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2013 Annual Report

2013 Annual Report
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2013 Annual Report

Product catalog summary
Overview: The 2013 Annual Report for CONMED Corporation outlines a year of strategic focus amidst a challenging global environment. Despite lower than anticipated growth, the company adjusted expenses to meet earnings forecasts, launched new products, supported R&D, and restructured manufacturing.
Leadership Changes: In 2014, significant leadership changes included the addition of Jerome Lande and Curt Hartman to the Board, with Hartman appointed as Interim CEO following Joe Corasanti's resignation. An executive search committee was formed to find a permanent CEO.
Financial Highlights: The report shows a sales CAGR of 2.4% and an adjusted net income CAGR of 14.8%, excluding the medical device tax. Adjustments for various costs and expenses are detailed.
Product Innovations: New products include the Bipolar Arthroscopic RF System, EDGE™ All-Suture Anchor System, Y-Knot® Flex System, and Hall 50™ Powered Instruments System, designed to enhance surgical procedures.
Market Presence: CONMED's market is divided into Orthopedic Surgery (54%), General Surgery (37%), and Surgical Visualization (9%). The company emphasizes its strong global market presence and upcoming product introductions as key growth drivers.
Corporate Information: Details on board members, corporate officers, shareholder information, and contact details are provided. The company's stock trades on NASDAQ under the symbol CNMD.
Business Strategy: CONMED aims to improve surgical outcomes by developing innovative medical devices, refining existing products, and creating new technologies to reduce risk, trauma, cost, and procedure time.
Industry Trends: Market growth is driven by favorable demographics, pressure to reduce healthcare costs, and increased global medical spending. The aging population and technological advancements are expected to lead to continued growth in surgical procedures.
Competitive Strengths: CONMED holds significant market share in orthopedic surgery, general surgery, and surgical visualization, with strengths in brand recognition, product offerings, and technological leadership.
Risk Factors: Risks include economic conditions, foreign exchange rate changes, competition, regulatory changes, and litigation risks, which could materially affect performance.
Quality and Compliance: CONMED is committed to high-quality standards, with most facilities certified under ISO international quality standards.
Global Presence: Products are distributed in over 100 countries, leveraging sales subsidiaries and local dealers.
Regulatory Compliance: The document outlines the regulatory framework for medical devices, focusing on the FDA's 510(k) premarket notification process and international regulations.
Risk Factors: Economic conditions, foreign currency fluctuations, and healthcare reform legislation pose risks. Regulatory non-compliance could result in recalls, fines, or other adverse effects.
Product Compliance and Recalls: Past product recalls have not materially affected the business, but future regulatory issues could harm reputation and customer relationships.
Market Competition: The market is highly competitive, with pricing pressures and new product introductions by competitors potentially affecting revenues.
Raw Material Supply: The company relies on various raw materials, and shortages or price increases could impact costs and competitiveness.
Technological Change and Product Development: Keeping pace with rapidly changing technology and successfully developing new products is crucial.
Credit Agreement Covenants: Credit agreements contain restrictive covenants that limit financial flexibility.
Leverage and Debt Service: High leverage could limit operational flexibility and make the company vulnerable to economic downturns.
Patent Infringement and Protection: The company holds numerous patents, but challenges or invalidations could harm competitive positions.
Legal Proceedings: The company is involved in lawsuits related to product liability and patent infringement, generally covered by insurance.
Market and Stock Information: The company's stock is traded on NASDAQ under the symbol "CNMD," with historical stock prices showing an increase over the period.
Financial Data: A five-year summary highlights net sales, cost of sales, gross profit, and net income from 2009 to 2013.
Management Discussion: The company underwent restructuring to improve efficiency, resulting in a single-segment reporting structure.
Product Lines and Sales Distribution: Orthopedic surgery products accounted for 54% of sales in 2013. International sales were around 50% of total sales from 2011 to 2013.
Business Environment and Opportunities: The industry is experiencing growth due to an aging population and a preference for less invasive procedures.
Business Challenges: Economic volatility and foreign currency fluctuations pose challenges. Regulatory compliance is critical, with recent FDA inspections leading to corrective actions.
Critical Accounting Policies: Revenue is recognized upon shipment, and inventory is valued based on market competitiveness and product lifecycle estimates.
Customer Relationship Intangible Assets: Customer relationship assets are valued based on expected after-tax income over their useful life.
Pension Plan: The company sponsors a defined benefit pension plan, frozen in 2009, with key assumptions including discount rate and expected return on assets.
Stock-based Compensation: All share-based payments are recognized at fair value, with compensation expense recognized over the vesting period.
Income Taxes: The company has a recorded future tax benefit of $33.0 million as of December 31, 2013.
Consolidated Results of Operations: Sales decreased slightly in 2013 compared to 2012, with specific declines in orthopedic surgery and visualization product lines.
Change in Control Severance Agreements: Severance agreements for key executives are referenced from previous company reports.
Code of Ethics: CONMED's code of ethics is accessible via their website.
Management's Report on Internal Control: Management asserts responsibility for maintaining effective internal control over financial reporting.
Independent Auditor's Report: PricewaterhouseCoopers LLP audited the financial statements and internal controls.
Consolidated Financial Statements: The balance sheets for 2012 and 2013 show an increase in total assets.
Comprehensive Income: Net sales slightly decreased from 2012 to 2013, while net income also decreased.
Shareholders' Equity: The statement of shareholders' equity shows changes in common stock, paid-in capital, retained earnings, and treasury stock.
Deferred Income Taxes: Deferred income taxes are calculated based on enacted tax rates expected to be in effect when temporary differences reverse.
Revenue Recognition: Revenue is recognized when title transfers to the customer at shipment.
Earnings and Dividends Per Share: Basic EPS is calculated by dividing net income by the weighted average number of shares.
Accumulated Other Comprehensive Loss: This includes cash flow hedging gains/losses, pension liabilities, and translation adjustments.
Inventories: Inventories are categorized into raw materials, work in process, and finished goods.
Property, Plant, and Equipment: Details include land, buildings, machinery, and construction in progress.
Goodwill and Intangible Assets: Goodwill changes due to acquisitions and currency translation are noted.
Long-Term Debt: The company has a revolving credit facility and mortgage notes.
Geographic Sales Distribution: Sales are broken down by region, with the United States being the largest market.
Employee Benefit Plans: The company sponsors a 401(k) savings plan and a frozen defined benefit pension plan.
Legal Matters and Contingencies: The company faces various legal challenges, including product liability claims and patent infringement lawsuits.
Environmental and Regulatory Compliance: The company is subject to environmental laws and regulations.
Other Expenses: The document outlines other expenses, including administrative consolidation costs and legal arbitration.
Pension and Acquisition Costs: In 2013, there was an increase in lump sum withdrawals from pension plans.
Guarantees and Warranties: The company provides warranties on certain products, typically for one year.
Fair Value Measurement: The company uses derivative instruments for risk management.
Restructuring Costs: Restructuring costs were incurred due to facility consolidations and product line transfers.
Business Acquisition: In 2012, the company acquired Viking Systems, Inc. for $22.5 million.
Quarterly Financial Data: Quarterly net sales and net income figures are provided for 2012 and 2013.
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Catalog excerpts

2013 Annual Report-1

Advancingthe Futureof Healthcare

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2013 Annual Report-2

CONMED Corporation To Our Shareholders: 2013 was a year of strategic focus for CONMED Corporation as we navigated a challenging global operating environment. We achieved a number of key accomplishments in 2013 that reflect our team’s hard work and position the Company for future success. While our top-line growth was short of what we had anticipated at the start of 2013, we adjusted expense levels to deliver earnings within our forecasted range. This is a tribute to the Company’s talented team, which produced results despite a soft worldwide economy. During the year, we launched new products,...

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2013 Annual Report-3

Adjusted Net Income (in $ millions) Adjusted Net Income CAGR = 14.8% Without the medical device tax in 2013, the Adjusted Net Income CAGR = 16.9% This amount represents adjusted net income excluding the $3.7 million impact of the medical device tax. Reconciliation of Reported Net Income to Non-GAAP Net Income Before Adjusted Items and Amortization of Debt Discount1 (In thousands except per share amounts) (Unaudited) 2009 2010 2011 2012 2013 Reported net income $ 12,137 $ 30,346 $ 752 $ 40,481 $ 35,939 ________ ________ ________ ________ ________ Facility consolidation costs 12,704 2,397 3,467...

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2013 Annual Report-4

OurMarkets Revenues by Product Line OrthopedicSurgery54% Sports Medicine Powered Surgical Instruments Sports Biologics & Tissue GeneralSurgery37% Advanced Surgical Energy Endomechanical Instrumentation GI & Pulmonary Patient Monitoring

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2013 Annual Report-5

ProductSpotlight EDGE™ Bipolar Arthroscopic RF System Designed by RF technology innovators, CONMED’s new bi-polar RF Arthroscopic Energy System offers a versatile, intuitive design and user interface for arthroscopic ablation, coagulation and dissection. The system consists of a radio frequency generator, bi-polar probes and optional wired or wireless foot controls. The single-use bi-polar probes are engineered for shoulder, knee, hip and extremity arthroscopy procedures and have the ability to change power settings from the sterile field as well as measure joint fluid temperature. Y-Knot®FlexSystem...

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2013 Annual Report-6

ProductSpotlightCont. Hall50™ Powered Instruments System Built upon 50 years of dependable power and engineering expertise, the Hall 50 System combines precise performance, reliable power and convenient sterilization into one solution that delivers unmatched value for hospitals, surgeons and OR staff. The lighter, ergonomically-designed handpieces provide a comfortable, high-performance clinical experience while the autoclavable lithium batteries deliver dependable, longlasting power. The unique, multi-tray system also provides hospitals with new levels of sterilization convenience that have...

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2013 Annual Report-7

CorporateInformation Board Members Corporate Officers Corporate Office Mark E. Tryniski Chairman of the Board of Directors Curt R. Hartman Interim Chief Executive Officer & Director Brian Concannon Director William W. Abraham Executive Vice President, Business Development CONMED Corporation 525 French Road Utica, NY 13502 Phone (315) 797-8375 Fax (315) 797-0321 Customer Service 1-800-448-6506 email: [email protected] website: www.conmed.com Bruce F. Daniels Director Charles M. Farkas Director Jo Ann Golden Director Curt R. Hartman Interim Chief Executive Officer & Director Dirk M. Kuyper Director...

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2013 Annual Report-8

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 For the fiscal year ended December 31, 2013 Commission file number 0-16093 CONMED CORPORATION (Exact name of registrant as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 525 French Road, Utica, New York (Address of principal executive offices) (315) 797-8375 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(g) of the Act: Common Stock,...

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2013 Annual Report-9

CONMED CORPORATION ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 2013 Item 1A. Risk Factors 9 Item 3. Legal Proceedings 15 Item 4. Mine Safety Disclosures 16 Item 5. Market for Registrant's Common Equity. Related Stockholder Matters and Issuer Purchases of Equity Securities 16 Item 6. Selected Financial Data 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures About Item 8. Financial Statements and Supplementary Data 32 Item 9. Changes In and Disagreements with Accountants on Accounting and...

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2013 Annual Report-10

CONMED CORPORATION Item 1. Business Forward Looking Statements This Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2013 (“Form 10-K”) contains certain forwardlooking 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...

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2013 Annual Report-11

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"). Our SEC filings are also available for reading and copying at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be...

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2013 Annual Report-12

Successful Integration of Acquisitions. We seek to build growth platforms around our core markets through focused acquisitions of complementary businesses and product lines. These acquisitions have enabled us to diversify our product portfolio, expand our sales and marketing capabilities and strengthen our presence in key geographical markets. Strategic Marketing and Distribution Channels. We market our products domestically through five focused sales force groups consisting of approximately 275 employee sales representatives and 215 sales professionals employed by independent sales agent groups....

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