10-Q 1 cnmd6301610-q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarter ended | Commission File Number
June 30, 2016 | 0-16093

CONMED CORPORATION
(Exact name of the registrant as specified in its charter)

New York (State or other jurisdiction of incorporation or organization) | 16-0977505 (I.R.S. Employer Identification No.)
525 French Road, Utica, New York (Address of principal executive offices) | 13502 (Zip Code)

(315) 797-8375
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý
The number of shares outstanding of registrant's common stock, as of July 26, 2016 is 27,817,843 shares.

CONMED CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2016

PART I FINANCIAL INFORMATION
Item Number |  | Page
Item 1. | Financial Statements (unaudited) |
| – Consolidated Condensed Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015 | 1
| – Consolidated Condensed Balance Sheets as of June 30, 2016 and December 31, 2015 | 2
| – Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2016 and 2015 | 3
| – Notes to Consolidated Condensed Financial Statements | 4
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24
Item 4. | Controls and Procedures | 24
PART II OTHER INFORMATION
Item 1. | Legal Proceedings | 24
Item 6. | Exhibits | 25
Signatures | 26

Table of Contents
PART I FINANCIAL INFORMATION
Item 1.
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands except per share amounts)

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Net sales | $ | 193,433 |  |  | $ | 181,027 |  |  | $ | 374,634 |  |  | $ | 358,967 |
Cost of sales | 91,011 |  |  | 87,529 |  |  | 174,472 |  |  | 173,187 |
Gross profit | 102,422 |  |  | 93,498 |  |  | 200,162 |  |  | 185,780 |
Selling and administrative expense | 86,729 |  |  | 73,581 |  |  | 172,672 |  |  | 148,367 |
Research and development expense | 8,009 |  |  | 7,501 |  |  | 16,267 |  |  | 14,043 |
Operating expenses | 94,738 |  |  | 81,082 |  |  | 188,939 |  |  | 162,410 |
Income from operations | 7,684 |  |  | 12,416 |  |  | 11,223 |  |  | 23,370 |
Other expense | — |  |  | — |  |  | 2,942 |  |  | — |
Interest expense | 3,757 |  |  | 1,489 |  |  | 7,587 |  |  | 2,949 |
Income before income taxes | 3,927 |  |  | 10,927 |  |  | 694 |  |  | 20,421 |
Provision for income taxes | 1,043 |  |  | 3,466 |  |  | 75 |  |  | 6,648 |
Net income | $ | 2,884 |  |  | $ | 7,461 |  |  | $ | 619 |  |  | $ | 13,773 |
Comprehensive income | $ | 1,345 |  |  | $ | 8,630 |  |  | $ | 2,132 |  |  | $ | 4,915 |
Per share data: |  |  |  |  |  |  |  |  |
Net income |  |  |  |  |  |  |  |  |
Basic | $ | 0.10 |  |  | $ | 0.27 |  |  | $ | 0.02 |  |  | $ | 0.50 |
Diluted | 0.10 |  |  | 0.27 |  |  | 0.02 |  |  | 0.49 |
Dividends per share of common stock | $ | 0.20 |  |  | $ | 0.20 |  |  | $ | 0.40 |  |  | $ | 0.40 |
Weighted average common shares |  |  |  |  |  |  |  |  |
Basic | 27,776 |  |  | 27,620 |  |  | 27,753 |  |  | 27,603 |
Diluted | 27,941 |  |  | 27,857 |  |  | 27,926 |  |  | 27,839 |

See notes to consolidated condensed financial statements.
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CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in thousands except share and per share amounts)

| June 30, 2016 |  | December 31, 2015
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 23,295 |  |  | $ | 72,504 |
Accounts receivable, net | 139,620 |  |  | 133,863 |
Inventories | 179,913 |  |  | 166,894 |
Prepaid expenses and other current assets | 28,172 |  |  | 20,076 |
Total current assets | 371,000 |  |  | 393,337 |
Property, plant and equipment, net | 125,381 |  |  | 125,452 |
Goodwill | 398,154 |  |  | 260,651 |
Other intangible assets, net | 428,960 |  |  | 308,171 |
Other assets | 15,339 |  |  | 14,089 |
Total assets | $ | 1,338,834 |  |  | $ | 1,101,700 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |
Current liabilities: |  |  |  |
Current portion of long-term debt | $ | 10,145 |  |  | $ | 1,339 |
Accounts payable | 32,033 |  |  | 34,720 |
Accrued compensation and benefits | 30,173 |  |  | 31,823 |
Other current liabilities | 33,870 |  |  | 51,836 |
Total current liabilities | 106,221 |  |  | 119,718 |
Long-term debt | 508,639 |  |  | 269,471 |
Deferred income taxes | 118,861 |  |  | 103,379 |
Other long-term liabilities | 25,380 |  |  | 24,059 |
Total liabilities | 759,101 |  |  | 516,627 |
Commitments and contingencies |  |  |  |  |
Shareholders' equity: |  |  |  |
Preferred stock, par value $ .01 per share; |  |  |  |
authorized 500,000 shares; none outstanding | — |  |  | — |
Common stock, par value $ .01 per share; |  |  |  |  |
100,000,000 shares authorized; 31,299,194 shares |  |  |  |  |
issued in 2016 and 2015, respectively | 313 |  |  | 313 |
Paid-in capital | 325,608 |  |  | 324,915 |
Retained earnings | 404,017 |  |  | 414,506 |
Accumulated other comprehensive loss | (52,381 | ) |  | (53,894 | )
Less: 3,485,571 and 3,590,409 shares of common stock |  |  |  |  |
in treasury, at cost in 2016 and 2015, respectively | (97,824 | ) |  | (100,767 | )
Total shareholders’ equity | 579,733 |  |  | 585,073 |
Total liabilities and shareholders’ equity | $ | 1,338,834 |  |  | $ | 1,101,700 |

See notes to consolidated condensed financial statements.
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CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

| Six Months Ended
| June 30,
| 2016 |  | 2015
Cash flows from operating activities: |  |  |
Net income | $ | 619 |  |  | $ | 13,773 |
Adjustments to reconcile net income |  |  |  |
to net cash provided by operating activities: |  |  |  |
Depreciation | 9,941 |  |  | 9,196 |
Amortization | 17,350 |  |  | 11,885 |
Stock-based compensation | 4,583 |  |  | 3,779 |
Deferred income taxes | (4,342 | ) |  | 2,176 |
Loss on early extinguishment of debt | 254 |  |  | — |
Increase (decrease) in cash flows |  |  |  |  |
from changes in assets and liabilities, net of acquired assets: |  |  |  |  |
Accounts receivable | 4,929 |  |  | (3,571 | )
Inventories | (10,486 | ) |  | (8,003 | )
Accounts payable | (7,633 | ) |  | 3,863 |
Accrued compensation and benefits | (4,758 | ) |  | (6,078 | )
Other assets | (5,374 | ) |  | 2,603 |
Other liabilities | (5,206 | ) |  | (4,568 | )
| (742 | ) |  | 11,282 |
Net cash provided by (used in) operating activities | (123 | ) |  | 25,055 |
Cash flows from investing activities: |  |  |  |
Purchases of property, plant and equipment | (7,667 | ) |  | (7,783 | )
Payments related to business acquisitions, net of cash acquired | (256,450 | ) |  | (6,104 | )
Net cash used in investing activities | (264,117 | ) |  | (13,887 | )
Cash flows from financing activities: |  |  |  |
Payments on senior credit agreement | (4,376 | ) |  | — |
Proceeds from senior credit agreement | 253,015 |  |  | 19,000 |
Payments related to distribution agreement | (16,667 | ) |  | (16,667 | )
Payments related to contingent consideration | (200 | ) |  | (2,423 | )
Payments related to debt issuance costs | (5,556 | ) |  | (1,410 | )
Dividends paid on common stock | (11,088 | ) |  | (11,026 | )
Other, net | 209 |  |  | 1,461 |
Net cash provided by (used in) financing activities | 215,337 |  |  | (11,065 | )
Effect of exchange rate changes on cash and cash equivalents | (306 | ) |  | (4,219 | )
Net decrease in cash and cash equivalents | (49,209 | ) |  | (4,116 | )
Cash and cash equivalents at beginning of period | 72,504 |  |  | 66,332 |
Cash and cash equivalents at end of period | $ | 23,295 |  |  | $ | 62,216 |
Non-cash financing activities: |  |  |
Dividends payable | $ | 5,561 |  |  | $ | 5,539 |

See notes to consolidated condensed financial statements.
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CONMED CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, in thousands except per share amounts)
Note 1 – 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 physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery and gastroenterology.
Note 2 - Interim Financial Information
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. Results for the period ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
The consolidated condensed financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2015 included in our Annual Report on Form 10-K.
Note 3 - Business Acquisition
On January 4, 2016, we acquired all of the stock of SurgiQuest, Inc. ("SurgiQuest") for $257.7 million in cash (based on an aggregate purchase price of $265 million as adjusted pursuant to the merger agreement governing the acquisition). SurgiQuest develops, manufactures and markets the AirSeal® System, the first integrated access management technology for use in laparoscopic and robotic procedures. This proprietary and differentiated access system is complementary to our current advanced surgical offering. The acquisition was funded through a combination of cash on hand and long-term borrowings.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the SurgiQuest acquisition. The assessment of fair value is preliminary and is based on information that was available to management at the time the consolidated condensed financial statements were prepared. Accordingly, the allocation of purchase price is preliminary and therefore subject to adjustment in future periods.

Cash | $ | 1,305 |
Other current assets | 16,681 |
Current assets | 17,986 |
Property, plant & equipment | 3,332 |
Goodwill | 136,358 |
Customer and distributor relationships | 76,420 |
Developed technology | 49,600 |
Trademarks & tradenames | 4,780 |
Other non-current assets | 302 |
Total assets acquired | $ | 288,778 |
Current liabilities assumed | 10,586 |
Deferred income taxes | 20,009 |
Other long-term liabilities | 454 |
Total liabilities assumed | 31,049 |
Net assets acquired | $ | 257,729 |

The goodwill recorded as part of the acquisition primarily represents revenue synergies, as well as operating efficiencies and cost savings. Goodwill deductible for tax purposes is $11.5 million. The weighted amortization period for intangibles acquired
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is 20 years. Customer and distributor relationships, developed technology and trademarks and tradenames are being amortized over a weighted average life of 22, 17 and 23 years, respectively.
The unaudited pro forma information for the three and six months ended June 30, 2016 and 2015, assuming SurgiQuest occurred as of January 1, 2015 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 SurgiQuest acquisition occurred on the dates indicated, or which may result in the future.

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Net sales | $ | 193,433 |  |  | $ | 194,565 |  |  | $ | 374,634 |  |  | $ | 381,889 |
Net income | 6,337 |  |  | (808 | ) |  | 12,659 |  |  | (7,665 | )

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 three and six months ended June 30, 2015 totaled $5.0 million and $14.0 million, respectively. Such amounts are excluded from the determination of pro forma net income for the three and six months ended June 30, 2016.
Net sales associated with SurgiQuest of $18.5 million and $31.2 million have been recorded in the consolidated condensed statements of comprehensive income for the three and six months ended June 30, 2016, respectively. It is impracticable to determine the earnings recorded in the consolidated condensed statements of comprehensive income associated with the SurgiQuest acquisition for the three and six months ended June 30, 2016 as these amounts are not separately measured.
Note 4 – Comprehensive Income
Comprehensive income consists of the following:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Net income | $ | 2,884 |  |  | $ | 7,461 |  |  | $ | 619 |  |  | $ | 13,773 |
Other comprehensive income: |  |  |  |  |  |  |
Pension liability, net of income tax (income tax expense of $257 and $297 for the three months ended June 30, 2016 and 2015, respectively, and $514 and $598 for the six months ended June 30, 2016 and 2015, respectively) | 438 |  |  | 507 |  |  | 876 |  |  | 1,019 |
Cash flow hedging gain (loss), net of income tax (income tax expense (benefit) of $666 and ($1,499) for the three months ended June 30, 2016 and 2015, respectively, and ($633) and ($349) for the six months ended June 30, 2016 and 2015, respectively) | 1,137 |  |  | (2,557 | ) |  | (1,080 | ) |  | (595 | )
Foreign currency translation adjustment | (3,114 | ) |  | 3,219 |  |  | 1,717 |  |  | (9,282 | )
Comprehensive income | $ | 1,345 |  |  | $ | 8,630 |  |  | $ | 2,132 |  |  | $ | 4,915 |

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Accumulated other comprehensive loss consists of the following:

| Cash Flow Hedging Gain (Loss) |  | Pension Liability |  | Cumulative Translation Adjustments |  | Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2015 | $ | 1,201 |  |  | $ | (25,982 | ) |  | $ | (29,113 | ) |  | $ | (53,894 | )
Other comprehensive income (loss) before reclassifications, net of tax | (750 | ) |  | — |  |  | 1,717 |  |  | 967 |
Amounts reclassified from accumulated other comprehensive income (loss) before tax a | (524 | ) |  | 1,390 |  |  | — |  |  | 866 |
Income tax provision (benefit) | 194 |  |  | (514 | ) |  | — |  |  | (320 | )
Net current-period other comprehensive income (loss) | (1,080 | ) |  | 876 |  |  | 1,717 |  |  | 1,513 |
Balance, June 30, 2016 | $ | 121 |  |  | $ | (25,106 | ) |  | $ | (27,396 | ) |  | $ | (52,381 | )

| Cash Flow Hedging Gain (Loss) |  | Pension Liability |  | Cumulative Translation Adjustments |  | Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2014 | $ | 3,276 |  |  | $ | (30,760 | ) |  | $ | (12,338 | ) |  | $ | (39,822 | )
Other comprehensive income (loss) before reclassifications, net of tax | 2,583 |  |  | — |  |  | (9,282 | ) |  | (6,699 | )
Amounts reclassified from accumulated other comprehensive income before tax a | (5,040 | ) |  | 1,617 |  |  | — |  |  | (3,423 | )
Income tax provision (benefit) | 1,862 |  |  | (598 | ) |  | — |  |  | 1,264 |
Net current-period other comprehensive income (loss) | (595 | ) |  | 1,019 |  |  | (9,282 | ) |  | (8,858 | )
Balance, June 30, 2015 | $ | 2,681 |  |  | $ | (29,741 | ) |  | $ | (21,620 | ) |  | $ | (48,680 | )

(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income (loss) components are included in sales or cost of sales and as a component of net periodic pension cost, respectively. The amounts recorded in the charts above are for the six months ended June 30, 2016 and 2015. For the three months ended June 30, 2016, $0.0 million of the cash flow hedging gain and $0.7 million of the pension liability were reclassified from accumulated other comprehensive loss to the statement of income. For the three months ended June 30, 2015, $2.4 million of the cash flow hedging gain and $0.8 million of the pension liability were reclassified from accumulated other comprehensive loss to the statement of income. Refer to Note 5 and Note 10, respectively, for further details.
Note 5 – Fair Value of Financial Instruments
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.
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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. The notional contract amounts for forward contracts outstanding at June 30, 2016 which have been accounted for as cash flow hedges totaled $101.1 million. Net realized gains recognized for forward contracts accounted for as cash flow hedges approximated $0.0 million and $2.4 million for the three months ended June 30, 2016 and 2015, respectively, and $0.5 million and $5.0 million for the six months ended June 30, 2016 and 2015, respectively. Net unrealized gains on forward contracts outstanding, which have been accounted for as cash flow hedges and which have been included in other comprehensive income, totaled $0.1 million at June 30, 2016. It is expected these unrealized gains will be recognized in the consolidated condensed statement of comprehensive income in 2016 and 2017.
We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts as hedges and have not applied hedge accounting to them. The notional contract amounts for forward contracts outstanding at June 30, 2016 which have not been designated as hedges totaled $19.6 million. Net realized gains (losses) recognized in connection with those forward contracts not accounted for as hedges approximated $0.0 million and $(0.7) million for the three months ended June 30, 2016 and 2015, respectively, offsetting gains (losses) on our intercompany receivables of $(0.3) million and $0.4 million for the three months ended June 30, 2016 and 2015, respectively. Net realized gains (losses) recognized in connection with those forward contracts not accounted for as hedges approximated $(0.2) million and $0.0 million for the six months ended June 30, 2016 and 2015, respectively, offsetting gains (losses) on our intercompany receivables of $0.1 million and $(0.3) million for the six months ended June 30, 2016 and 2015, respectively. These gains and losses have been recorded in selling and administrative expense in the consolidated condensed statements of comprehensive income.
We record these forward foreign exchange contracts at fair value; the following tables summarize the fair value for forward foreign exchange contracts outstanding at June 30, 2016 and December 31, 2015:

June 30, 2016 | Asset Balance Sheet Location |  | Fair Value |  | Liabilities Balance Sheet Location |  | Fair Value |  |  | Net Fair Value
Derivatives designated as hedged instruments: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | $ | 2,111 |  |  | Prepaid expenses and other current assets |  | $ | (1,920 | ) |  |  | $ | 191 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | 10 |  |  | Prepaid expenses and other current assets |  | (56 | ) |  |  | (46 | )
Total derivatives |  |  | $ | 2,121 |  |  |  |  | $ | (1,976 | ) |  |  | $ | 145 |

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December 31, 2015 | Asset Balance Sheet Location |  | Fair Value |  | Liabilities Balance Sheet Location |  | Fair Value |  |  | Net Fair Value
Derivatives designated as hedged instruments: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | $ | 2,931 |  |  | Prepaid expenses and other current assets |  | $ | (1,026 | ) |  |  | $ | 1,905 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | 4 |  |  | Prepaid expenses and other current assets |  | (38 | ) |  |  | (34 | )
Total derivatives |  |  | $ | 2,935 |  |  |  |  | $ | (1,064 | ) |  |  | $ | 1,871 |

Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the consolidated balance sheets. Accordingly, at June 30, 2016 and December 31, 2015, we have recorded the net fair value of $0.1 million and $1.9 million, respectively, in prepaid expenses and other current assets.
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.
Valuation Techniques. Assets and liabilities carried at fair value and measured on a recurring basis as of June 30, 2016 consist of forward foreign exchange contracts and contingent liabilities associated with the EndoDynamix, Inc. acquisition. The Company values its forward foreign exchange contracts using quoted prices for similar assets. The most significant assumption is quoted currency rates. The value of the forward foreign exchange contract assets and liabilities were determined within Level 2 of the valuation hierarchy and are listed in the table above.
The EndoDynamix, Inc. acquisition involves the potential for the payment of future contingent consideration upon the achievement of certain product development milestones and revenue based payments. Contingent consideration is recorded at the estimated fair value of the contingent milestone and revenue based payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within selling and administrative expenses in the consolidated condensed statements of comprehensive income. We measure the initial liability and remeasure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements.
The carrying amounts reported in our consolidated condensed balance sheets for cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximate fair value.
Note 6 - Inventories
Inventories consist of the following:
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| June 30, 2016 |  | December 31, 2015
Raw materials | $ | 44,071 |  |  | $ | 47,681 |
Work-in-process | 15,627 |  |  | 13,922 |
Finished goods | 120,215 |  |  | 105,291 |
Total | $ | 179,913 |  |  | $ | 166,894 |

Note 7 – 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 ("SARs") during the period. The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2016 and 2015:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Net income | $ | 2,884 |  |  | $ | 7,461 |  |  | $ | 619 |  |  | $ | 13,773 |
Basic – weighted average shares outstanding | 27,776 |  |  | 27,620 |  |  | 27,753 |  |  | 27,603 |
Effect of dilutive potential securities | 165 |  |  | 237 |  |  | 173 |  |  | 236 |
Diluted – weighted average shares outstanding | 27,941 |  |  | 27,857 |  |  | 27,926 |  |  | 27,839 |
Net income (per share) |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 0.10 |  |  | $ | 0.27 |  |  | $ | 0.02 |  |  | $ | 0.50 |
Diluted | 0.10 |  |  | 0.27 |  |  | 0.02 |  |  | 0.49 |

The shares used in the calculation of diluted EPS exclude options and SARs to purchase shares where the exercise price was greater than the average market price of common shares for the period and the effect of the inclusion would be anti-dilutive. Such shares aggregated approximately 1.7 million and 1.3 million in three and six months ended June 30, 2016. Such shares were not material in the three and six months ended June 30, 2015.
Note 8 – Goodwill and Other Intangible Assets
The changes in the net carrying amount of goodwill for the six months ended June 30, 2016 are as follows:

Balance as of December 31, 2015 | $ | 260,651 |
Goodwill resulting from business acquisitions | 136,358 |
Foreign currency translation | 1,145 |
Balance as of June 30, 2016 | $ | 398,154 |

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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. During the six months ended June 30, 2016, the Company acquired SurgiQuest, Inc. ("SurgiQuest") as further described in Note 3. Goodwill resulting from the acquisition amounted to $136.4 million and acquired amortizing intangible assets including customer and distributor relationships, developed technology and trademarks and tradenames amounted to $130.8 million.
Other intangible assets consist of the following:

| June 30, 2016 |  | December 31, 2015
| Gross Carrying Amount |  | Accumulated Amortization |  | Gross Carrying Amount |  | Accumulated Amortization
Amortized intangible assets: |  |  |  |  |  |  |
Customer and distributor relationships | $ | 213,308 |  |  | $ | (69,795 | ) |  | $ | 136,871 |  |  | $ | (64,423 | )
Promotional, marketing and distribution rights | 149,376 |  |  | (27,000 | ) |  | 149,376 |  |  | (24,000 | )
Patents and other intangible assets | 71,435 |  |  | (43,888 | ) |  | 66,688 |  |  | (42,885 | )
Developed technology | 49,600 |  |  | (620 | ) |  | — |  |  | — |
Unamortized intangible assets: |  |  |  |  |  |  |  |  |  |  |
Trademarks and tradenames | 86,544 |  |  | — |  |  | 86,544 |  |  | — |
| $ | 570,263 |  |  | $ | (141,303 | ) |  | $ | 439,479 |  |  | $ | (131,308 | )

Customer and distributor relationships, trademarks and tradenames, developed technology and patents and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses. Promotional, marketing and distribution rights represent intangible assets created under our Sports Medicine Joint Development and Distribution Agreement (the "JDDA") with Musculoskeletal Transplant Foundation (“MTF”).
On January 3, 2012, the Company entered into the JDDA with MTF to obtain MTF's worldwide promotion rights with respect to allograft tissues within the field of sports medicine and related products. The initial consideration from the Company included a $63.0 million up-front payment for the rights and certain assets, with an additional $84.0 million contingently payable over a four year period depending on MTF meeting supply targets for tissue. On January 6, 2016, January 5, 2015 and January 3, 2014, we paid equal installments of $16.7 million and on January 3, 2013, we paid $34.0 million of the additional consideration.
Amortization expense related to intangible assets which are subject to amortization totaled $5.0 million and $3.1 million in the three months ended June 30, 2016 and 2015, respectively, and $10.0 million and $6.4 million in the six months ended June 30, 2016 and 2015, respectively, and is included as a reduction of revenue (for amortization related to our promotional, marketing and distribution rights) and in selling and administrative expense (for all other intangible assets) in the consolidated condensed statements of comprehensive income. The weighted average amortization period for intangible assets which are amortized is 25 years. Customer and distributor relationships are being amortized over a weighted average life of 29 years. SurgiQuest customer and distributor relationships are being amortized over a weighted average life of 22 years. Promotional, marketing and distribution rights are being amortized over a weighted average life of 25 years. Patents and other intangible assets are being amortized over a weighted average life of 13 years. Included in patents and other intangible assets at June 30, 2016 is an in-process research and development asset related to the EndoDynamix, Inc. acquisition that is not currently amortized. Developed technology is being amortized over a weighted average life of 17 years.
The estimated intangible asset amortization expense remaining for the year ending December 31, 2016 and for each of the five succeeding years is as follows:
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| Amortization included in expense |  | Amortization recorded as a reduction of revenue |  | Total
Remaining, 2016 | $ | 6,988 |  |  | $ | 3,000 |  |  | $ | 9,988 |
2017 | 15,428 |  |  | 6,000 |  |  | 21,428 |
2018 | 15,762 |  |  | 6,000 |  |  | 21,762 |
2019 | 15,617 |  |  | 6,000 |  |  | 21,617 |
2020 | 15,307 |  |  | 6,000 |  |  | 21,307 |
2021 | 14,031 |  |  | 6,000 |  |  | 20,031 |

Note 9 – Guarantees
We provide warranties on certain of our products at the time of sale. The standard warranty period for our capital and reusable equipment is generally one year. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.
Changes in the carrying amount of service and product warranties for the six months ended June 30, are as follows:

| 2016 |  | 2015
Balance as of January 1, | $ | 2,509 |  |  | $ | 2,286 |
Provision for warranties | 1,692 |  |  | 1,950 |
Claims made | (1,770 | ) |  | (1,716 | )
Balance as of June 30, | $ | 2,431 |  |  | $ | 2,520 |

Note 10 – Pension Plan
Net periodic pension cost consists of the following:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Service cost | $ | 113 |  |  | $ | 52 |  |  | $ | 226 |  |  | $ | 120 |
Interest cost on projected benefit obligation | 719 |  |  | 810 |  |  | 1,438 |  |  | 1,697 |
Expected return on plan assets | (1,297 | ) |  | (1,380 | ) |  | (2,594 | ) |  | (2,849 | )
Net amortization and deferral | 695 |  |  | 805 |  |  | 1,390 |  |  | 1,617 |
Net periodic pension cost | $ | 230 |  |  | $ | 287 |  |  | $ | 460 |  |  | $ | 585 |

We do not expect to make any pension contributions during 2016.
Note 11 – Acquisition, Restructuring and Other Expense
Acquisition, restructuring and other expense consists of the following:
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| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Facility consolidation costs | $ | 127 |  |  | $ | 1,534 |  |  | $ | 991 |  |  | $ | 3,863 |
Termination of a product offering | 4,546 |  |  | — |  |  | 4,546 |  |  | — |
Restructuring costs included in cost of sales | $ | 4,673 |  |  | $ | 1,534 |  |  | $ | 5,537 |  |  | $ | 3,863 |
Restructuring costs | $ | 953 |  |  | $ | 2,284 |  |  | $ | 3,744 |  |  | $ | 8,464 |
Business acquisition costs | 4,996 |  |  | — |  |  | 14,041 |  |  | — |
Acquisition, restructuring and other expense included in selling and administrative expense | $ | 5,949 |  |  | $ | 2,284 |  |  | $ | 17,785 |  |  | $ | 8,464 |
Debt refinancing costs included in other expense | $ | — |  |  | $ | — |  |  | $ | 2,942 |  |  | $ | — |

During the three and six months ended June 30, 2016, we incurred $5.0 million and $14.0 million, respectively, in costs associated with the January 4, 2016 acquisition of SurgiQuest, Inc. as further described in Note 3. These costs include investment banking fees, consulting fees, legal fees and integration related costs.
During the six months ended June 30, 2016, we incurred a $2.7 million charge related to an agreement between the Company and JP Morgan Chase Bank, N.A. and recorded a loss on the early extinguishment of debt of $0.3 million in conjunction with the fifth amended and restated senior credit agreement as further described in Note 15.
During 2016 and 2015, we continued our operational restructuring plan. The consolidation of our Centennial, Colorado manufacturing operations into other existing CONMED manufacturing facilities is substantially complete. We incurred $0.1 million and $1.5 million in costs associated with the operational restructuring during the three months ended June 30, 2016 and 2015, respectively, and $1.0 million and $3.9 million during the six months ended June 30, 2016 and 2015, respectively. These costs were charged to cost of sales and include severance and other charges associated with the consolidation.
In conjunction with the consolidation of our Centennial, Colorado manufacturing operations, the facility is currently held for sale and classified in prepaids and other current assets in the consolidated condensed balance sheet. The net book value of this facility at June 30, 2016 was $3.1 million.
During 2016, the Company discontinued our Altrus product offering as part of our ongoing restructuring and incurred $4.5 million in non-cash charges which were included in cost of sales for the three and six months ended June 30, 2016.
During 2016 and 2015, we restructured certain selling and administrative functions and incurred severance and other related costs in the amount of $1.0 million and $2.3 million for the three months ended June 30, 2016 and 2015, respectively, and $3.7 million and $8.5 million for the six months ended June 30, 2016 and 2015, respectively.
We have recorded an accrual in current and other long term liabilities of $2.2 million at June 30, 2016 mainly related to severance costs associated with the restructuring. Below is a rollforward of the costs incurred and cash expenditures associated with these activities during the six months ended June 30, 2016 and 2015:

| 2016 |  | 2015
Balance as of January 1, | $ | 7,175 |  |  | $ | 8,254 |
Expenses incurred | 4,735 |  |  | 12,327 |
Payments made | (9,755 | ) |  | (12,897 | )
Balance at June 30, | $ | 2,155 |  |  | $ | 7,684 |

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Note 12 — Business Segments
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 and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources.
Our product lines consist of orthopedic surgery, general surgery and surgical visualization. Orthopedic surgery consists of sports medicine instrumentation and small bone, large bone and specialty powered surgical instruments and service fees related to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. Surgical visualization consists of imaging systems for use in minimally invasive orthopedic and general surgery procedures including 2DHD and 3DHD vision technologies. These product lines' net sales are as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Orthopedic surgery | $ | 92,742 |  |  | $ | 96,801 |  |  | $ | 186,183 |  |  | $ | 195,398 |
General surgery | 87,570 |  |  | 71,111 |  |  | 163,470 |  |  | 137,173 |
Surgical visualization | 13,121 |  |  | 13,115 |  |  | 24,981 |  |  | 26,396 |
Consolidated net sales | $ | 193,433 |  |  | $ | 181,027 |  |  | $ | 374,634 |  |  | $ | 358,967 |

Note 13 – Legal Proceedings
From time to time, we are subject to claims alleging product liability, patent infringement or other claims incurred in the ordinary course of business. These may involve our United States or foreign operations, or sales by foreign distributors. Likewise, 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. These information requests or subpoenas may or may not be routine inquiries, or may begin as routine inquiries and over time develop into enforcement actions of various types. The product liability claims are generally covered by various insurance policies, subject to certain deductible amounts, maximum policy limits and certain exclusions in the respective policies or as required as a matter of law. In some cases, we may be entitled to indemnification by third parties. We establish reserves sufficient to cover probable losses associated with any such pending claims. We do not expect that the resolution of any pending claims or investigations will have a material adverse effect on our financial condition, results of operations or cash flows. There can be no assurance, however, that future claims or investigations, or the costs associated with responding to such claims or investigations, especially claims and investigations not covered by insurance, will not have a material adverse effect on our financial condition, results of operations or cash flows.
Manufacturers of medical products may face exposure to significant product liability claims. To date, we have not experienced any product liability claims that have been material to our financial statements or financial condition, but any such claims arising in the future could have a material adverse effect on our business or results of operations. We currently maintain commercial product liability insurance of $25 million per incident and $25 million in the aggregate annually, which we believe is adequate. This coverage is on a claims-made basis. There can be no assurance that claims will not exceed insurance coverage, that the carriers will be solvent or that such insurance will be available to us in the future at a reasonable cost.
Our operations are subject, and in the past have been subject, to a number of environmental laws and regulations governing, among other things, air emissions; wastewater discharges; the use, handling and disposal of hazardous substances and wastes; soil and groundwater remediation and employee health and safety. In some jurisdictions, environmental requirements may be expected to become more stringent in the future. In the United States, certain environmental laws can impose liability for the entire cost of site restoration upon each of the parties that may have contributed to conditions at the site regardless of fault or the lawfulness of the party’s activities. While we do not believe that the present costs of environmental compliance and remediation are material, there can be no assurance that future compliance or remedial obligations would not have a material adverse effect on our financial condition, results of operations or cash flows.
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During the third quarter of 2013, the U.S. Food and Drug Administration ("FDA") inspected our Centennial, Colorado manufacturing facility and issued a Form 483 with observations on September 20, 2013. We subsequently submitted responses to the Observations, and the FDA issued a warning letter on January 30, 2014 relating to the inspection and the responses to the Form 483 observations. Accordingly, we undertook corrective actions. During the fourth quarter of 2014, the FDA again inspected our Centennial, Colorado manufacturing facility and, on November 18, 2014, issued a Form 483 with eight observations, three of which the FDA characterized as repeat observations. On December 10, 2014, we responded to the Form 483 observations. We have received some additional questions from the FDA and have responded to these questions on April 25, 2015. The Company remains in ongoing communications with the FDA. The remediation costs to date have not been material, although there can be no assurance that responding to the Form 483 observations or a future inspection by the FDA will not result in an additional Form 483 or warning letter, or other regulatory actions, which may include consent decrees or fines that could be material.
In September 2013, Lexion Medical ("Lexion") filed suit against SurgiQuest in federal court in the District of Minnesota alleging false advertising under the Lanham Act, as well as various state law claims, including common law trade libel and unfair competition. In March 2014, SurgiQuest’s motion to dismiss for lack of personal jurisdiction was granted and that same day, SurgiQuest filed suit against Lexion in federal court in the District of Delaware seeking, among other claims, a declaratory judgment that SurgiQuest’s actions did not violate the Lanham Act. Lexion filed an answer generally denying SurgiQuest’s claims, and asserted counterclaims that were substantially similar to the claims Lexion brought in the Minnesota action. On January 4, 2016, SurgiQuest became a subsidiary of CONMED as further described in Note 3, and CONMED assumed the costs and liabilities related to the Lexion lawsuit subject to the terms of the merger agreement referenced in Note 3. The case is in the discovery phase with trial anticipated in 2017. Based on recently produced expert's reports, Lexion is seeking damages of $14.8 million for alleged lost profits and $18.7 million for costs related to alleged “corrective advertising” as well as an unspecified sum for disgorgement of SurgiQuest’s alleged profit. We believe that there is no merit to Lexion’s claims against SurgiQuest and intend to vigorously defend the claims asserted by Lexion.
Note 14 – New Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers". This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. In March, April and May 2016, the FASB issued ASU 2016-08 related to principal versus agent considerations; ASU 2016-10 related to identifying performance obligations and licensing; and ASU 2016-12 clarifying the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters, respectively. These additional ASUs provide supplemental adoption guidance and clarification to ASU 2014-09. The guidance in these ASUs is effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted as of January 1, 2017. We plan to adopt these ASUs on January 1, 2018. The new standard will become effective beginning with the first quarter of 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating both the impact of adopting this new guidance on the consolidated financial statements and the method of adoption.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory". An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This ASU is effective for annual periods beginning after December 15, 2016. The Company does not believe this new guidance will have a material impact on the consolidated financial statements.
In August 2015, the FASB issued ASU No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements". This ASU was issued to clarify the guidance included in ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs", which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within Update 2015-03 for debt issuance costs related to line-of-credit arrangements, ASU 2015-15 was issued to clarify that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2016, continuing to account for debt issuance costs related to the line-of-credit arrangement as an asset, and it did not have a
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material impact on our consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments". This ASU simplifies the accounting for changes in measurement period adjustments associated with a business combination. It requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU is effective for annual periods beginning after December 15, 2015. The Company adopted this guidance as of January 1, 2016 and it did not have a material impact on our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17 "Income Taxes (ASC 740): Balance Sheet Classification of Deferred Taxes". This ASU requires all deferred income tax assets and liabilities be presented as non-current in classified balance sheets. This can be applied prospectively or retrospectively and must disclose the reason for the change in accounting principle, the application applied and if applied retrospectively, include quantitative information about the effects of the change on prior periods. This standard is effective for annual and interim periods beginning after December 15, 2016. The Company retrospectively implemented this new guidance in the first quarter of 2016. The below table summarizes the adjustments made to conform prior period classification with the new guidance:

| December 31, 2015
| As Previously Filed |  | Reclass |  | As Adjusted
Current deferred income tax assets | $ | 14,150 |  |  | $ | (14,150 | ) |  | $ | — |
Long-term deferred income tax assets | 1,332 |  |  | 2,906 |  |  | 4,238 |
Long-term deferred income tax liabilities | (114,623 | ) |  | 11,244 |  |  | (103,379 | )
| $ | (99,141 | ) |  | $ | — |  |  | $ | (99,141 | )

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). This requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU requires all tax effects to run through the statement of operations, where historically tax benefits in excess of compensation cost ran through equity. It also allows employers' to withhold the maximum amount of individual tax withholdings without resulting in liability accounting. Finally, the ASU allows companies to make an accounting policy election regarding the impact of forfeitures on expense related to share based awards. This new guidance is effective for periods beginning after December 15, 2016, however early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
Note 15 - Long Term Debt
Long term debt consists of the following:

| June 30, 2016 |  | December 31, 2015
Revolving line of credit | $ | 344,314 |  |  | $ | 265,609 |
Term loan, net of deferred debt issuance costs of $700 and $0 in 2016 and 2015, respectively | 169,925 |  |  | — |
Mortgage notes | 4,545 |  |  | 5,201 |
Total debt | 518,784 |  |  | 270,810 |
Less: Current portion | 10,145 |  |  | 1,339 |
Total long-term debt | $ | 508,639 |  |  | $ | 269,471 |

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On January 4, 2016 we entered into an amended and restated senior credit agreement (the "fifth amended and restated senior credit agreement") consisting of: (a) a $175.0 million term loan facility and (b) a $525.0 million revolving credit facility both expiring on January 4, 2021. The term loan 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 to finance the acquisition of SurgiQuest. Initially, the interest rates are at LIBOR plus a base rate or a Eurocurrency rate plus an applicable margin. The applicable margin for base rate loans is 1.00% and for Eurocurrency rate loans is 2.00% (2.47% at June 30, 2016). In conjunction with this agreement, we incurred charges included in other expense in the statements of comprehensive income related to an agreement between the Company and JP Morgan Chase Bank, N.A. totaling $2.7 million and recorded a loss on the early extinguishment of debt of $0.3 million.
There were $170.6 million in borrowings outstanding on the term loan as of June 30, 2016. There were $344.3 million in borrowings outstanding under the revolving credit facility as of June 30, 2016. Our available borrowings on the revolving credit facility at June 30, 2016 were $175.9 million with approximately $4.8 million of the facility set aside for outstanding letters of credit.
The amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The 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 June 30, 2016. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.
We have a mortgage note outstanding in connection with the Largo, Florida property and facilities bearing interest at 8.25% per annum with semiannual payments of principal and interest through June 2019. The principal balance outstanding on the mortgage note aggregated $4.5 million at June 30, 2016. The mortgage note is collateralized by the Largo, Florida property and facilities.
The scheduled maturities of long-term debt outstanding at June 30, 2016 are as follows:

July 1, 2016 - June 30, 2017 | $ | 10,145 |
July 1, 2017 - June 30, 2018 | 12,449 |
July 1, 2018 - June 30, 2019 | 16,951 |
July 1, 2019 - June 30, 2020 | 17,500 |
July 1, 2020 - June 30, 2021 | 462,439 |

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Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |

Forward-Looking Statements
In this Report on Form 10-Q, we make forward-looking statements about our financial condition, results of operations and business. Forward-looking statements are statements made by us concerning events that may or may not occur in the future. These statements may be made directly in this document or may be “incorporated by reference” from other documents. Such statements may be identified by the use of words such as “anticipates”, “expects”, “estimates”, “intends” and “believes” and variations thereof and other terms of similar meaning.
Forward-Looking Statements are not Guarantees of Future Performance
Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that 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 those identified under “Risk Factors” in our Annual Report on Form 10-K for the year-ended December 31, 2015 and the following, among others:

• | general economic and business conditions;

• | changes in foreign exchange and interest rates;

• | cyclical customer purchasing patterns due to budgetary and other constraints;

• | changes in customer preferences;

• | competition;

• | changes in technology;

• | the introduction and acceptance of new products;

• | the ability to evaluate, finance and integrate acquired businesses, products and companies;

• | changes in business strategy;

• | the availability and cost of materials;

• | the possibility that United States or foreign regulatory and/or administrative agencies may initiate enforcement actions against us or our distributors;

• | future levels of indebtedness and capital spending;

• | quality of our management and business abilities and the judgment of our personnel;

• | the availability, terms and deployment of capital;

• | the risk of litigation, especially patent litigation, as well as the cost associated with patent and other litigation;

• | the risk of a lack of allograft tissue 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; and

• | compliance with and changes in regulatory requirements.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and “Risk Factors” and “Business” in our Annual Report on Form 10-K for the year-ended December 31, 2015 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 Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
Overview
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 physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery and gastroenterology.
Our product lines consist of orthopedic surgery, general surgery and surgical visualization. Orthopedic surgery consists of sports medicine instrumentation and small bone, large bone and specialty powered surgical instruments and service fees related
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to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instruments for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. Surgical visualization consists of imaging systems for use in minimally invasive orthopedic and general surgery procedures including 2DHD and 3DHD vision technologies. These product lines as a percentage of consolidated net sales are as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Orthopedic surgery | 47.9 | % |  | 53.5 | % |  | 49.7 | % |  | 54.4 | %
General surgery | 45.3 | % |  | 39.3 | % |  | 43.6 | % |  | 38.2 | %
Surgical visualization | 6.8 | % |  | 7.2 | % |  | 6.7 | % |  | 7.4 | %
Consolidated net sales | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %

A significant amount of our products are used in surgical procedures with approximately 80% of our revenues derived from the sale of single-use products. Our capital equipment offerings also facilitate the ongoing sale of related disposable products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to customers and through distributors. International sales approximated 48% during the six months ended June 30, 2016.
Business Environment
2015 was a year of continued change and transformation for CONMED Corporation. During the year, we filled the remaining executive positions in a now entirely revamped leadership team. We also aligned our marketing product strategy road map with our research and development resource allocation to re-invigorate our organic product pipeline, while leveraging our restored business development function to actively pursue additional acquisitions. As discussed more fully in our Annual Report on Form 10-K, we had three acquisitions over the course of the year.
On January 4, 2016, we acquired SurgiQuest, Inc. ("SurgiQuest") for $257.7 million in cash (based on an aggregate purchase price of $265 million as adjusted pursuant to the merger agreement governing the acquisition). SurgiQuest develops, manufactures and markets the AirSeal® System, the first integrated access management technology for use in laparoscopic and robotic procedures. This proprietary and differentiated access system is complementary to our current advanced surgical offering. We expect this access system to generate approximately $62 to $67 million in revenue in 2016.
We plan to continue to restructure both operations and administrative functions as necessary throughout the organization. We have successfully completed our restructuring plans over the past few years, however, we cannot be certain further activities will be completed in the estimated time period or that planned cost savings will be achieved.
Finally, 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. As discussed in Note 13 to the consolidated condensed financial statements, we have an outstanding warning letter issued by the FDA related to an inspection of our Centennial, Colorado facility.
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 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year-ended December 31, 2015 describes the significant accounting policies used in preparation of the Consolidated Financial Statements. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including, but not limited to, those related to:

• | revenue recognition;

• | inventory valuation;

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• | goodwill and intangible assets;

• | pension plan;

• | stock-based compensation costs; and

• | income taxes.

There have been no material changes in these aforementioned critical accounting policies.
Consolidated Results of Operations
The following table presents, as a percentage of net sales, certain categories included in our consolidated condensed statements of income for the periods indicated:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Net sales | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
Cost of sales | 47.1 |  |  | 48.4 |  |  | 46.6 |  |  | 48.2 |
Gross profit | 52.9 |  |  | 51.6 |  |  | 53.4 |  |  | 51.8 |
Selling and administrative expense | 44.8 |  |  | 40.6 |  |  | 46.1 |  |  | 41.3 |
Research and development expense | 4.1 |  |  | 4.1 |  |  | 4.3 |  |  | 3.9 |
Income from operations | 4.0 |  |  | 6.9 |  |  | 3.0 |  |  | 6.6 |
Other expense | — |  |  | — |  |  | 0.8 |  |  | — |
Interest expense | 1.9 |  |  | 0.8 |  |  | 2.0 |  |  | 0.8 |
Income before income taxes | 2.1 |  |  | 6.1 |  |  | 0.2 |  |  | 5.8 |
Provision for income taxes | 0.5 |  |  | 1.9 |  |  | — |  |  | 1.9 |
Net income | 1.6 | % |  | 4.2 | % |  | 0.2 | % |  | 3.9 | %

Sales
The following table presents net sales by product line for the three and six months ended June 30, 2016 and 2015:

| Three Months Ended |  | Six Months Ended
|  |  |  |  | % Change |  |  |  |  |  | % Change
| 2016 |  | 2015 |  | As Reported |  | Constant Currency |  | 2016 |  | 2015 |  | As Reported |  | Constant Currency
Orthopedic surgery | $ | 92.7 |  |  | $ | 96.8 |  |  | -4.2 | % |  | -1.3 | % |  | $ | 186.2 |  |  | $ | 195.4 |  |  | -4.7 | % |  | -1.3 | %
General surgery | 87.6 |  |  | 71.1 |  |  | 23.1 | % |  | 24.5 | % |  | 163.5 |  |  | 137.2 |  |  | 19.2 | % |  | 20.7 | %
Surgical visualization | 13.1 |  |  | 13.1 |  |  | — | % |  | 2.6 | % |  | 24.9 |  |  | 26.4 |  |  | -5.4 | % |  | -2.6 | %
Net sales | $ | 193.4 |  |  | $ | 181.0 |  |  | 6.9 | % |  | 9.2 | % |  | $ | 374.6 |  |  | $ | 359.0 |  |  | 4.4 | % |  | 7.1 | %
Single-use products | $ | 154.2 |  |  | $ | 145.3 |  |  | 6.1 | % |  | 8.4 | % |  | $ | 299.1 |  |  | $ | 285.5 |  |  | 4.8 | % |  | 7.5 | %
Capital products | 39.2 |  |  | 35.7 |  |  | 10.1 | % |  | 12.5 | % |  | 75.5 |  |  | 73.5 |  |  | 2.8 | % |  | 5.5 | %
Net sales | $ | 193.4 |  |  | $ | 181.0 |  |  | 6.9 | % |  | 9.2 | % |  | $ | 374.6 |  |  | $ | 359.0 |  |  | 4.4 | % |  | 7.1 | %

Net sales increased for the three and six months ended June 30, 2016 mainly due to the SurgiQuest acquisition. Excluding SurgiQuest, total sales decreased 3.4% to $174.9 million for the three months ended June 30, 2016 and 4.3% to $343.4 million for the six months ended June 30, 2016 primarily due to the impact of unfavorable constant currency exchange rates. Sales of
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capital equipment increased 10.1% and 2.8% for the three and six months ended June 30, 2016, respectively; sales of single-use products increased 6.1% and 4.8% for the three and six months ended June 30, 2016, respectively, all driven by the SurgiQuest acquisition.

• | Orthopedic surgery sales decreased 4.2% and 4.7% in the three and six months ended June 30, 2016, respectively, primarily due to the impact of unfavorable constant currency exchange rates and lower sales in our capital products.

• | General surgery sales increased 23.1% and 19.2% in the three and six months ended June 30, 2016, respectively, mainly due to the SurgiQuest acquisition. Excluding SurgiQuest, general surgery sales decreased 2.9% and 3.6% in the three and six months ended June 30, 2016, respectively, due primarily to the impact of unfavorable foreign currency exchange rates and lower sales in our advanced surgical and critical care product lines.

• | Surgical visualization sales remained flat in the three months ended June 30, 2016, however decreased 5.4%, in the six months ended June 30, 2016, mainly due to the impact of unfavorable constant currency exchange rates.

Cost of Sales
Cost of sales increased to $91.0 million in the three months ended June 30, 2016 as compared to $87.5 million in the three months ended June 30, 2015. Cost of sales increased to $174.5 million in the six months ended June 30, 2016 as compared to $173.2 million in the six months ended June 30, 2015. Gross profit margins increased 1.3 percentage points to 52.9% in the three months ended June 30, 2016 as compared to 51.6% in the three months ended June 30, 2015. The increase in gross profit margins of 1.3 percentage points was mainly a result of the impact of favorable production variances (2.7 percentage points) and product mix (1.2 percentage points), offset by charges related to the operational restructuring (1.6 percentage points), including the termination of the Altrus product offering, and unfavorable foreign currency exchange rates on sales (1.0 percentage points). Gross profit margins increased 1.6 percentage points to 53.4% in the six months ended June 30, 2016 as compared to 51.8% in the six months ended June 30, 2015. The increase in gross profit margins of 1.6 percentage points in the six months ended June 30, 2016 was mainly a result of the impact of favorable production variances (3.0 percentage points) and product mix (0.2 percentage points), offset by charges related to the operational restructuring (0.4 percentage points), including the termination of the Altrus product offering, and unfavorable foreign currency exchange rates on sales (1.2 percentage points).
Selling and Administrative Expense
Selling and administrative expense increased to $86.7 million in the three months ended June 30, 2016 as compared to $73.6 million in the three months ended June 30, 2015 and increased to $172.7 million in the six months ended June 30, 2016 as compared to $148.4 million in the six months ended June 30, 2015. Selling and administrative expense as a percentage of net sales increased to 44.8% in the three months ended June 30, 2016 as compared to 40.6% in the three months ended June 30, 2015 and increased to 46.1% in the six months ended June 30, 2016 as compared to 41.3% in the six months ended June 30, 2015. The factors affecting the $13.1 million and $24.3 million increase in selling and administrative expenses in the three and six months ended June 30, 2016 compared to the same periods a year ago included (1) $5.0 million and $14.0 million in the three and six months ended June 30, 2016, respectively, in investment banking fees, consulting fees, legal fees and integration related costs associated with the acquisition of SurgiQuest as further described in Note 3 and Note 11 to the consolidated condensed financial statements and (2) incremental on-going sales and marketing expenses primarily to support the SurgiQuest acquisition offset by (3) a $1.3 million and $4.7 million decrease in severance and other related costs in the three and six months ended June 30, 2016, respectively, from the restructuring of certain of our sales, marketing and administrative functions.
Research and Development Expense
Research and development expense increased to $8.0 million in the three months ended June 30, 2016 as compared to $7.5 million in the three months ended June 30, 2015 and increased to $16.3 million in the six months ended June 30, 2016 as compared to $14.0 million in the six months ended June 30, 2015. As a percentage of net sales, research and development expense remained flat at 4.1% in the three months ended June 30, 2016 and 2015 and increased 0.4 percentage points to 4.3% in the six months ended June 30, 2016 as compared to 3.9% in the six months ended June 30, 2015 as we incurred higher project and regulatory related costs.
Other Expense
Other expense in the six months ended June 30, 2016 related to costs associated with our fifth amended and restated senior credit agreement entered into on January 4, 2016 as further described in Note 15 to consolidated condensed financial
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statements. These costs include a $2.7 million charge related to an agreement between the Company and JP Morgan Chase Bank, N.A. and a loss on the early extinguishment of debt of $0.3 million.
Interest Expense
Interest expense increased to $3.8 million in the three months ended June 30, 2016 from $1.5 million in the three months ended June 30, 2015 and increased to $7.6 million in the six months ended June 30, 2016 from $2.9 million in the six months ended June 30, 2015 due to the additional borrowings and higher interest rates under the fifth amended and restated senior credit agreement as further described in Note 15 to the consolidated condensed financial statements. The weighted average interest rates on our borrowings increased to 2.83% in the three months ended June 30, 2016 as compared to 2.19% in the three months ended June 30, 2015 and increased to 2.87% in the six months ended June 30, 2016 from 2.19% in the six months ended June 30, 2015.
Provision for Income Taxes
Income tax expense has been recorded at an effective tax rate of 26.6% for the three months ended June 30, 2016 compared to income tax expense recorded at an effective tax rate of 31.7% in the three months ended June 30, 2015. Income tax expense for the six months ended June 30, 2016 has been recorded at an effective tax rate of 10.8% compared to the 32.6% effective tax rate recorded in the six months ended June 30, 2015. The decrease in the effective tax rate was mainly due to a higher proportion of earnings in foreign jurisdictions where the tax rates are lower than the statutory federal rate and benefits recorded during the three and six months ended June 30, 2016 for the federal research credit, which was not legislatively enacted during the three and six months ended June 30, 2015. These benefits were offset by tax expense related to nondeductible SurgiQuest acquisition costs recorded in the three and six months ended June 30, 2016.
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 amended and restated senior credit agreement, and borrowings under separate loan facilities, in the case of real property purchases, to finance our acquisitions. We also have the ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering. Management believes that cash flow from operations, including cash and cash equivalents on hand and available borrowing capacity under our amended and restated senior credit agreement, will be adequate to meet our anticipated operating working capital requirements, debt service, funding of capital expenditures and common stock repurchases in the foreseeable future.
Operating cash flows
Our net working capital position was $264.8 million at June 30, 2016. Net cash provided by (used in) operating activities was $(0.1) million and $25.1 million in the six months ended June 30, 2016 and 2015, respectively, generated on net income of $0.6 million and $13.8 million for the six months ended June 30, 2016 and 2015, respectively.
The decrease in cash flows from operating activities for the six months ended June 30, 2016 compared to June 30, 2015 is mainly related to lower net income in the period due to costs associated with the SurgiQuest acquisition and related financing
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costs, as discussed above. In addition, other significant changes in working capital which impacted cash flow in the six months ended June 30, 2016 included the following:

• | Accounts receivable reflects continued strong collection efforts on SurgiQuest accounts receivable offset by higher sales levels during the six months ended June 30, 2016 compared with the same period a year ago;

• | An increase in inventories during the six months ended June 30, 2016 compared with year-end related to SurgiQuest finished goods and field inventories to support the acquisition integration and anticipated sales growth, and increases associated with anticipated new products launching in 2016.

• | Accounts payable resulted in a higher use of cash for the six months ended June 30, 2016 compared with the same period a year ago as we had a higher level of accounts payable at the beginning of 2016 due to the SurgiQuest acquisition. This accounts payable was paid down during the six months ended June 30, 2016.

• | An increase in other assets due primarily to restricted cash in conjunction with the SurgiQuest acquisition; restricted cash will be paid out over the balance of the year to former employees of SurgiQuest.

Investing cash flows
Net cash used in investing activities in the six months ended June 30, 2016 consisted of a $256.5 million payment for the SurgiQuest acquisition and capital expenditures. Capital expenditures were $7.7 million and $7.8 million in the six months ended June 30, 2016 and 2015, respectively, and are expected to approximate $16.0 million in 2016.
Financing cash flows
Financing activities in the first six months of 2016 provided cash of $215.3 million compared to a use of cash of $11.1 million in the same period a year ago. During 2016, we had borrowings of $253.0 million under our amended and restated senior credit agreement compared to $19.0 million in 2015. These sources were offset by payments related to the issuance of debt of $5.6 million in 2016 and a $4.4 million payment on our term loan under the amended and restated senior credit agreement.
As described in Note 15 to the consolidated condensed financial statements, on January 4, 2016, we entered into a fifth amended and restated senior credit agreement (the "amended and restated senior credit agreement") consisting of: (a) a $175.0 million term loan facility and (b) a $525.0 million revolving credit facility both expiring on January 4, 2021. The term loan 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 to finance the acquisition of SurgiQuest. Initial interest rates are at LIBOR plus a base rate or a Eurocurrency rate plus an applicable margin (2.47% at June 30, 2016). The applicable margin for base rate loans is 1.00% and for Eurocurrency rate loans is 2.00%.
There were $170.6 million in borrowings outstanding on the term loan as of June 30, 2016. There were $344.3 million in borrowings outstanding under the revolving credit facility as of June 30, 2016. Our available borrowings on the revolving credit facility at June 30, 2016 were $175.9 million with approximately $4.8 million of the facility set aside for outstanding letters of credit.
The amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The 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 June 30, 2016. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.
We have a mortgage note outstanding in connection with the Largo, Florida property and facilities bearing interest at 8.25% per annum with semiannual payments of principal and interest through June 2019. The principal balance outstanding on the mortgage note aggregated $4.5 million at June 30, 2016. The mortgage note is collateralized by the Largo, Florida property and facilities.
Our Board of Directors has authorized a $200.0 million share repurchase program. Through June 30, 2016, 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. We have not purchased any shares of common stock under the share repurchase program during 2016. The repurchase program calls for shares to be purchased in the open market or in private transactions from
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time to time. We may suspend or discontinue the share repurchase program at any time. We have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility.
Restructuring
During 2016 and 2015, we continued our operational restructuring plan. The consolidation of our Centennial, Colorado manufacturing operations into other existing CONMED manufacturing facilities is substantially complete. We incurred $0.1 million and $1.5 million in costs associated with the operational restructuring during the three months ended June 30, 2016 and 2015, respectively, and $1.0 million and $3.9 million during the six months ended June 30, 2016 and 2015, respectively. These costs were charged to cost of sales and include severance and other charges associated with the consolidation.
During 2016, the Company discontinued our Altrus product offering as part of our ongoing restructuring and incurred $4.5 million in non-cash charges which were included in cost of sales in the three and six months ended June 30, 2016.
During 2016 and 2015, we restructured certain sales, marketing and administrative functions and incurred severance and other related costs in the amount of $1.0 million and $2.3 million for the three months ended June 30, 2016 and 2015, respectively, and $3.7 million and $8.5 million for the six months ended June 30, 2016 and 2015, respectively. These costs were charged to selling and administrative expense.
We have recorded an accrual in current and other long term liabilities of $2.2 million at June 30, 2016 mainly related to severance associated with the restructuring.
We plan to continue to restructure both operations and administrative functions as necessary throughout the organization, however this plan is currently being evaluated and therefore we cannot estimate the costs. When this plan is finalized it will result in additional charges, including employee termination costs and other exit costs that will be charged to cost of sales and selling and administrative expense.
During the six months ended June 30, 2016, we had approximately $2.0 million in net savings in cost of sales from the Centennial consolidation principally as a result of lower employee costs.
See Note 11 to the Consolidated Condensed Financial Statements for further discussions regarding restructuring.
Contractual Obligations
The following table summarizes our contractual obligations for the next five years and thereafter (amounts in thousands) as of June 30, 2016:

|  |  | Payments Due by Period |  |
| Total |  | Less than 1 Year |  | 1-3 Years |  | 3-5 Years |  | More than 5 Years
Long-term debt | $ | 519,484 |  |  | $ | 10,145 |  |  | $ | 29,400 |  |  | $ | 479,939 |  |  | $ | — |
Purchase obligations | 33,537 |  |  | 32,648 |  |  | 863 |  |  | 26 |  |  | — |
Operating lease obligations | 25,573 |  |  | 5,813 |  |  | 11,189 |  |  | 5,261 |  |  | 3,310 |
Total contractual obligations | $ | 578,594 |  |  | $ | 48,606 |  |  | $ | 41,452 |  |  | $ | 485,226 |  |  | $ | 3,310 |

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” in our Annual Report on Form 10-K for the year-ended December 31, 2015 and Note 15 to the consolidated condensed financial statements). The above table also does not include unrecognized tax benefits of approximately $0.6 million, the timing and certainty of recognition for which is not known (See Note 6 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year-ended December 31, 2015).
New accounting pronouncements
See Note 14 to the Consolidated Condensed Financial Statements for a discussion of new accounting pronouncements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in our primary market risk exposures or in how these exposures are managed during the six months ended June 30, 2016. Reference is made to Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015 for a description of Qualitative and Quantitative Disclosures About Market Risk.
Item 4. 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) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2015 and to Note 13 of the Notes to Consolidated Condensed Financial Statements included in Part I of this Report for a description of certain legal matters.
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Item 6. Exhibits

Exhibit No. | Description of Exhibit
31.1 | Certification of Curt R. Hartman pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 | Certification of Luke A. Pomilio pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 | Certifications of Curt R. Hartman and Luke A. Pomilio pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 | The following materials from CONMED Corporation's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015, (ii) the Consolidated Condensed Balance Sheets at June 30, 2016 and December 31, 2015, (iii) Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2016 and 2015, and (iv) Notes to Consolidated Condensed Financial Statements for the three and six months ended June 30, 2016. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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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 on the date indicated below.

|  | CONMED CORPORATION
|  | By: /s/ Luke A. Pomilio
|  | Luke A. Pomilio
|  | Executive Vice President, Finance and
|  | Chief Financial Officer
|  | Date:
|  | July 28, 2016

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Exhibit Index

|  | Sequential Page
Exhibit |  | Number
31.1 | Certification of Curt R. Hartman pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | E-1
31.2 | Certification of Luke A. Pomilio pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | E-2
32.1 | Certifications of Curt R. Hartman and Luke A. Pomilio pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | E-3
101 | The following materials from CONMED Corporation’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015, (ii) the Consolidated Condensed Balance Sheets at June 30, 2016 and December 31, 2015, (iii) Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2016 and 2015, and (iv) Notes to Consolidated Condensed Financial Statements for the three and six months ended June 30, 2016. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |

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