividend yield is based on the Company's
anticipated cash dividend payouts. The expected life represents the period of time that the stock options and SARs are expected
to be outstanding based on a study of historical data of option holder exercise and termination behavior. Forfeitures are
recognized as incurred.
The following table illustrates the assumptions used in estimating fair value in the years ended December 31, 2020,
2019 and 2018:
Grant date fair value of stock options and SARs
Expected stock price volatility
Risk-free interest rate
Expected annual dividend yield
Expected life of options & SARs (years)
$
2020
2019
2018
$
22.62
26.89 %
0.89 %
0.82 %
5.5
$
20.59
26.59 %
2.58 %
1.08 %
5.6
14.78
25.69 %
2.62 %
1.34 %
5.7
The following table illustrates the stock option and SAR activity for the year ended December 31, 2020:
Outstanding at December 31, 2019
Granted
Forfeited
Exercised
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Stock options & SARs expected to vest
Number
of
Shares
(in 000’s)
Weighted-
Average
Exercise
Price
3,253 $
55.97
859 $
(250) $
(526) $
3,336 $
1,199 $
2,137 $
95.84
72.81
45.07
66.76
52.18
74.94
The weighted average remaining contractual term for SARs and stock options outstanding and exercisable at
December 31, 2020 was 7.2 years and 5.8 years, respectively. The aggregate intrinsic value of SARs and stock options
outstanding and exercisable at December 31, 2020 was $150.9 million and $71.7 million, respectively. The aggregate intrinsic
67
value of stock options and SARs exercised during the years ended December 31, 2020, 2019 and 2018 was $26.6 million, $17.0
million and $4.2 million, respectively.
The following table illustrates the RSU and PSU activity for the year ended December 31, 2020:
Outstanding at December 31, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Number
of
Shares
(in 000’s)
Weighted-
Average
Grant-Date
Fair Value
169 $
37 $
(140) $
(5) $
61 $
48.94
85.45
43.99
79.30
77.03
The weighted average fair value of awards of RSUs granted in the years ended December 31, 2020, 2019 and 2018
was $85.45, $78.64 and $61.76, respectively.
The total fair value of RSUs and PSUs vested was $6.2 million, $2.8 million and $3.0 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
As of December 31, 2020, there was $33.1 million of total unrecognized compensation cost related to nonvested stock
options, SARs and RSUs granted under the Plans which is expected to be recognized over a weighted average period of 3.4
years.
We offer to our employees a shareholder-approved Employee Stock Purchase Plan (the “Employee Plan”), under
which we 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 at a
purchase price equal to 95% of the fair market value of the common stock on the exercise date. During 2020, we issued
approximately 22,165 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 10 — Revenues
The following tables present revenue disaggregated by product line and timing of revenue recognition for the years
ended December 31, 2020, 2019 and 2018:
Orthopedic Surgery
2020
General Surgery
Total
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferred over time
Total sales from contracts with customers
$
$
340,318 $
34,387
374,705 $
484,147 $
3,607
487,754 $
824,465
37,994
862,459
Orthopedic Surgery
General Surgery
Total
2019
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferred over time
Total sales from contracts with customers
$
$
426,893 $
36,429
463,322 $
489,313 $
2,462
491,775 $
916,206
38,891
955,097
68
Orthopedic Surgery
General Surgery
Total
2018
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferred over time
Total sales from contracts with customers
$
$
413,630 $
33,098
446,728 $
411,391 $
1,515
412,906 $
825,021
34,613
859,634
Revenue disaggregated by primary geographic market where the products are sold is included in Note 11.
Contract liability balances related to the sale of extended warranties to customers are as follows:
December 31, 2020 December 31, 2019
Contract Liability
$
13,666 $
14,276
Revenue recognized during years ended December 31, 2020, 2019 and 2018 from amounts included in contract
liabilities at the beginning of the period were $9.3 million, $6.8 million and $5.0 million, respectively. There were no material
contract assets as of December 31, 2020 and December 31, 2019.
Note 11 — Business Segments and Geographic Areas
We are accounting and reporting for our business as a single operating segment entity engaged in the development,
manufacturing and sale on a global basis of surgical devices and related equipment. Our chief operating decision maker (the
CEO) evaluates the various global product portfolios on a net sales basis and evaluates profitability, investment, cash flow
metrics and allocates resources on a consolidated worldwide basis due to shared infrastructure and resources. Our product lines
consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine instrumentation and small
bone, large bone and specialty powered surgical instruments as well as imaging systems for use in minimally invasive surgery
procedures including 2DHD and 3DHD vision technologies and fees related to sales representation, promotion and marketing
of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for
minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical
generators and related instruments. These product lines' net sales and primary geographic market where the products are sold,
are as follows for the years ended December 31, 2020, 2019 and 2018:
Orthopedic Surgery
General Surgery
Total
2020
Primary Geographic Markets
United States
Americas (excluding the United States)
Europe, Middle East & Africa
Asia Pacific
$
139,715 $
50,356
90,998
93,636
342,349 $
28,358
70,086
46,961
Total sales from contracts with customers
$
374,705 $
487,754 $
Orthopedic Surgery
General Surgery
Total
2019
Primary Geographic Markets
United States
Americas (excluding the United States)
Europe, Middle East & Africa
Asia Pacific
$
179,419 $
337,246 $
64,269
118,301
101,333
31,004
64,248
59,277
Total sales from contracts with customers
$
463,322 $
491,775 $
482,064
78,714
161,084
140,597
862,459
516,665
95,273
182,549
160,610
955,097
69
Orthopedic Surgery
General Surgery
Total
2018
Primary Geographic Markets
United States
Americas (excluding the United States)
Europe, Middle East & Africa
Asia Pacific
$
172,462 $
276,186 $
66,519
112,998
94,749
31,009
53,565
52,146
Total sales from contracts with customers
$
446,728 $
412,906 $
448,648
97,528
166,563
146,895
859,634
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, 2020 and 2019. No single customer represented over 10% of our
consolidated net sales for the years ended December 31, 2020, 2019 and 2018.
Note 12 — Employee Benefit Plans
We sponsor an employee savings plan (“401(k) plan”) covering substantially all of our United States based employees.
We also sponsor a defined benefit pension plan (the “pension plan”) that was frozen in 2009. It covered substantially all our
United States based employees at the time it was frozen.
Total employer contributions to the 401(k) plan were $8.9 million, $9.1 million and $8.3 million during the years
ended December 31, 2020, 2019 and 2018, respectively.
We use a December 31, measurement date for our pension plan. Cumulative gains and losses in excess of 10% of the
greater of the benefit obligation or the market-related value of assets are amortized on a straight-line basis over the lesser of the
expected average remaining life expectancy of the plan's participants or 12 years. The limit of 12 years is adjusted to reflect the
percentage change in the average remaining service period for the plan's active membership.
The following table provides a reconciliation of the projected benefit obligation, plan assets and funded status of the
pension plan at December 31:
Accumulated benefit obligation
Change in benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Settlements
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual gain (loss) on plan assets
Benefits paid
Settlements
Fair value of plan assets at end of year
Funded status
70
2020
2019
$
101,242 $
92,052
$
$
$
$
$
92,052 $
717
2,555
10,963
(1,933)
(3,112)
101,242 $
75,321 $
6,664
(1,933)
(3,112)
76,940 $
80,776
1,010
3,130
10,561
(2,299)
(1,126)
92,052
66,307
12,439
(2,299)
(1,126)
75,321
(24,302) $
(16,731)
The projected benefit obligation increased $9.2 million as of December 31, 2020 mainly due to the decrease in the
discount rate from 3.33% at December 31, 2019 to 2.44% at December 31, 2020.
Amounts recognized in the consolidated balance sheets consist of the following at December 31,:
Other long-term liabilities
Accumulated other comprehensive loss
2020
2019
$
(24,302) $
(48,285)
(16,731)
(41,787)
Accumulated other comprehensive loss for the years ended December 31, 2020 and 2019 consists of net actuarial
losses not yet recognized in net periodic pension cost (before income taxes).
The following actuarial assumptions were used to determine our accumulated and projected benefit obligations as of
December 31,:
Discount rate
2020
2019
2.44 %
3.33 %
Other changes in plan assets and benefit obligations recognized in other comprehensive income in 2020 and 2019 are
as follows:
Current year actuarial loss
Amortization of actuarial loss
Total recognized in other comprehensive loss
2020
2019
$
$
(9,319) $
2,821
(6,498) $
(2,846)
2,881
35
Net periodic pension cost for the years ended December 31, consists of the following:
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of loss
Net periodic pension cost
2020
2019
2018
$
717 $
2,555
(5,021)
2,821
1,072 $
$
1,010 $
3,130
(4,725)
2,881
2,296 $
675
2,806
(5,418)
2,689
752
Non-service cost of $0.4 million and $1.3 million is included in other expense in the consolidated statements of
comprehensive income for the years ended 2020 and 2019, respectively.
The following actuarial assumptions were used to determine our net periodic pension benefit cost for the years ended
December 31,:
Discount rate on benefit obligation
Effective rate for interest on benefit obligation
Expected return on plan assets
2020
2019
2018
3.33 %
2.88 %
7.00 %
4.37 %
4.01 %
7.50 %
3.69 %
3.28 %
7.50 %
The Company’s discount rate assumption is the significant assumption in determining the projected benefit obligation
of the Company’s pension plan.
The discount rate represents the interest rate used in estimating the present value of projected cash flows to settle the
Company’s pension obligations. The discount rate assumption is determined by management using a full yield curve approach,
which involves applying the specific spot rates along the yield curve used in the determination of the benefit obligation that
correlates to the relevant projected cash flows.
71
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 plan assets by category is as follows at December 31,:
Equity securities
Debt securities
Total
Percentage of Pension
Plan Assets
2020
2019
Target
Allocation
2021
76 %
24 %
100 %
74 %
26 %
100 %
75 %
25 %
100 %
As of December 31, 2020, the pension plan held 27,562 shares of our common stock, which had a fair value of $3.1
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.
FASB guidance defines fair value and establishes a framework for measuring fair value and related disclosure
requirements as described in Note 16. Following is a description of the valuation methodologies used for our pension assets.
There have been no changes in the methodologies used at December 31, 2020 and 2019:
Common
Stock:
Common stock is valued at the closing price reported on the common stock’s respective stock
exchange and is classified within level 1 of the valuation hierarchy.
Fixed Income
Securities:
Valued at the closing price reported on the active market on which the individual securities are traded
and are classified within level 1 of the valuation hierarchy.
Money
Market Fund:
Mutual
Funds:
These investments are public investment vehicles valued using the Net Asset Value (NAV).
These investments are public investment vehicles valued using the Net Asset Value (NAV) provided
by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the
fund, minus its liabilities, and then divided by the number of shares outstanding.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, while the pension plan believes its valuation methods are appropriate and
consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different fair value measurement at the reporting date.
72
The following table sets forth the value of the pension plan's assets as of December 31, 2020 and December 31, 2019:
Investments measured at fair value:
Level 1
Common Stock
Fixed Income Securities
Total Investments measured at fair value
Investments measured at NAV:
Money Market Fund
Mutual Funds
Total Investments measured at NAV
2020
2019
$
9,185 $
17,848
27,033
915
48,992
49,907
8,307
18,609
26,916
789
47,616
48,405
Total Investments
$
76,940 $
75,321
We do not expect to make any contributions to our pension plan for 2021.
The following table summarizes the benefits and settlements 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 payments are estimated based on the same
assumptions used to measure the Company’s projected benefit obligation at December 31, 2020 and reflect the impact of
expected future employee service.
2021
2022
2023
2024
2025
2026-2030
$5,579
6,275
5,944
5,545
5,815
26,944
Note 13 — Legal Matters and Contingencies
From time to time, the Company may receive an information request, subpoena or warrant from a government agency
such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, the
Occupational Safety and Health Administration, the United States Food and Drug Administration, the Department of Labor, the
Treasury Department or other federal and state agencies or foreign governments or government agencies. These information
requests, subpoenas or warrants may or may not be routine inquiries, or may begin as routine inquiries and over time develop
into enforcement actions of various types. Likewise, if we receive reports of alleged misconduct from employees and third
parties, we investigate as appropriate.
Manufacturers of medical devices have been the subject of various enforcement actions relating to interactions with
health care providers domestically or internationally whereby companies are claimed to have provided health care providers
with inappropriate incentives to purchase their products. Similarly, the Foreign Corrupt Practices Act ("FCPA") imposes
obligations on manufacturers with respect to interactions with health care providers who may be considered government
officials based on their affiliation with public hospitals. The FCPA also requires publicly listed manufacturers to maintain
accurate books and records, and maintain internal accounting controls sufficient to provide assurance that transactions are
accurately recorded, lawful and in accordance with management's authorization. The FCPA poses unique challenges both
because manufacturers operate in foreign cultures in which conduct illegal under the FCPA may not be illegal in local
jurisdictions, and because, in some cases, a United States manufacturer may face risks under the FCPA based on the conduct of
third parties over whom the manufacturer may not have complete control. While CONMED has not experienced any material
enforcement action to date, there can be no assurance that the Company will not be subject to a material enforcement action in
the future, or that the Company will not incur costs including, in the form of fees for lawyers and other consultants, that are
material to the Company’s results of operations in the course of responding to a future inquiry or investigation.
73
Manufacturers of medical products may face exposure to significant product liability claims, as well as patent
infringement and other claims incurred in the ordinary course of business. To date, we have not experienced any claims that
have been material to our financial statements or financial condition, but any such claims arising in the future could have a
material adverse effect on our business, results of operations or cash flows. We currently maintain commercial product liability
insurance of $30 million per incident and $30 million in the aggregate annually, which we believe is adequate. This coverage is
on a claims-made basis. There can be no assurance that claims will not exceed insurance coverage, that the carriers will be
solvent or that such insurance will be available to us in the future at a reasonable cost.
Our operations are subject, and in the past have been subject, to a number of environmental laws and regulations
governing, among other things, air emissions; wastewater discharges; the use, handling and disposal of hazardous substances
and wastes; soil and groundwater remediation and employee health and safety. Likewise, the operations of our suppliers and
sterilizers are subject to similar environmental laws and regulations. In some jurisdictions, environmental requirements may be
expected to become more stringent in the future. In the United States, certain environmental laws can impose liability for the
entire cost of site restoration upon each of the parties that may have contributed to conditions at the site regardless of fault or
the lawfulness of the party’s activities. While we do not believe that the present costs of environmental compliance and
remediation are material, there can be no assurance that future compliance or remedial obligations would not have a material
adverse effect on our financial condition, results of operations or cash flows.
In 2014, the Company acquired EndoDynamix, Inc. The agreement governing the terms of the acquisition provides
that, if various conditions are met, certain contingent payments relating to the first commercial sale of the products (the
milestone payment), as well as royalties based on sales (the revenue based payments), are due to the seller. In 2016, we notified
the seller that there was a need to redesign the product, and that, as a consequence, the first commercial sale had been delayed.
Consequently, the payment of contingent milestone and revenue-based payments were delayed. On January 18, 2017, the seller
provided notice ("the Notice") seeking $12.7 million under a liquidated damages clause, which essentially represents the seller's
view as to the sum of the projected contingent milestone and revenue-based payments on an accelerated basis. CONMED
responded to the Notice denying that there was any basis for acceleration of the payments due under the acquisition agreement.
On February 22, 2017, the representative of the former shareholders of EndoDynamix filed a complaint in Delaware Chancery
Court claiming breach of contract with respect to the duty to commercialize the product and seeking the contingent payments on
an accelerated basis. We believe that there was a substantive contractual basis to support the Company's decision to redesign
the product, such that there was no legitimate basis for seeking the liquidated damages. In the third quarter of 2018, the
Company decided to halt the development of the EndoDynamix clip applier. We previously recorded a charge to write off
assets and released a previously accrued contingent consideration liability. In a pre-trial filing the Plaintiffs claim to seek
liquidated damages, as well as additional damages up to $24.8 million. A non-jury trial had been scheduled to take place in the
Delaware Chancery Court in December 2020, but was postponed, and is now expected to take place in March and April 2021.
The Company has not recorded any expense related to potential damages in connection with this matter because the Company
does not believe any potential loss is probable. We expect to defend the claims asserted by the sellers of EndoDynamix,
although there can be no assurance that we will prevail in the trial and/or any resulting appeals.
On June 17, 2020, our Seoul, South Korea Office was served with a search warrant by the Incheon Customs Office
("ICO") as part of what we believe to be an industry-wide criminal investigation concerning alleged manipulation of transfer
pricing and maximum reimbursement pricing. We understand that the period under investigation with respect to CONMED
related to 2016-2019. The ICO had previously audited the transfer pricing applied to the majority of our imports into Korea,
without any resulting material adjustments. We believed that our transfer pricing was appropriate, on an aggregate basis. In
December 2020, we resolved the investigation with an agreement to pay administrative fines amounting to $0.02 million, and
an agreement to adjust the transfer price for one discreet product line whose revenues accounted for less than 1% of the
aggregate imports during the period in question. The Company now considers the matter closed.
We record reserves sufficient to cover probable and estimable losses associated with any such pending claims. We do
not expect that the resolution of any pending claims, investigations or reports of alleged misconduct 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, investigations or reports of misconduct,
especially claims and investigations not covered by insurance, will not have a material adverse effect on our financial condition,
results of operations or cash flows.
74
Note 14 — Acquisition and Other Expense
Acquisition and other expense for the year ended December 31, consists of the following:
Plant underutilization costs
Manufacturing consolidation costs
Acquisition and integration costs
Product rationalization costs - inventory
Restructuring costs
Acquisition and other expense included in cost of sales
Restructuring and related costs
Product rationalization costs - field inventory
Acquisition and integration costs
Acquisition and other expense included in selling and administrative
expense
Impairment charges included in research and development expense
Debt refinancing costs included in other expense
$
$
$
$
$
2020
2019
2018
$
6,586 $
— $
3,993
2,820
2,169
1,087
2,858
1,335
—
—
16,655 $
4,193 $
—
—
—
—
—
—
—
—
4,782 $
2,095
1,192
— $
—
13,066
2,372
8,069 $
13,066 $
2,372
— $
— $
4,212
— $
3,904 $
—
During 2020, we recorded a $6.6 million charge to cost of sales related to plant underutilization due to abnormally low
production as a result of decreased sales caused by the COVID-19 pandemic.
During 2020, we incurred $4.0 million in costs related to the consolidation of certain manufacturing operations which
were charged to cost of sales. These costs related to winding down operations at certain locations and moving production lines
to other facilities. During 2019, we incurred $2.9 million in severance and other costs related to the consolidation of certain
manufacturing operations. These costs were charged to cost of sales.
During 2020, we recognized costs for inventory step-up adjustments and other costs related to a previous acquisition of
$2.8 million. During 2019, we incurred $1.3 million in costs for inventory adjustments and other costs associated with the
acquisition of Buffalo Filter as further described in Note 2. These costs were charged to cost of sales.
During 2020, we performed an analysis of our product lines and determined certain catalog numbers, principally
related to capital equipment, would be discontinued and consolidated into existing product offerings. We consequently recorded
a $2.2 million charge to cost of sales to write-off inventory of the discontinued products. In addition, we incurred $2.1 million
in costs related to the write-off of field inventory used for customer demonstration and evaluation of the discontinued products
which we charged to selling and administrative expense.
During 2020, we incurred $1.1 million in restructuring costs related to a voluntary separation arrangement with
employees as a result of the COVID-19 pandemic which were charged to cost of sales based on the job function of the affected
employees. Substantially all of the costs associated with the voluntary separation arrangement were paid during 2020.
During 2020, we recorded a charge of $3.8 million related to the restructuring of our sales force which was charged to
selling and administrative expense. The charges for sales force restructuring consisted primarily of termination payments to
Orthopedic distributors made in exchange for ongoing assistance to transition to employee-based sales representatives and
severance.
During 2020, we recorded $0.9 million in restructuring charges principally related to a voluntary separation
arrangement with employees as a result of the COVID-19 pandemic which were charged to selling and administrative expense
based on the nature of the costs and function of the affected employees. Substantially all of the costs associated with the
voluntary separation arrangement were paid during the year.
75
During 2020, 2019 and 2018, we incurred $1.2 million, $13.1 million and $1.3 million in costs associated with the
February 11, 2019 acquisition of Buffalo Filter as further described in Note 2 that were included in selling and administrative
expense. These costs include investment banking fees, consulting fees, legal fees, severance and integration related costs.
During 2018 we incurred $1.1 million in cost associated with a prior acquisition and were also included in selling and
administrative expense. The cost consists of a charge to selling and administrative expense associated with a vacant lease
related to the acquisition.
During 2018, we recorded a net charge of $4.2 million to research and development expense mainly associated with
the impairment of an in-process research and development asset, net of the release of previously accrued contingent
consideration in other current and long-term liabilities, as further described in Note 13.
During 2019, we incurred a $3.6 million charge related to commitment fees paid to certain of our lenders, which
provided a financing commitment for the Buffalo Filter acquisition and recorded a loss on the early extinguishment of debt of
$0.3 million in conjunction with the sixth amended and restated senior credit agreement as further described in Note 7.
Note 15 — Guarantees
We provide warranties on certain of our products at the time of sale and sell extended warranties. The standard
warranty period for our capital equipment is generally one year and our extended warranties typically vary from one to three
years. 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 standard warranties for the year ended December 31, are as follows:
Balance as of January 1,
Provision for warranties
Claims made
2020
2019
2018
$
2,186 $
1,585 $
1,750
783
(1,143)
1,699
(1,098)
1,099
(1,264)
Balance as of December 31,
$
1,826 $
2,186 $
1,585
Costs associated with extended warranty repairs are recorded as incurred and amounted to $6.1 million, $5.3
million and $4.9 million for the years ended December 31, 2020, 2019 and 2018 respectively.
Note 16 – Fair Value Measurement
We enter into derivative instruments for risk management purposes only. We operate internationally and, in the
normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These
fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of
derivative instrument, to manage certain foreign currency exposures.
By nature, all financial instruments involve market and credit risks. We enter into forward contracts with major
investment grade financial institutions and have policies to monitor the credit risk of those counterparties. While there can be
no assurance, we do not anticipate any material non-performance by any of these counterparties.
Foreign Currency Forward Contracts. We hedge forecasted intercompany sales denominated in foreign currencies
through the use of forward contracts. We account for these forward contracts as cash flow hedges. To the extent these forward
contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in
accumulated other comprehensive loss. These changes in fair value will be recognized into earnings as a component of sales or
cost of sales when the forecasted transaction occurs.
We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our
currency transaction exposures. These forward contracts settle each month at month-end, at which time we enter into new
forward contracts. We have not designated these forward contracts as hedges and have not applied hedge accounting to them.
76
The following table presents the notional contract amounts for forward contracts outstanding:
Forward exchange contracts
Forward exchange contracts
As of
FASB ASC Topic 815
Designation
December 31, 2020
December 31, 2019
Cash flow hedge
$
Non-designated
154,504 $
42,380
156,818
33,867
The remaining time to maturity as of December 31, 2020 is within two years for hedge designated foreign exchange
contracts and approximately one month for non-hedge designated forward exchange contracts.
Statement of comprehensive income presentation
Derivatives designated as cash flow hedges
Foreign exchange contracts designated as cash flow hedges had the following effects on accumulated other
comprehensive income (loss) and net earnings on our consolidated statements of comprehensive income and our consolidated
balance sheets:
Amount of Gain (Loss)
Recognized in AOCI
Consolidated Statements of Comprehensive
Income
Amount of Gain (Loss)
Reclassified from AOCI
Years Ended
Total Amount of Line Item
Presented
Years Ended
Derivative Instrument
2020
2019
2018
Location of
amount
reclassified
2020
2019
2018
2020
2019
2018
Foreign exchange contracts
$ (7,111) $ 3,871 $ 10,073 Net Sales
$ 862,459 $ 955,097 $ 859,634 $ 1,997 $ 7,969 $ (1,278)
Cost of Sales
402,159 430,382 390,524
(619)
638
365
Pre-tax gain (loss)
$ (7,111) $ 3,871 $ 10,073
Tax expense (benefit)
(1,718)
935 2,434
Net gain (loss)
$ (5,393) $ 2,936 $ 7,639
$ 1,378 $ 8,607 $ (913)
333 2,079
(221)
$ 1,045 $ 6,528 $ (692)
At December 31, 2020, $5.6 million of net unrealized losses on forward contracts accounted for as cash flow hedges,
and included in accumulated other comprehensive loss, are expected to be recognized in earnings in the next twelve months.
Derivatives not designated as cash flow hedges
Net gains and losses from derivative instruments not accounted for as hedges offset by gains and losses on our
intercompany receivables on our consolidated statements of comprehensive income were:
Derivative Instrument
Location on Consolidated Statements
of Comprehensive Income
2020
2019
2018
Net gain (loss) on currency forward contracts
Net gain (loss) on currency transaction
exposures
Selling and administrative expense
$ (2,269) $
(573) $
69
Selling and administrative expense
$
646 $
(653) $
(804)
Years Ended
77
Balance sheet presentation
We record these forward foreign exchange contracts at fair value; the following tables summarize the fair value for
forward foreign exchange contracts outstanding at December 31, 2020 and 2019:
December 31, 2020
Derivatives designated as hedging instruments:
Location on Consolidated Balance
Sheet
Asset
Fair
Value
Liabilities
Fair
Value
Net
Fair
Value
Foreign exchange contracts
Foreign exchange contracts
Other current liabilities
Other long-term liabilities
$
1,500 $
(8,826) $
(7,326)
23
1,523 $
(535)
(9,361) $
(512)
(7,838)
$
Derivatives not designated as hedging
instruments:
Foreign exchange contracts
Other current liabilities
25
(150)
(125)
Total derivatives
$
1,548 $
(9,511) $
(7,963)
December 31, 2019
Derivatives designated as hedging instruments:
Location on Consolidated Balance
Sheet
Asset
Fair
Value
Liabilities
Fair
Value
Net
Fair
Value
Foreign exchange contracts
Foreign exchange contracts
Prepaids and other current assets
$
2,307 $
(1,341) $
Other long-term liabilities
38
(353)
$
2,345 $
(1,694) $
966
(315)
651
Derivatives not designated as hedging
instruments:
Foreign exchange contracts
Other current liabilities
22
(159)
(137)
Total derivatives
$
2,367 $
(1,853) $
514
Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the
consolidated balance sheets.
Fair Value Disclosure. FASB guidance defines fair value and establishes a framework for measuring fair value and
related disclosure requirements. This guidance applies when fair value measurements are required or permitted. The guidance
indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability
occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market
for the asset or liability. Fair value is defined based upon an exit price model.
Valuation Hierarchy. A valuation hierarchy was established for disclosure of the inputs to the valuations used to
measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that
are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived
principally from or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based
on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within
the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. There have been
no significant changes in the assumptions.
Valuation Techniques. Assets and liabilities carried at fair value and measured on a recurring basis as of
December 31, 2020 consist of forward foreign exchange contracts. The Company values its forward foreign exchange contracts
78
using quoted prices for similar assets. The most significant assumption is quoted currency rates. The value of the forward
foreign exchange contract assets and liabilities were valued using Level 2 inputs and are listed in the table above.
The carrying amounts reported in our balance sheets for cash and cash equivalents, accounts receivable, accounts
payable and long-term debt approximate fair value.
Note 17 - New Accounting Pronouncements
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), along with amendments
issued in 2017 and 2018. The Company adopted the new standard on January 1, 2019, and applied the modified retrospective
approach along with the package of transition practical expedients. This ASU requires lessees to record leases on their balance
sheets but recognize the expenses on their income statements in a manner similar to prior practice. ASU 2016-02 states that a
lessee would recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the
underlying asset for the lease term. This update did not have a material impact on our net income, earnings per share or cash
flows. Refer to Note 5 for further detail on leases.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments, along with subsequent amendments issued in 2019. This ASU requires instruments
measured at amortized cost, including accounts receivable, to be presented at the net amount expected to be collected. The new
model requires an entity to estimate credit losses based on historical information, current information, and reasonable and
supportable forecasts, including estimates of prepayments. This ASU is effective for fiscal years beginning after December 31,
2019 and the Company adopted the new standard on January 1, 2020. We adopted this ASU by applying historical loss rates to
our accounts receivable aging schedule to estimate expected credit losses. We further adjusted expected credit losses for
specifically identified and forecasted credit losses. This update did not have a material impact on our net income, earnings per
share or cash flows.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-
Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value
measurements. This ASU is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. We
adopted this update as of January 1, 2020 and it did not have a material impact on our net income, earnings per share or cash
flows.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General
(Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the
disclosure requirements for defined benefit pension plans and other postretirement plans. This ASU is effective for fiscal years
ending after December 15, 2020 and the Company adopted this ASU as of December 31, 2020 by including the required
disclosures in the employee benefit plans footnote.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which results in the removal of certain exceptions to the general principles of ASC 740 and simplifies other
aspects of the accounting for income taxes. This ASU is effective for fiscal years beginning after December 15, 2020 and early
adoption is permitted in any interim period. We early adopted this new guidance effective April 1, 2020 and it did not have a
material impact on the consolidated financial statements.
Recently Issued Accounting Standards, Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting, which provides optional guidance if certain criteria are met for entities that
have contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be
discontinued as a result of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The
Company has not adopted the ASU as of December 31, 2020, however will continue to monitor the impact of reference rates
and will elect to apply this guidance in our consolidated financial statements in the event that we are impacted by reference rate
reform.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing certain
79
separation models requiring separate accounting for embedded conversion features which will result in more convertible debt
instruments accounted for as a single liability. The ASU eliminates certain settlement conditions that are required for equity
classification to qualify for the derivative scope exception. The ASU addresses how convertible instruments are accounted for
in the calculation of diluted earnings per share by using the if-converted method. The ASU is effective for fiscal years
beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15,
2020. The Company is currently assessing the impact of this guidance on our consolidated financial statements.
Note 18 — Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for 2020 and 2019 are as follows:
2020
Net sales
Gross profit
Net income (loss)
EPS:
Basic
Diluted
2019
Net sales
Gross profit
Net income
EPS:
Basic
Diluted
March(1)
Three Months Ended
June(2)
September(3)
December(4)
214,010 $
119,159
5,927
157,785 $
71,929
(27,400)
237,835 $
133,698
6,850
252,828
135,514
24,140
0.21 $
0.20 $
(0.96) $
(0.96) $
0.24 $
0.23 $
0.84
0.81
March(5)
Three Months Ended
June(6)
September(7)
December(8)
218,378 $
121,438
1,021
238,263 $
131,190
5,695
233,590 $
130,111
6,970
264,865
141,975
14,933
0.04 $
0.04 $
0.20 $
0.19 $
0.25 $
0.23 $
0.53
0.49
$
$
$
$
$
The data in the above schedules has been intentionally rounded, and therefore, the quarterly amounts may not sum to the fiscal year to date amounts.
Items Included In Selected Quarterly Financial Data:
(1) The first quarter of 2020 includes pre-tax manufacturing consolidation costs of $1.8 million and acquisition and integration
costs of $1.6 million.
(2) The second quarter of 2020 includes pre-tax plant underutilization costs of $6.6 million, product rationalization costs of
$4.3 million, restructuring and related costs of $3.2 million, manufacturing consolidation costs of $1.6 million and
acquisition and integration costs of $1.1 million.
(3) The third quarter of 2020 includes pre-tax restructuring and related costs of $1.0 million, acquisition and integration costs
of $0.8 million and manufacturing consolidation costs of $0.6 million.
(4) The fourth quarter of 2020 includes pre-tax restructuring and related costs of $1.6 million and acquisition and integration
costs of $0.6 million. In the fourth quarter of 2020, our average share price exceeded the conversion price of our 2.625%
convertible notes due in 2024 (the "Notes") and we included 0.2 million shares assumed to be issued if the Notes were
converted in our diluted share count for the computation of diluted earnings per share.
(5) The first quarter of 2019 includes pre-tax business acquisition costs of $7.9 million and debt refinancing costs of $3.9
million.
(6) The second quarter of 2019 includes pre-tax acquisition and integration costs of $3.0 million.
80
(7) The third quarter of 2019 includes pre-tax acquisition and integration costs of $1.7 million and manufacturing
consolidation costs of $1.4 million. In the third quarter of 2019, our average share price exceeded the conversation price of
our 2.625% convertible notes due in 2024 (the "Notes") and we included 0.2 million shares assumed to be issued if the
Notes were converted in our diluted share count for the computation of diluted earnings per share.
(8) The fourth quarter of 2019 includes pre-tax acquisition and integration costs of $1.9 million and manufacturing
consolidation costs of $1.4 million. In the fourth quarter of 2020, our average share price exceeded the conversion price of
our 2.625% convertible notes due in 2024 (the "Notes") and we included 0.6 million shares assumed to be issued if the
Notes were converted in our diluted share count for the computation of diluted earnings per share.
81
SCHEDULE II—Valuation and Qualifying Accounts
(In thousands)
Description
2020
Allowance for bad debts
Sales returns and
allowance
Deferred tax asset
valuation allowance
2019
Allowance for bad debts
Sales returns and
allowance
Deferred tax asset
valuation allowance
2018
Allowance for bad debts
Sales returns and
allowance
Deferred tax asset
valuation allowance
Item 16. Form 10-K Summary
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Deductions
Balance at End
of Period
$
2,786 $
1,611 $
(521) $
3,876
3,667
1,732
384
989
(367)
—
3,684
2,721
$
2,660 $
852 $
(726) $
2,786
3,246
1,159
518
573
(97)
—
3,667
1,732
$
2,137 $
1,485 $
(962) $
2,660
2,219
1,050
(23)
570
589
—
3,246
1,159
Registrants may voluntarily provide a summary of information required by Form 10-K under this Item 16. The
Company has elected not to include such summary information.
82
Exhibit 4.1
Description of Common Stock
The following is a description of the general terms, provisions and rights of the common stock, par value $0.01
("Common Stock"), of CONMED Corporation, a Delaware corporation (the "Company," "we," "us," and "our"), related
provisions of the Company’s certificate of incorporation (the “Certificate of Incorporation”) and bylaws (the “Bylaws”) and
applicable Delaware law. This description is qualified in its entirety by, and should be read in conjunction with, the Certificate
of Incorporation and Bylaws, which have been publicly filed with the Securities and Exchange Commission, and applicable
Delaware law.
Authorized Shares
We have the authority to issue an aggregate of 100,000,000 shares of Common Stock. As of February 17, 2021, there
were 31,299,194 shares of our Common Stock issued and 28,942,757 shares of our Common Stock outstanding.
Dividend Rights
Subject to the preferences, limitations and relative rights of holders of our preferred stock, the holders of Common
Stock are entitled to share ratably in dividends if, when and as declared by our board of directors out of funds legally available
therefor.
Voting Rights
Subject to the preferences, limitations and relative rights of holders of our preferred stock, the holders of Common
Stock are entitled to one vote for each share held of record on all matters at all meetings of stockholders.
Liquidation Rights
Subject to the preferences, limitations and relative rights of holders of our preferred stock, the holders of Common
Stock are entitled, in the event of our liquidation, dissolution or winding-up, to share ratably in the distribution of assets
remaining after payment of debts and expenses.
Absence of Other Rights
Our Common Stock has no sinking fund or redemption provisions or preemptive, conversion or exchange rights.
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation and Bylaws contain provisions that may delay, defer or discourage another party from
acquiring control of us. We expect that these provisions, some of which are summarized below, will discourage coercive
takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire
control of us to first negotiate with the board of directors, which we believe may result in an improvement of the terms of any
such acquisition in favor of our stockholders. However, they also give the board of directors the power to discourage
acquisitions that some stockholders may favor.
Special Meetings of Stockholders
Our Bylaws provide that special meetings of stockholders may be called by the board of directors, the chair of the
board of directors, if any, the lead independent director of the board of directors, if any, or the president, or upon the request of
stockholders holding at least 25% of the Company's outstanding stock entitled to vote, subject to certain procedural and
informational requirements for calling special meetings of stockholders set forth in the Bylaws.
Stockholder Action by Written Consent
Our Certificate of Incorporation provides that stockholders can take action by written consent if stockholders holding
not less than the minimum number of votes required to authorize or take such action consent, subject to certain procedural
safeguards set forth in the Certificate of Incorporation, including a requirement that the holders of at least 25% of the
Company’s outstanding Common Stock (provided that such shares are determined to be Net Long Shares (as defined in the
Bylaws) that have been held continuously for at least one year) request that the Board set a record date to determine the
stockholders entitled to act by written consent.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our Bylaws require compliance with advance notice procedures for stockholder proposals and director nominations to
be brought before an annual meeting of the stockholders.
Exclusive Forum
Our Bylaws provide that unless the Company consents in writing to the selection of an alternate forum, (a) the Court of
Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on
our behalf; (ii) any action asserting a breach of fiduciary duty owed by any of our directors, officers, employees, or
stockholders to the Company or our stockholders; (iii) any action asserting a claim arising pursuant to the Delaware General
Corporation Law (the “DGCL”), our Certificate of Incorporation or our Bylaws; (iv) any action to interpret, apply, enforce or
determine the validity of our Certificate of Incorporation or our Bylaws; or (v) any action asserting a claim against us that is
governed by the internal affairs doctrine (or, if the Court of Chancery does not have jurisdiction, then the Superior Court of the
State of Delaware, or if no state court in Delaware has jurisdiction, the federal district court for the District of Delaware); and
(b) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a
cause of action arising under the Securities Act of 1933, as amended.
Amendment to Certificate of Incorporation and Bylaws
Delaware law provides generally that a majority vote of all the outstanding shares entitled to vote thereon at a meeting
of stockholders is required to approve amendments to a corporation’s certificate of incorporation, unless a corporation’s
certificate of incorporation requires a greater percentage.
Delaware law provides generally that by-laws may be amended, adopted or repealed by the vote of a majority of the
shares cast at a meeting of the Company’s stockholders, unless the certificate of incorporation or by-laws provide otherwise.
Our Bylaws provide that they may be amended, altered or repealed by a majority vote of the outstanding shares of the Company
entitled to vote thereon. Additionally, if permitted under the corporation’s certificate of incorporation, under Delaware law the
board of directors may also amend, adopt or repeal the Company’s by-laws. Our Certificate of Incorporation provides that the
Bylaws may be amended, altered, or repealed by our board of directors without stockholder approval; provided, however, that
any by-law adopted by the board of directors may be amended or repealed by our stockholders.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the DGCL. Accordingly, we may not engage in a business combination, such as a
merger, consolidation, recapitalization, asset sale or disposition of stock, with any “interested stockholder” for a period of three
years from the date that the interested stockholder first became an interested stockholder unless certain conditions are met.
Indemnification and Limitations on Liability of Officers and Directors
Our Certificate of Incorporation and Bylaws require the indemnification of directors and officers by the Company to
the fullest extent permitted by law, but our Bylaws provide that no indemnification is required with respect to any settlement or
disposition of a proceeding unless the Company has given its prior consent to such settlement/disposition. Our Bylaws also
permit us to indemnify employees and to advance expenses to any person entitled to indemnification upon request.
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the
corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability for (i) any breach of the director’s duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payments of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) any transaction from which the director derived an
improper personal benefit. Our Certificate of Incorporation contains a provision eliminating the personal liability of directors
for monetary damages to the fullest extent permitted by law.
Listing
The Company's Common Stock is listed on the New York Stock Exchange under the trading symbol "CNMD."
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is Computershare Investor Services.
Martha Goldberg Aronson
Lead Independent Director of the Board of Directors
CONMED Corporation
525 French Road
Utica, NY 13502
Exhibit 10.2
December 2020
Mr. Curt R. Hartman
[Address on File]
Re: Amended Employment Terms
Dear Curt:
Please accept this letter as Amendment Number 1 to your November 9, 2014 Letter Agreement
with CONMED Corporation (“Amendment”). This Amendment will supplement and amend your
November 9, 2014 Letter Agreement (the “CEO Letter Agreement) to address certain matters relating
to changes arising since the date of the CEO Letter Agreement: namely, the manner in which CONMED
has been operating since the date of the CEO Letter Agreement, and the change that, while CONMED
was a New York corporation in 2014, CONMED is now a Delaware corporation as of the date of this
Amendment. The Amendment also reflects that the headquarters in 2014 were in Utica, New York, and
as of the date of this Amendment are now in Largo, Florida.
Certain sections of the CEO Letter Agreement are hereby replaced and amended to read as
follows:
1.
2.
3.
Effective Date; Employment as President and Chief Executive Officer. Effective
November 9, 2014 (“Effective Date”), you will be employed as the President and Chief
Executive Officer of the Company, reporting to the Board. You will continue to be an at-will
employee for all purposes. As such, your employment may be terminated by the Company or by
you at any time with or without prior notice. Your principal place of employment will be at an
office the Company will rent for you near your residence as the Company and you may
agree as of the date of this Amendment and thereafter, and you will also have an office at
the Company's headquarters, which has been in Utica, New York through December 31,
2020, and shall be in Largo, Florida from January 1, 2021 and thereafter. While you are
serving as Chief Executive Officer, the Board will nominate you for re-election as a member of
the Board consistent with Board practices as and when your term as a director otherwise would
expire. You agree to serve without additional compensation as a director of the Company and as
an officer or director of any of the Company's subsidiaries.
Moving Allowance: [Deleted as of the date of this Amendment.]
Applicable Law; Choice of Forum.
Excepting any claim for benefits under any employee benefit plan in which you are a
a)
participant (which claims shall be determined in accordance with the terms of such plan), to the
fullest extent permitted by law, all claims that you may have against the Company or any other
controversy arising under, or otherwise relating to, the terms of your employment with and
services rendered by you to the Company shall be governed by, and construed exclusively in
accordance with, the laws of the State of Delaware.
Any suit, action or other proceeding arising out of or relating to this the terms of your
b)
employment with and services rendered by you to the Company and brought by you under the
CEO Letter Agreement including this Amendment shall be brought exclusively in the Delaware
Court of Chancery in New Castle County, or in the event (but only in the event) that such court
does not have subject matter jurisdiction over such action, the United States District Court for the
District of Delaware, and each of the parties hereto hereby irrevocably submits to the jurisdiction
of such courts for the purpose of any such suit, action or other proceeding.
The Company shall be free to bring any suit or claim relating to the enforcement of the
c)
terms of this Agreement in any court of competent jurisdiction.
d)
THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY
JURY, INCLUDING WITHOUT LIMITATION ANY RIGHT TO TRIAL BY JURY AS TO
THE MAKING, EXISTENCE, VALIDITY, OR ENFORCEABILITY OF THIS AGREEMENT.
All other provisions of the CEO Letter Agreement remain in full force and effect. If you
approve of this Amendment, please sign this letter where indicated below.
Sincerely,
/s/ Martha Goldberg Aronson
Date: December 28, 2020
Martha Goldberg Aronson
Lead Independent Director of the
Board of Directors
AGREED AND ACCEPTED:
/s/ Curt R. Hartman
Curt R. Hartman
cc: Heather Cohen
Daniel S. Jonas, Esq.
Exhibit 10.27
December 28, 2020
Heather L. Cohen
EVP Human Resources
Conmed Corporation
525 French Road
Utica, New York 13502
Direct Dial (315) 624-3215
Mr. Todd W. Garner
[Address on File]
Re: Amended Employment Terms
Dear Todd:
Please accept this letter as Amendment Number 1 to your January 2, 2018 Letter Agreement with
CONMED Corporation (“Amendment”). This Amendment will supplement and amend your January 2,
2018 Letter Agreement (the “CFO Letter Agreement”) to address certain matters relating to changes
arising since the date of the CFO Letter Agreement in the manner in which CONMED has been operating
since the date of the CFO Letter Agreement: namely, the manner in which CONMED has been operating
since the date of the CFO Letter Agreement, and the change that, while CONMED was a New York
corporation in 2018, CONMED is now a Delaware corporation as of the date of this Amendment. The
Amendment also reflects that the headquarters in 2018 were in Utica, New York, and as of the date of this
Amendment are now in Largo, Florida.
Certain sections of the CFO Letter Agreement are hereby replaced and amended to read as follows:
1.
2.
3.
Effective Date; Title. Effective January 2, 2018 (“Effective Date”), you will be
employed as the Executive Vice President & Chief Financial Officer, reporting to Curt
Hartman, our President & CEO. You will be an at-will employee for all purposes and as such,
your employment may be terminated by the Company or by you at any time with or without prior
notice. Your principal place of employment will be at an office the Company will rent for
you near your residence as the Company and you may agree as of the date of this
Amendment and thereafter, and you will also have an office at the Company’s headquarters,
which has been in Utica, New York through December 31, 2020, and shall be in Largo,
Florida from January 1, 2021 and thereafter.
Relocation: [Deleted as of the date of this Amendment.]
Applicable Law; Choice of Forum.
Excepting any claim for benefits under any employee benefit plan in which you are a
a)
participant (which claims shall be determined in accordance with the terms of such plan), to the
fullest extent permitted by law, all claims that you may have against the Company or any other
controversy arising under, or otherwise relating to, the terms of your employment with and
services rendered by you to the Company shall be governed by, and construed exclusively in
accordance with, the laws of the State of Delaware.
Any suit, action or other proceeding arising out of or relating to this the terms of your
b)
employment with and services rendered by you to the Company and brought by you under the
CEO Letter Agreement including this Amendment shall be brought exclusively in the Delaware
Court of Chancery in New Castle County, or in the event (but only in the event) that such court
does not have subject matter jurisdiction over such action, the United States District Court for the
District of Delaware, and each of the parties hereto hereby irrevocably submits to the jurisdiction
of such courts for the purpose of any such suit, action or other proceeding.
The Company shall be free to bring any suit or claim relating to the enforcement of the
c)
terms of this Agreement in any court of competent jurisdiction.
d)
THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY
JURY, INCLUDING WITHOUT LIMITATION ANY RIGHT TO TRIAL BY JURY AS TO
THE MAKING, EXISTENCE, VALIDITY, OR ENFORCEABILITY OF THIS AGREEMENT.
All other provisions of the CFO Letter Agreement remain in full force and effect. If you approve
of this Amendment, please sign this letter where indicated below.
Sincerely,
/s/ Heather Cohen
Heather L. Cohen
Executive Vice President, Human Resources
AGREED AND ACCEPTED:
/s/Todd Garner
Todd W. Garner
cc: Curt R. Hartman
Daniel S. Jonas, Esq.
CONMED Corporation
Subsidiaries of the Registrant
Name
State or Country of Incorporation
EXHIBIT 21
Aspen Laboratories, Inc.
Buffalo Filter LLC
CONMED Andover Medical, Inc.
CONMED Austria GmbH
CONMED Denmark ApS
CONMED Deutschland GmbH
CONMED Endoscopic Technologies, Inc.
CONMED Finland Oy
CONMED France SAS
CONMED Iberia SL
CONMED Italia SrL
CONMED Japan K. K.
CONMED Linvatec Australia PTY Ltd
CONMED Linvatec (Beijing) Medical Appliances Co., Ltd
CONMED Linvatec Biomaterials Oy
CONMED U.K. Ltd.
Consolidated Medical Equipment Company S. de R.L. de C.V.
EndoDynamix, Inc.
GWH Limited Partnership
Conmed do Brasil Comércio Importação e Exportação de Produtos Médicos
Hospitalares Ltda.
Largo Lakes I Limited Partnership
Linvatec Corporation
Linvatec Belgium NV
Linvatec Canada ULC
CONMED Europe BV
CONMED Korea Ltd.
Linvatec Nederland B.V.
Linvatec Polska Sp. z.o.o
Linvatec Conmed Sweden AB
Palmerton Holdings, Inc.
SurgiQuest, Inc.
Viking Systems, Inc.
Linvatec India Private Limited
Colorado
Delaware
New York
Austria
Denmark
Germany
Massachusetts
Finland
France
Spain
Italy
Japan
Australia
China
Finland
United Kingdom
Mexico
Delaware
Florida
Brazil
Delaware
Florida
Belgium
Canada
Belgium
Korea
Netherlands
Poland
Sweden
New York
Delaware
Delaware
India
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-78987, 333-90444,
333-124202, 333-136453, 333-145150, 333-162834, 333-168493, 333-182878, 333-207582, 333-214299, 333-223258 and
333-228171) of CONMED Corporation of our report dated February 22, 2021 relating to the consolidated financial statements,
financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
EXHIBIT 23
/s/ PricewaterhouseCoopers LLP
Rochester, New York
February 22, 2021
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Curt R. Hartman, certify that:
1.
I have reviewed this annual report on Form 10-K of CONMED Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
February 22, 2021
/s/ Curt R. Hartman
Curt R. Hartman
President and
Chief Executive Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Todd W. Garner, certify that:
1.
I have reviewed this annual report on Form 10-K of CONMED Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
February 22, 2021
/s/ Todd W. Garner
Todd W. Garner
Executive Vice President and
Chief Financial Officer
Exhibit 32.1
CERTIFICATIONS
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title
18, United States Code), each of the undersigned officers of CONMED Corporation, a Delaware corporation (the
“Corporation”), does hereby certify that:
The Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”) of the Corporation fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in
the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Date: February 22, 2021
Date: February 22, 2021
/s/ Curt R. Hartman
Curt R. Hartman
President and
Chief Executive Officer
/s/ Todd W. Garner
Todd W. Garner
Executive Vice President and
Chief Financial Officer
11311 Concept Blvd.
Largo, Florida 33773
Toll Free: 1-866-4CONMED
International: 727-214-3000
www.CONMED.com
customerexperience@CONMED.com
internationalorders@CONMED.com