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What changed in CONMED Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CONMED Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+180 added−199 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-21)

Top changes in CONMED Corp's 2023 10-K

180 paragraphs added · 199 removed · 147 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

31 edited+6 added−4 removed42 unchanged
Biggest changeSuch factors include, among others, the following: • general economic and business conditions, including, without limitation, a potential economic downturn,, supply chain challenges and constraints, including the availability and cost of materials, the effects of inflation, and increased interest rates; • compliance with and changes in regulatory requirements; • the failure of any enterprise-wide software programs or information technology systems, or potential disruption associated with updating or implementing new software programs or information technology systems; • the risk of an information security breach, including a cybersecurity breach; • the COVID-19 global pandemic poses significant risks to our business, financial condition and results of operations as the pandemic, government and hospital responses to it, continue; • the possibility that United States or foreign regulatory and/or administrative agencies may initiate enforcement actions against us or our distributors; • the introduction and acceptance of new products; • the ability to advance our product lines, including challenges and uncertainties inherent in product research and development, and the uncertain impact, outcome and cost of ongoing and future clinical trials and market studies; • competition; • changes in customer preferences; • changes in technology; • cyclical customer purchasing patterns due to budgetary, staffing and other constraints; • environmental compliance risks, including lack of availability of sterilization with Ethylene Oxide (“EtO”) or other compliance costs associated with the use of EtO; • the quality of our management and business abilities and the judgment of our personnel, as well as our ability to attract, motivate, and retain employees at all levels of the Company; • the availability, terms and deployment of capital; • current and future levels of indebtedness and capital spending; • changes in foreign exchange and interest rates; • the ability to evaluate, finance and integrate acquired businesses, products and companies; • changes in business strategy; • the risk of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues; • the ability to defend and enforce intellectual property, including the risks related to theft or compromise of intellectual property in connection with our international operations; • the risk of patent, product and other litigation as well as the cost associated with such litigation; • trade protection measures, tariffs and other border taxes, and import or export licensing requirements; • weather related events which may disrupt our operations; and • various other factors referenced in this Form 10-K.
Biggest changeSuch factors include, among others, the following: • general economic and business conditions, including, without limitation, a potential economic downturn, supply chain challenges and constraints, including the availability and cost of materials, the effects of inflation, and increased interest rates; • compliance with and changes in regulatory requirements; • the failure of any enterprise-wide software programs or information technology systems, or potential disruption associated with updating or implementing new software programs or information technology systems; • the risk of an information security breach, including a cybersecurity breach; • pandemics and health crises, and the responses there to by governments and hospitals, which poses risks to our business, financial condition and results of operations; • the possibility that United States or foreign regulatory and/or administrative agencies may initiate enforcement actions against us or our distributors; • the introduction and acceptance of new products; • the ability to advance our product lines, including challenges and uncertainties inherent in product research and development, and the uncertain impact, outcome and cost of ongoing and future clinical trials and market studies; • competition; • laws and government regulations; • changes in customer preferences; • changes in technology; • cyclical customer purchasing patterns due to budgetary, staffing and other constraints; • environmental compliance risks, including lack of availability of sterilization with Ethylene Oxide (“EtO”) or other compliance costs associated with the use of EtO; • the quality of our management and business abilities and the judgment of our personnel, as well as our ability to attract, motivate, and retain employees at all levels of the Company; • the availability, terms and deployment of capital; • current and future levels of indebtedness and capital spending; • changes in foreign exchange and interest rates; • the ability to evaluate, finance and integrate acquired businesses, products and companies; • changes in business strategy; • the risk of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues; • the ability to defend and enforce intellectual property, including the risks related to theft or compromise of intellectual property in connection with our international operations; • the risk of patent, product and other litigation as well as the cost associated with such litigation; • trade protection measures, tariffs and other border taxes, and import or export licensing requirements; • weather related events which may disrupt our operations; and • various other factors referenced in this Form 10-K. 2 See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Item 1-Business” and “Item 1A-Risk Factors” for a further discussion of these factors.
EU MDR imposes stricter requirements for the marketing and sale of medical devices, including in the areas of clinical evaluation requirements, quality 6 systems, labeling and post-market surveillance with an effective date of May 2021.
EU MDR 6 imposes stricter requirements for the marketing and sale of medical devices, including in the areas of clinical evaluation requirements, quality systems, labeling and post-market surveillance with an effective date of May 2021.
Business Forward Looking Statements This Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2022 (“Form 10-K”) contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to CONMED Corporation (“CONMED”, the “Company”, “we” or “us” — references to “CONMED”, the “Company”, “we” or “us” shall be deemed to include our direct and indirect subsidiaries unless the context otherwise requires) which are based on the beliefs of our management, as well as assumptions made by and information currently available to our management.
Business Forward Looking Statements This Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“Form 10-K”) contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to CONMED Corporation (“CONMED”, the “Company”, “we” or “us” — references to “CONMED”, the “Company”, “we” or “us” shall be deemed to include our direct and indirect subsidiaries unless the context otherwise requires) which are based on the beliefs of our management, as well as assumptions made by and information currently available to our management.
In sports medicine, we compete with Smith & Nephew, plc; Arthrex, Inc.; Stryker Corporation; Johnson & Johnson: DePuy Mitek, Inc.; Zimmer Biomet, Inc.; Paragon 28 and Treace Medical Concepts. We also provide our customers with a comprehensive line of battery-powered, autoclavable, large and small bone power tool systems for use in orthopedic, arthroscopic, oral/maxillofacial, podiatric, spinal and cardiothoracic surgeries.
We compete with Smith & Nephew, plc; Arthrex, Inc.; Stryker Corporation; Johnson & Johnson: DePuy Mitek, Inc.; Zimmer Biomet, Inc.; Paragon 28 and Treace Medical Concepts. We also provide our customers with a comprehensive line of battery-powered, autoclavable, large and small bone power tool systems for use in orthopedic, arthroscopic, oral/maxillofacial, podiatric, spinal and cardiothoracic surgeries.
Marketing A significant portion of our products are distributed domestically directly to more than 6,000 hospitals, surgery centers and other healthcare institutions as well as through medical specialty distributors. We are not dependent on any single customer and no single customer accounted for more than 10% of our net sales in 2022, 2021 and 2020.
Marketing A significant portion of our products are distributed domestically directly to more than 6,000 hospitals, surgery centers and other healthcare institutions as well as through medical specialty distributors. We are not dependent on any single customer and no single customer accounted for more than 10% of our net sales in 2023, 2022 and 2021.
Many of the regulations applicable to our devices and products in these countries are similar to those of the FDA. The member countries of the EU follow the requirements under the EU Medical Device Regulation ("EU MDR") which replaced a single set of regulations in May 2017 for all member countries.
Many of the regulations applicable to our devices and products in these countries are similar to those of the FDA. The member countries of the EU follow the requirements under the EU Medical Device Regulation ("EU MDR") which replaced prior regulations with a single set of regulations in May 2017 for all member countries.
We pursue strategic acquisitions, distribution and similar arrangements in existing and new growth markets to achieve increased operating efficiencies, geographic diversification and market penetration. Targeted companies have historically included those with proven technologies and established brand names which provide potential sales, marketing and manufacturing synergies. This includes the acquisitions of In2Bones Global, Inc.
We pursue strategic acquisitions, distribution and similar arrangements in existing and new growth markets to achieve increased operating efficiencies, geographic diversification and market penetration. Targeted companies have historically included those with proven technologies and established brand names which provide potential sales, marketing and manufacturing synergies. This includes the acquisitions of In2Bones Global, Inc. ("In2Bones") in June 2022 and Biorez, Inc.
These products are marketed under the Hall ® surgical brand name, a pioneer in power surgical tools in the United States. In powered instruments, our competition includes Stryker Corporation; Medtronic plc; Johnson & Johnson: DePuy Synthes, Inc.; and Zimmer Biomet, Inc. In 2022, approximately 74% of orthopedic surgery revenue came from single-use products that are expected to be recurring.
These products are marketed under the Hall ® surgical brand name, a pioneer in power surgical tools in the United States. In powered instruments, our competition includes Stryker Corporation; Medtronic plc; Johnson & Johnson: DePuy Synthes, Inc.; and Zimmer Biomet, Inc. In 2023, approximately 76% of orthopedic surgery revenue came from single-use products that are expected to be recurring.
In 2022, approximately 91% of general surgery revenue came from single-use products that are expected to be recurring. International Expanding our international presence is an important component of our long-term growth plan. Our products are sold in over 100 countries. International sales efforts are coordinated through local country dealers (including sub-distributors or sales agents) or through direct in-country sales.
In 2023, approximately 89% of general surgery revenue came from single-use products that are expected to be recurring. International Expanding our international presence is an important component of our long-term growth plan. Our products are sold in over 100 countries. International sales efforts are coordinated through local country dealers (including sub-distributors or sales agents) or through direct in-country sales.
During the transition period, medical devices with notified body certificates issued under the EU Medical Device Directive prior to May 2021 may continue to be placed on the market for the earlier of the remaining validity of the certificate or May 2024.
During the transition period, medical devices with notified body certificates issued under the EU Medical Device Directive prior to May 2021 may continue to be placed on the market for the earlier of the remaining validity of the certificate or December 2028.
Our benefits offerings vary from country to country, dependent on local market practices. We regularly evaluate our benefits offerings to ensure their competitiveness as well as equity and fairness. CONMED is committed to pay equity for all employees. Annually we review our pay equity globally.
Our benefits offerings vary from country to country, dependent on local market practices. We regularly evaluate our benefits offerings to ensure their competitiveness as well as equity and fairness. CONMED is committed to pay equity for all employees.
We have rights to intellectual property, including United States patents and foreign equivalent patents which cover a wide range of our products with expiration dates from 2023 to 2041. We own a majority of these patents and have exclusive and non-exclusive licensing rights to the remainder.
We have rights to intellectual property, including United States patents and foreign equivalent patents which cover a wide range of our products with expiration dates from 2024 to 2043. We own a majority of these patents and have exclusive and non-exclusive licensing rights to the remainder.
Annual royalty expense approximated $3.2 million, $2.0 million and $1.5 million in 2022, 2021 and 2020, respectively. Amounts expended for Company research and development were approximately $47.2 million, $43.6 million and $40.5 million during 2022, 2021 and 2020, respectively. Intellectual Property Patents and other proprietary rights, in general, are important to our business.
Annual royalty expense approximated $5.3 million, $3.2 million and $2.0 million in 2023, 2022 and 2021, respectively. Amounts expended for Company research and development were approximately $52.6 million, $47.2 million and $43.6 million during 2023, 2022 and 2021, respectively. Intellectual Property Patents and other proprietary rights, in general, are important to our business.
We distribute our products through sales subsidiaries and branches with offices located in Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Italy, Japan, Korea, the Netherlands, Poland, Spain, Sweden and the United Kingdom. In these countries, our sales are denominated in the local currency and amounted to approximately 34% of our total net sales in 2022.
We distribute our products through sales subsidiaries and branches with offices located in Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Italy, Japan, Korea, the Netherlands, Poland, Spain, Sweden and the United Kingdom. In these countries, our sales are denominated in the local currency and amounted to approximately 32% of our consolidated net sales in 2023.
As of December 31, 2022, we had approximately 4,100 full-time employees, including approximately 2,600 in operations and the remaining in sales, marketing, research and development and administration. We know that our people are our most important assets and crucial to our ability to deliver on our mission.
As of December 31, 2023, we had approximately 4,000 full-time employees, including approximately 2,500 in operations and the remaining in sales, marketing, research and development and administration. We know that our people are our most important assets and crucial to our ability to deliver on our mission.
Competitive Pay and Benefits Our compensation programs are designed to align the compensation of our employees with CONMED’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve positive results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.
Competitive Pay and Benefits Our compensation programs are designed to align the compensation of our employees with CONMED’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve positive results. For those employees eligible for incentive earnings, our compensation programs are balanced to ensure earnings are tied to short-term and long-term performance.
These metrics are reviewed on a regular basis at the senior executive level. We also recognize that representation of diversity in the workforce is not enough to have the impact desired, so we encourage inclusion and belonging in addition to representation. Development CONMED recognizes that development is most effective when customized to an employee’s unique experiences and interests.
We also recognize that representation of diversity in the workforce is not enough to have the impact desired, so we encourage inclusion and belonging in addition to representation. Development CONMED recognizes that development is most effective when customized to an employee’s unique experiences and interests.
CONMED is a medical technology company that provides devices and equipment for surgical procedures. The Company’s products are used by surgeons and other healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology. The Company’s 4,100 employees distribute its products worldwide from three primary manufacturing locations. Our headquarters are located in Largo, Florida.
The Company’s products are used by surgeons and other healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology. The Company’s 4,000 employees distribute its products worldwide from three primary manufacturing locations. Our headquarters are located in Largo, Florida.
In addition, we are an active sponsor of medical education both in the United States and internationally, offering training on new and innovative surgical techniques as well as other medical education programs on the use of our products. 3 Products The following table sets forth the percentage of net sales for each of our product lines during each of the three years ended December 31: Year Ended December 31, 2022 2021 2020 Orthopedic surgery 44 % 43 % 43 % General surgery 56 57 57 Consolidated net sales 100 % 100 % 100 % Net sales (in thousands) $ 1,045,472 $ 1,010,635 $ 862,459 Orthopedic Surgery We provide products that support sports medicine, the repair of soft tissue in the knee, hip, shoulder and increasingly in the upper and lower extremities through our acquisition of In2Bones.
In addition, we are an active sponsor of medical education both in the United States and internationally, offering training on new and innovative surgical techniques as well as other medical education programs on the use of our products. 3 Products The following table sets forth the percentage of net sales for each of our product lines during each of the three years ended December 31: Year Ended December 31, 2023 2022 2021 Orthopedic surgery 43 % 44 % 43 % General surgery 57 56 57 Consolidated net sales 100 % 100 % 100 % Net sales (in thousands) $ 1,244,744 $ 1,045,472 $ 1,010,635 Orthopedic Surgery We design, manufacture and globally distribute products which enable orthopedic surgeons to surgically address sports medicine injuries in the knee, hip, shoulder and lower extremities.
In addition to implants, we offer supporting products that enable surgeons to perform minimally invasive sports medicine surgeries. These products include powered resection instruments as well as fluid management and visualization systems and the related single-use products which are marketed under a number of brands, including CONMED Linvatec ® , Concept ® and Shutt ® .
These products include powered resection instruments as well as fluid management and visualization systems and the related single-use products which are marketed under a number of brands, including CONMED Linvatec ® , Concept ® and Shutt ® .
In these procedures, we offer products such as TruShot ® with Y-Knot ® All-In-One Soft Tissue Fixation System, Y-Knot ® All-Suture Anchors, and Argo™ Knotless Suture Anchors which provide unique clinical solutions to orthopedic surgeons for the repair of soft tissue injuries. During 2022, we acquired Biorez, Inc. which focuses on augmentation and healing using the BioBrace ® implant technology.
In these procedures, we offer products such as BioBrace®, TruShot® with Y-Knot® All-In-One Soft Tissue Fixation System, Y-Knot® All-Suture Anchors, and Argo™ Knotless Suture Anchors which provide unique clinical solutions to orthopedic surgeons for the augmentation and repair of soft tissue injuries. In addition to implants, we offer supporting products that enable surgeons to perform minimally invasive sports medicine surgeries.
("In2Bones") on June 13, 2022 and Biorez, Inc. ("Biorez") on August 9, 2022, respectively. • Realize Manufacturing and Operating Efficiencies. We continually review our production systems for opportunities to reduce operating costs, consolidate product lines or process flows, reduce inventory and optimize existing processes. • Geographic Diversification.
("Biorez") in August 2022. • Realize Manufacturing and Operating Efficiencies. We continually review our production systems for opportunities to reduce operating costs, consolidate product lines or process flows, reduce inventory and optimize existing processes. • Geographic Diversification. We believe that significant growth opportunities exist for our surgical products outside the United States.
As a result, components and raw materials may be sole sourced. We continuously seek to manage our supply chain to mitigate supply disruptions that may pose an overall material adverse effect on our financial and operational performance.
As a result of supply chain best practices, new product development, intellectual property and acquisitions, we often form strategic partnerships with key suppliers. This may result in components and raw materials being sole sourced. We continuously seek to manage our supply chain to mitigate supply disruptions that may pose an overall material adverse effect on our financial and operational performance.
In this spirit, CONMED employees and managers utilize various tools such as the annual performance review process and individual development plans to facilitate a specific individual’s career growth. Because our managers are the crucial link in our employee’s growth and development, in 2021 CONMED launched a global leadership program called Embark.
In this spirit, CONMED employees and managers utilize various tools such as the annual performance review process and individual development plans to facilitate a specific individual’s career growth. On an annual basis, we offer a performance review workshop for employees.
We believe that excellent working relationships with physicians and others in the medical industry enable us to gain an understanding of trends and emerging opportunities. Active participation allows us to quickly respond to the changing needs of physicians and patients.
Principal international markets for our products include Europe, Latin America, Canada and the Asia/Pacific Rim. • Active Participation in the Medical Community. We believe that excellent working relationships with physicians and others in the medical industry enable us to gain an understanding of trends and emerging opportunities.
During these sessions, survey results are reviewed and discussed. Additionally, the team agrees upon action items they can take to improve their engagement and make CONMED an even better place to work. Following these sessions, managers meet with their teams periodically to discuss progress on agreed upon action items.
In May 2023, 98% of our global workforce participated in the survey, and all team members were invited to participate in subsequent team action planning sessions. During these sessions, survey results are reviewed and discussed. Additionally, the team agrees upon action items they can take to improve their engagement and make CONMED an even better place to work.
We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. General CONMED Corporation was incorporated under the laws of the State of New York in 1970 and became a Delaware corporation in May 2020.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.
If pay equity issues are identified that cannot be explained by historical performance, time in role, tenure, or other job-related factors, we promptly address the inequity. Diversity and Inclusion A demonstrated commitment to diversity and inclusion is vital to CONMED's success as we seek out individuals who bring their unique capabilities to our Company.
We conduct an annual review of our pay equity globally by role, location, and gender, and also by ethnic diversity in the U.S. If pay equity issues are identified that cannot be explained by historical performance, time in role, tenure, or other job-related factors, we address the inequity in a timely fashion.
Due to the commitment of our global team members, CONMED’s global engagement average overall score has increased year-over-year.
Following these sessions, managers meet with their teams periodically to discuss progress on agreed upon action items. Due to the commitment of our global team members, in 2023, CONMED’s global engagement average overall score increased year-over-year.
We believe that diverse teams stimulate innovation, enhance our understanding 7 of the needs of our global customer base and ultimately deliver better results for our stakeholders. We value individual strengths and are committed to hiring and retaining employees of all different backgrounds and experiences. Tracking representation of diversity in our workforce helps us to understand where our opportunities exist.
We value individual strengths and are committed to hiring and retaining employees of all different backgrounds and experiences. Tracking representation of diversity in our workforce helps us to understand where our opportunities exist. These metrics are reviewed on a regular basis at the senior executive level and annually with the Board.
CONMED utilizes the Gallup Q12 Employee Engagement Survey both to measure engagement across the organization, and to provide a basis for individual team action planning sessions. In May 2022, 99% of our global workforce participated in the survey, and all team members were invited to participate in subsequent team action planning sessions.
Employee Engagement Measuring our team members’ engagement helps us understand what is working well and where we have opportunities to improve. CONMED utilizes the Gallup Q12 Employee Engagement Survey both to measure engagement across the organization, and to provide a basis for individual team action planning sessions.
Removed
See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Item 1-Business” and “Item 1A-Risk Factors” for a further discussion of these factors. You are cautioned not to place undue reliance 2 on these forward-looking statements, which speak only as of the date hereof.
Added
General CONMED Corporation was incorporated under the laws of the State of New York in 1970 and became a Delaware corporation in May 2020. CONMED is a medical technology company that provides devices and equipment for surgical procedures.
Removed
We believe that significant growth opportunities exist for our surgical products outside the United States. Principal international markets for our products include Europe, Latin America, Canada and the Asia/Pacific Rim. • Active Participation in the Medical Community.
Added
Active participation allows us to quickly respond to the changing needs of physicians and patients.
Removed
Substantially all of our raw materials and select components used in the manufacturing process are procured from external suppliers. Where possible, we work closely with multiple suppliers to ensure continuity of supply while maintaining high quality and reliability. As a result of supply chain best practices, new product development and acquisitions, we often form strategic partnerships with key suppliers.
Added
Our product offering for the extremity market includes a portfolio of arthroplasty, biologic, fracture and fixation systems for foot and ankle surgery with products such as the Quantum® Total Ankle System and the CoLink® plating system.
Removed
More than 375 leaders around the globe completed this interactive program on-line, which included topics such as diversity of thought, developing strengths and employee relations. Employee Engagement Measuring our team members’ engagement helps us understand what is working well and where we have opportunities to improve.
Added
A substantial portion of our raw materials and select components used in the manufacturing process are procured from external suppliers. We use a risk based approach when assessing sourcing strategies that include multisource, inventory redundancy and other strategies in accordance with our quality standards to manage continuity of supply.
Added
Diversity and Inclusion A demonstrated commitment to diversity and inclusion is vital to CONMED's success as we seek out individuals who bring their unique capabilities to our Company. We believe that diverse teams stimulate innovation, enhance our understanding 7 of the needs of our global customer base and ultimately deliver better results for our stakeholders.
Added
This workshop was developed to encourage employees to adopt a growth mindset while reflecting on their accomplishments and setting goals for the upcoming year. Because our managers are the crucial link in our employee’s growth and development, CONMED leaders complete a global interactive on-line training program, which includes topics such as diversity of thought, developing employees’ strengths, and employee relations.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

53 edited+16 added−13 removed106 unchanged
Biggest changeIf our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, we fail to comply with an applicable law or regulation, such as the GDPR, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm, and significant costs from remediation, litigation and regulatory actions.
Biggest changeWe may also be exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm, and significant costs from remediation, litigation and regulatory actions if our business continuity plans do not effectively address the following failures on a timely basis: • our IT systems are damaged or cease to function properly; • the networks or service providers we rely upon fail to function properly; • we fail to comply with an applicable law or regulation, such as the GDPR; or • we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches.
These provisions include: • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without shareholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the requirement that a special meeting of shareholders may be called only by the board of directors, the chair of the board of directors, the president, or stockholders holding at least 25% of our outstanding stock (subject to certain procedural and informational requirements), which may delay the ability of our shareholders to force consideration of a proposal or to take action; • the procedural safeguards in place in connection with stockholder action by written consent, including a requirement that stockholders of at least 25% of our outstanding common stock request that the board of directors set a record date to determine the stockholders entitled to act by written consent; • providing indemnification and exculpation rights to our directors and officers; • advance notice procedures that shareholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a shareholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us; and • exclusive forum provisions, including provisions providing for the Court of Chancery of the State of Delaware as the exclusive forum for bringing certain actions.
These provisions include: • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without shareholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the requirement that a special meeting of shareholders may be called only by the board of directors, the chair of the board of directors, the president, or stockholders holding at least 25% of our outstanding stock (subject to certain procedural and informational requirements), which may delay the ability of our shareholders to force consideration of a proposal or to take action; • the procedural safeguards in place in connection with stockholder action by written consent, including a requirement that stockholders of at least 25% of our outstanding common stock request that the board of directors set a record date to determine the stockholders entitled to act by written consent; • providing indemnification and exculpation rights to our directors and officers; • advance notice procedures that shareholders must comply with in order to nominate candidates to our board of 18 directors or to propose matters to be acted upon at a shareholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us; and • exclusive forum provisions, including provisions providing for the Court of Chancery of the State of Delaware as the exclusive forum for bringing certain actions.
Our international presence exposes us to certain other inherent risks, including: • imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by international subsidiaries; • imposition or increase of withholding and other taxes on remittances and other payments by international subsidiaries; • trade barriers and tariffs; • compliance with economic sanctions, trade embargoes, export controls, and the customs laws and regulations of the many countries in which we operate; • political risks, including political instability; • reliance on third parties to distribute our products; • hyperinflation in certain countries outside the United States; and • imposition or increase of investment and other restrictions by foreign governments.
Our international presence exposes us to certain other inherent risks, including: • imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by international subsidiaries; • imposition or increase of withholding and other taxes on remittances and other payments by international subsidiaries; • trade barriers and tariffs; 17 • compliance with economic sanctions, trade embargoes, export controls, and the customs laws and regulations of the many countries in which we operate; • political risks, including political instability; • reliance on third parties to distribute our products; • hyperinflation in certain countries outside the United States; and • imposition or increase of investment and other restrictions by foreign governments.
The degree of market acceptance for any of our products will depend upon a number of factors, including: 17 • our ability to develop and introduce new products and product enhancements on a timely basis; • our ability to successfully implement new technologies; • the market’s readiness to accept new products; • having adequate financial and technological resources for future product development and promotion; • the efficacy of our products; • the extent to which we have, are able to fund and develop, clinical data surrounding the use and efficacy of our products; and • the prices of our products compared to the prices of our competitors’ products.
The degree of market acceptance for any of our products will depend upon a number of factors, including: • our ability to develop and introduce new products and product enhancements on a timely basis; • our ability to successfully implement new technologies; • the market’s readiness to accept new products; • having adequate financial and technological resources for future product development and promotion; • the efficacy of our products; • the extent to which we have, are able to fund and develop, clinical data surrounding the use and efficacy of our products; and • the prices of our products compared to the prices of our competitors’ products.
Failure to comply with regulatory requirements may result in recalls, loss of revenues, fines or materially adverse implications . Substantially all of our products are classified as class II medical devices subject to regulation by numerous agencies, including the U.S. Food and Drug Administration ("FDA") and comparable international counterparts.
Failure to comply with regulatory requirements may result in recalls, loss of revenues, fines or other materially adverse implications . Substantially all of our products are classified as class II medical devices subject to regulation by numerous agencies, including the U.S. Food and Drug Administration ("FDA") and comparable international counterparts.
We may not be able to keep pace with technology or to develop viable new products, including our ability to advance the Biorez and In2Bones product lines we acquired during 2022. In addition, many of our competitors are substantially larger with greater financial resources which may allow them to more rapidly develop new products.
We may not be able to keep pace with technology or to develop viable new products, including our ability to advance the Biorez and In2Bones product lines we acquired during 2022. In addition, many of our competitors are substantially larger with greater financial resources which may allow them to more rapidly develop or acquire new products.
The highly competitive market for our products may create adverse pricing pressures. The market for our products is highly competitive and our customers have alternative suppliers. Many of our competitors offer a range of products in areas other than those in which we compete, which may make such competitors more attractive to surgeons, hospitals, group purchasing organizations and others.
The highly competitive market for our products may create adverse pricing pressures. The market for our products is highly competitive and our customers have alternative suppliers. Many of our competitors offer a range of products in areas other than those in which we compete, which may make such competitors more attractive to 10 surgeons, hospitals, group purchasing organizations and others.
We cannot be certain that: • pending patent applications will result in issued patents; • patents issued to or licensed by us will not be challenged by competitors; • our patents will be found to be valid or sufficiently broad to protect our technology or provide us with a competitive advantage; or 16 • we will be successful in defending against pending or future patent infringement claims asserted against our products.
We cannot be certain that: • pending patent applications will result in issued patents; • patents issued to or licensed by us will not be challenged by competitors; • our patents will be found to be valid or sufficiently broad to protect our technology or provide us with a competitive advantage; or • we will be successful in defending against pending or future patent infringement claims asserted against our products.
We rely extensively on information technology (“IT”) systems for the storage, processing, and transmission of our electronic, business-related, information assets used in or necessary to conduct business. We leverage our internal IT infrastructures, and 14 those of our business partners or other third parties, to enable, sustain, and support our global business activities.
We rely extensively on information technology (“IT”) systems for the storage, processing, and transmission of our electronic, business-related, information assets used in or necessary to conduct business. We leverage our internal IT infrastructures, and those of our business partners or other third parties, to enable, sustain, and support our global business activities.
In connection with establishing its initial hedge of the convertible notes hedge and warrant transactions, each 13 Option Counterparty or an affiliate thereof may have entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Convertible Notes.
In connection with establishing its initial hedge of the convertible notes hedge and warrant transactions, each Option Counterparty or an affiliate thereof may have entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Convertible Notes.
If one or more holders elect to convert their Convertible Notes, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the conversion rate, which could adversely affect our liquidity.
If one or more holders elect to convert their Convertible Notes, we would be required to make cash payments to satisfy all or a portion 13 of our conversion obligation based on the conversion rate, which could adversely affect our liquidity.
(ii) Risks Related to Our Indebtedness 11 The terms of our indebtedness outstanding from time to time, including our senior credit agreement, may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
(ii) Risks Related to Our Indebtedness The terms of our indebtedness outstanding from time to time, including our senior credit agreement, may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
Approximately 30% of our products when measured in terms of revenues, are sterilized by third-party sterilizers using ethylene oxide, a chemical which, when present or used in high levels or concentrations, has raised some environmental concerns in some areas within the United States, with the result that some EtO sterilization facilities have closed, or are threatened with closure, either temporarily or permanently, in connection with government enforcement actions or enhanced regulations prompted by environmental concerns.
Approximately 29% of our products when measured in terms of revenues, are sterilized by third-party sterilizers using ethylene oxide, a chemical which, when present or used in high levels or concentrations, has raised some environmental concerns in some areas within the United States, with the result that some EtO sterilization facilities have closed, or are threatened with closure, either temporarily or permanently, in connection with government enforcement actions or enhanced regulations prompted by environmental concerns.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly. 12 Borrowings under our senior credit agreement are at variable rates of interest and expose us to interest rate risk.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly. Borrowings under our senior credit agreement are at variable rates of interest and expose us to interest rate risk.
If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income (loss) and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. The interest rates rose in fiscal year 2022 and may rise further going forward.
If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income (loss) and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. The interest rates rose in fiscal year 2023 and may rise further going forward.
While we have a hedging strategy involving foreign currency forward contracts for 2022, our revenues and earnings are only partially protected from foreign currency translation if the United States dollar strengthens as compared with currencies such as the Euro. Further, as of the date of this Form 10-K, we have not entered into any foreign currency forward contracts beyond 2024.
While we have a hedging strategy involving foreign currency forward contracts for 2023, our revenues and earnings are only partially protected from foreign currency translation if the United States dollar strengthens as compared with currencies such as the Euro. Further, as of the date of this Form 10-K, we have not entered into any foreign currency forward contracts beyond 2025.
Factors which may influence our customers’ choice of competitor products include: • changes in surgeon preferences; • increases or decreases in healthcare spending related to medical devices; 10 • our inability to supply products as a result of product recall, market withdrawal or back-order; • the introduction by competitors of new products or new features to existing products; • the introduction by competitors of alternative surgical technology; and • advances in surgical procedures, discoveries or developments in the healthcare industry.
Factors which may influence our customers’ choice of competitor products include: • changes in surgeon preferences; • increases or decreases in healthcare spending related to medical devices; • our inability to supply products as a result of product recall, market withdrawal or back-order; • the introduction by competitors of new products or new features to existing products such as a replacement for AirSeal ® ; • the introduction by competitors of alternative surgical technology; and • advances in surgical procedures, discoveries or developments in the healthcare industry.
On August 3, 2022, the U.S. Environmental Protection Agency (the “EPA”) announced its plans to engage and share up-to-date information on the risks posed by EtO from commercial sterilizers, as well as its efforts to address the risks.
In 2022, the U.S. Environmental Protection Agency (the “EPA”) announced its plans to engage and share up-to-date information on the risks posed by EtO from commercial sterilizers, as well as its efforts to address the risks.
As a manufacturer of medical devices that interacts with physicians and health care providers domestically and internationally, we face risks under domestic and foreign regulations, including the Foreign Corrupt Practices Act, similar statutes in other countries, and government enforcement actions more generally.
As a medical device manufacturer that interacts with physicians and health care providers domestically and internationally, we face risks under domestic and foreign laws and regulations, including the Foreign Corrupt Practices Act and similar statutes in other countries, and government enforcement actions more generally.
The remaining 11% of sales to customers outside the United States was on an export basis and transacted in United States dollars.
The remaining 12% of sales to customers outside the United States was on an export basis and transacted in United States dollars.
We have sales subsidiaries in a significant number of countries in Europe as well as Australia, Canada, China, Japan and Korea. In those countries in which we have a direct presence, our sales are denominated in the local currency and those sales denominated in local currency amounted to approximately 34% of our total net sales in 2022.
We have sales subsidiaries in a significant number of countries in Europe as well as Australia, Canada, China, Japan and Korea. In those countries in which we have a direct presence, our sales are denominated in the local currency and those sales denominated in local currency amounted to approximately 32% of our total net sales in 2023.
Our significant international operations subject us to foreign currency fluctuations and other risks associated with operating in countries outside the United States . A significant portion of our revenues, approximately 45% of 2022 consolidated net sales, were to customers outside the United States.
Our significant international operations subject us to foreign currency fluctuations and other risks associated with operating in countries outside the United States . A significant portion of our revenues, approximately 44% of 2023 consolidated net sales, were to customers outside the United States.
Factors which may result in delays of new product introductions or cancellation of our plans to manufacture and market new products include: • research and development delays; • capital and other financial constraints; • delays or failures in securing regulatory approvals; • the potential inability to secure clinical data demonstrating the efficacy of our products, or the inability to develop such clinical data on a timely basis, may delay, limit or preclude the adoption and market acceptance of new products we may develop; and • changes in the competitive landscape, including the emergence of alternative products or solutions which reduce or eliminate the markets for pending products.
Factors which may result in delays of new product introductions or cancellation of our plans to manufacture and market new products include: • research and development delays; • capital and other financial constraints; • delays or failures in securing regulatory approvals; • the potential inability to secure clinical data demonstrating the efficacy of our products, or the inability to develop such clinical data on a timely basis, may delay, limit or preclude the adoption and market acceptance of new products we may develop; and • changes in the competitive landscape, including the emergence of alternative products or solutions which reduce or eliminate the markets for pending products. 11 Ordering patterns of our customers may change resulting in reductions in sales .
The FCPA can pose unique challenges for manufacturers who operate in foreign cultures where conduct prohibited by the FCPA may not be viewed as illegal in local jurisdictions, and because, in some cases, a United States manufacturer may face risks under the FCPA based on the conduct of third parties over whom the manufacturer may not have complete control.
The FCPA can pose unique challenges for manufacturers that operate in foreign cultures where conduct prohibited by the FCPA may not be viewed as illegal in local jurisdictions and because, in some cases, a United States 9 manufacturer may face risks under the FCPA based on the conduct of third parties (i.e., distributors) over whom the manufacturer may not have complete control.
The degree to which we are leveraged could have important consequences to investors, including but not limited to the following: • a portion of our cash flow from operations must be dedicated to debt service and will not be available for operations, capital expenditures, acquisitions, dividends and other purposes; • our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be limited or impaired or may be at higher interest rates; • we may be at a competitive disadvantage when compared to competitors that are less leveraged; • we may be hindered in our ability to adjust rapidly to market conditions; • our degree of leverage could make us more vulnerable in the event of a downturn in general economic conditions or other adverse circumstances applicable to us; and • our interest expense could increase if interest rates in general increase because a portion of our borrowings, including our borrowings under our credit agreement, are and will continue to be at variable rates of interest.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 8. 12 The degree to which we are leveraged could have important consequences to investors, including but not limited to the following: • a portion of our cash flow from operations must be dedicated to debt service and will not be available for operations, capital expenditures, acquisitions, dividends and other purposes; • our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be limited or impaired or may be at higher interest rates; • we may be at a competitive disadvantage when compared to competitors that are less leveraged; • we may be hindered in our ability to adjust rapidly to market conditions; • our degree of leverage could make us more vulnerable in the event of a downturn in general economic conditions or other adverse circumstances applicable to us; and • our interest expense could increase if interest rates in general increase because a portion of our borrowings, including our borrowings under our credit agreement, are and will continue to be at variable rates of interest.
Manufacturers of medical devices have been the subject of various investigations or enforcement actions relating to interactions with health care providers domestically or internationally.
Manufacturers of medical devices have been the subject of various investigations and enforcement actions relating to interactions with health care providers, both domestically and internationally.
Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above. We may incur substantial additional indebtedness, including secured indebtedness. As of December 31, 2022, we have $513.2 million of availability under the senior credit agreement.
Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above. We may incur substantial additional indebtedness, including secured indebtedness. As of December 31, 2023, we have $581.4 million of availability under the senior credit agreement.
In the event the conditional conversion features of the 2.625% Notes issued on January 29, 2019 or the 2.250% Notes issued on June 6, 2022 are triggered, holders of the applicable Convertible Notes will be entitled to convert the applicable Convertible Notes at any time during specified periods at their option.
In the event the conditional conversion features of the 2.250% Notes issued on June 6, 2022 are triggered, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option.
We may not be able to generate sufficient cash to service our indebtedness and other obligations, and, our leverage and debt service requirements may require us to adopt alternative business strategies . As of December 31, 2022, we had $1,074.6 million of debt outstanding, representing 58% of total capitalization.
We may not be able to generate sufficient cash to service our indebtedness and other obligations, and, our leverage and debt service requirements may require us to adopt alternative business strategies . As of December 31, 2023, we had $986.6 million of debt outstanding, representing 54% of total capitalization.
If we are unable to continue to attract or retain qualified employees, including our executives, our performance, including our competitive position, could be materially and adversely affected. Item 1B. Unresolved Staff Comments None.
We seek to attract talented and diverse new employees and retain and motivate our existing employees. If we are unable to continue to attract or retain qualified employees, including our executives, our performance, including our competitive position, could be materially and adversely affected. Item 1B. Unresolved Staff Comments None.
Ordering patterns of our customers may change resulting in reductions in sales . Our hospital and surgery center customers purchase our products in quantities sufficient to meet their anticipated demand. Likewise, our healthcare distributor customers purchase our products for ultimate resale to healthcare providers in quantities sufficient to meet the anticipated requirements of the distributors’ customers.
Our hospital and surgery center customers purchase our products in quantities sufficient to meet their anticipated demand. Likewise, our healthcare distributor customers purchase our products for ultimate resale to healthcare providers in quantities sufficient to meet the anticipated requirements of the distributors’ customers.
The increases in costs or availability of raw materials may be exacerbated as a result of the COVID-19 pandemic, Russia's invasion of Ukraine and ongoing global supply chain challenges. In addition, increased inflation in wages and materials may also increase our costs.
The increases in costs or availability of raw materials may be exacerbated as a result of the conflicts in Ukraine and the Middle East and ongoing global supply chain challenges. In addition, increased inflation in wages and materials may also increase our costs.
The conditional conversion features of our 2.625% Convertible Notes due 2024 (the "2.625% Notes") and the 2.250% Convertible Notes due 2027 (the "2.250% Notes" and, together with the 2.625% Notes, the “Convertible Notes”), if triggered, may adversely affect our financial condition.
The conditional conversion features of our 2.250% Convertible Notes due 2027 (the "2.250% Notes" or the “Convertible Notes”), if triggered, may adversely affect our financial condition.
To the extent that these disruptions recur and/or persist over time, this could negatively impact our competitive position and our relationships with our customers and thus could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. We rely on a third party to obtain, process and distribute sports medicine allograft tissue.
To the extent that these disruptions recur and/or persist over time, this could negatively impact our competitive position and our relationships with our customers and thus could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
The FCPA also imposes obligations on manufacturers listed on U.S. stock exchanges to maintain accurate books and records, and maintain internal accounting controls sufficient to provide assurance that transactions are accurately recorded, lawful and in accordance with management’s authorization.
Similar anti-bribery laws are in effect in many of the countries in which we operate. The FCPA also imposes obligations on manufacturers listed on U.S. stock exchanges to maintain accurate books and records, and maintain internal accounting controls sufficient to provide assurance that transactions are accurately recorded, lawful and in accordance with management’s authorization.
Any provision of our certificate of incorporation and bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. 18 Environmental laws and regulations and climate change initiatives could materially and adversely affect our business, financial condition, and results of operations.
Any provision of our certificate of incorporation and bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Competitors may also be able to design around our patents and to compete effectively with our products. In addition, the cost of enforcing our patents against third parties and defending our products against patent infringement actions by others could be substantial, and we may not prevail.
In addition, the cost of enforcing our patents against third parties and defending our products against patent infringement actions by others could be substantial, and we may not prevail.
Many states have enacted false claims acts that are similar to the federal False Claims Act. No inquiry or claim that the Company currently faces or has faced to date, and no report of misconduct that the Company has received to date, has had a material adverse effect on our financial condition, results of operations or cash flows.
No inquiry or claim that the Company currently faces or has faced to date, and no report of misconduct that the Company has received to date, has had a material adverse effect on our financial condition, results of operations or cash flows.
We have numerous U.S. patents and corresponding international patents on products expiring at various dates from 2023 through 2041 and have additional patent applications pending. See Item 1 Business “Research and Development” and “Intellectual Property” for a further description of our patents. The loss of our patents could reduce the value of the related products and any related competitive advantage.
We have numerous U.S. patents and corresponding international patents on products expiring at various dates from 2024 through 2043 and have additional patent applications pending. See Item 1 Business “Research and Development” and “Intellectual Property” for a further description of 16 our patents.
As of the date of this report: 1. In some geographies or territories, our field-based sales representatives are limited in their ability to travel to service or call on customers, 2. Some hospitals in some areas have delayed certain procedures to reserve space for COVID-19 patients or have experienced slowdowns due to staffing shortages.
For example, during the COVID-19 pandemic, in some geographies or territories, our field-based sales representatives were limited in their ability to travel to service or call on customers. Further, some hospitals delayed certain procedures to reserve space for COVID-19 patients or experienced slowdowns due to staffing shortages.
Hospitals and customers may reduce demand for surgical products if they reserve space for COVID-19 patients or experience staff shortages or disputes. Should inventories of our products owned by our hospital, surgery center and distributor customers grow to levels higher than their requirements, our customers may reduce the ordering of products from us. This could result in reduced sales.
Should inventories of our products owned by our hospital, surgery center and distributor customers grow to levels higher than their requirements, our customers may reduce the ordering of products from us. This could result in reduced sales.
The failure of any of these software systems or information technology systems to operate properly, or disruptions associated with updating or implementing new software or information technology systems, may have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. 15 We rely on various software programs and information technology systems to run our business, some of which maybe old, have suffered outages, may no longer be supported and may require replacements or updates.
The failure of any of these software systems or information technology systems to operate properly, or disruptions associated with updating or implementing new software or information technology systems, may have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation, any of which could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation or competitive position.
Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation, any of which could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation or competitive position. 15 The costs of protecting IT systems and data may increase, and there can be no assurance that these added security efforts will prevent all breaches of our IT systems or thefts of our data.
Limitations on the availability of Ethylene Oxide (“EtO”) sterilization services may limit our ability to sell certain sterile products.
If any of these were to occur, our future results and performance could be adversely impacted. Limitations on the availability of Ethylene Oxide (“EtO”) sterilization services may limit our ability to sell certain sterile products.
As a result, our financial performance is now, and will continue to be, subject to various risks associated with the acquisition of businesses, including the financial effects associated with any increased borrowing required to fund such acquisitions or with the integration of such businesses.
As a result, our financial performance is now, and will continue to be, subject to various risks associated with the acquisition of businesses, including the financial effects associated with any increased borrowing required to fund such acquisitions or with the integration of such businesses. 14 The terms of any future preferred equity or debt financing may give holders of any preferred securities or debt securities rights that are senior to rights of our common shareholders or impose more stringent operating restrictions on our company.
We cannot be certain that any of these strategies could be implemented on terms acceptable to us, if at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 8.
We cannot be certain that any of these strategies could be implemented on terms acceptable to us, if at all.
A failure to comply with current or future environmental laws and regulations could result in fines or penalties. Any such expenses or liability could have a material adverse effect on our financial condition, results of operations or cash flows. Our ability to attract and retain qualified employees is critical to our success .
Any such expenses or liability could have a material adverse effect on our financial condition, results of operations or cash flows. Our ability to attract and retain qualified employees is critical to our success . Our employees are our most important resource, and in many areas of the medical industry, competition for qualified personnel is intense.
The EPA also announced that it expects to propose an air pollution regulation to protect public health by addressing EtO emissions at commercial sterilizers. We have been able to secure EtO sterilization services to date, and do not currently expect sterilization availability to have a material impact on our business.
In April 2023, the EPA also announced proposals to reduce risks in communities and for workers by reducing EtO emissions from chemical plants, commercial sterilizers and reducing risk to workers in the sterilization industry. We have been able to secure EtO sterilization services to date, and do not currently expect sterilization availability to have a material impact on our business.
The UK has developed its own set of SCCs that must be used for transfers of personal data from the UK to the U.S. In December 2022, the European Commission announced a draft adequacy decision for the EU-U.S. Data Privacy Framework (the “EU-U.S. DPF”), a cross-border data transfer mechanism that will replace the EU-U.S.
The UK has developed its own set of SCCs that must be used for transfers of personal data from the UK to the U.S. In July 2023, the European Commission determined that the Data Privacy Framework (“DPF”), a replacement for the invalidated EU-US Privacy Shield, ensures an adequate level of protection for EU personal data transferred to the United States.
Our business and facilities and those of our suppliers are subject to a number of federal, state, local and international laws and regulations governing the protection of human health and the environment. In addition, concern over climate change and sustainability has led to foreign and domestic legislative and regulatory initiatives directed at limiting carbon dioxide and other greenhouse gas emissions.
In addition, concern over climate change and sustainability has led to foreign and domestic legislative and regulatory initiatives directed at limiting carbon dioxide and other greenhouse gas emissions. A failure to comply with current or future environmental laws and regulations could result in fines or penalties.
In this regard, approximately 16% of our 2022 revenues are derived from the sale of capital products. The sales of such products may be negatively impacted if hospitals and other healthcare providers are unable to secure the financing necessary to purchase these products or otherwise defer purchases.
The sales of such products may be negatively impacted if hospitals and other healthcare providers are unable to secure the financing necessary to purchase these products or otherwise defer purchases. 8 Public health crises have had, and may continue to have, an adverse effect on certain aspects of our business, results of operations, financial condition, and cash flows.
The terms of any future preferred equity or debt financing may give holders of any preferred securities or debt securities rights that are senior to rights of our common shareholders or impose more stringent operating restrictions on our company. Debt or equity financing may not be available to us on acceptable terms.
Debt or equity financing may not be available to us on acceptable terms.
Also, these disruptions have caused and may continue to cause the Company to incur incremental costs and expenses in connection with the resolution of implementation issues.
We rely on various software programs and information technology systems to run our business, some of which may be old, have suffered outages, or may no longer be supported. System disruptions could cause the Company to incur incremental costs and expenses in connection with resolving ongoing or implementation issues.
Removed
The COVID-19 global pandemic may pose significant risks to our business if the pandemic, and various responses to it, continue for an extended period of time. 8 The actions undertaken to reduce or respond to the spread of the virus, including its variants, have created and may continue to create significant disruptions with respect to the demand for non-urgent surgeries in hospitals and surgery centers and hospital and ambulatory surgery center operating volumes.
Added
In this regard, approximately 17% of our 2023 revenues are derived from the sale of capital products.
Removed
As such, the COVID-19 pandemic has directly and indirectly adversely impacted the Company’s business, financial condition and operating results. The extent to which this will continue will depend on numerous evolving factors that are highly uncertain, rapidly changing and cannot be predicted with precision or certainty at this time.
Added
The nature and extent of future impacts are highly uncertain and unpredictable. We face a wide variety of risks related to public health crises, epidemics, pandemics or similar events, which could have an adverse effect on certain aspects of our business, results of operations, financial condition, and cash flows .
Removed
The interactions with domestic health care providers are subject to regulations, known as the Anti-Kickback Statute, the Stark Act and the False Claims Act, that generally govern incentives for health care providers, or methods of reimbursement funded in whole or in part by the government.
Added
If a new health epidemic or outbreak were to occur, we could experience broad and varied impacts similar to the impact of COVID-19, including adverse impacts to our workforce and supply chain, inflationary pressures and increased costs, schedule or production delays, market volatility and other financial impacts.
Removed
Similarly, the Foreign Corrupt Practices Act (“FCPA”), and similar foreign laws, prohibit certain conduct by manufacturers, generally described as bribery, with respect to interactions, either directly through foreign subsidiaries or indirectly through distributors, with health care providers who may be considered government officials because they are affiliated with public hospitals.
Added
The interactions with domestic health care providers are subject to various federal and state laws and regulations, including the federal Anti-Kickback Statute, which prohibits entities from knowingly and willfully soliciting, offering, receiving or paying remuneration (including kickbacks, bribes or rebates) in exchange for or to induce the referral of an individual for the purchase, order, lease or recommendation of any good, item or service for which payment may be made under federal healthcare programs; and the federal civil False Claims Act, which prohibits individuals or entities from knowingly presenting or causing to be presented false or fraudulent claims for payment or knowingly using false statements to obtain payment from the federal government.
Removed
In this regard, from time to time, the Company may receive an information request or subpoena from a government agency, such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the United States Food and Drug Administration, the Department of Labor, the Treasury Department or other federal and state agencies or foreign governments or government agencies.
Added
Suits filed under the False Claims Act may be brought by “relators” or “whistleblowers” on behalf of the government, who may share in amounts paid by the entity to the government in fines or settlement.
Removed
Alternatively, employees or private parties may provide us with reports of alleged misconduct. These information requests or subpoenas may or may not be routine inquiries, or may begin as informal or routine inquiries and over time develop into investigations or enforcement actions of various types under the FCPA or otherwise.
Added
Similarly, under the federal Civil Monetary Penalties Statute, the government may seek civil monetary penalties or exclusion for a wide variety of conduct, including presenting, or causing to be presented, claims to a federal healthcare program for an item or service that was not provided as claimed or is false or fraudulent. Penalties range from $10,000 to $50,000 per violation.
Removed
Similarly, the employee and third party reports may prompt us to conduct internal investigations into the alleged misconduct.
Added
Also, many states have enacted laws similar to the federal Anti-Kickback Statute and the False Claims Act, and some of these may be broader in scope in that some extend to all payors.
Removed
As a medical device company, CONMED’s operations and interactions with government hospitals, healthcare professionals and purchasers may be subject to various federal and state regulations, including the federal False Claims Act, which provides, in part, that the federal government may bring a lawsuit 9 against any person or entity that it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment to the government, or has made or used, or caused to be made or used, a false statement or false record material to a false claim.
Added
The Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. companies and their representatives from offering or making payments to foreign officials for the purpose of securing a business advantage; and in many countries, the healthcare professionals with whom we regularly interact may meet the definition of a foreign government official for purposes of this law.
Removed
In addition, in certain circumstances, private parties may bring so-called Qui Tam claims as plaintiffs purportedly on behalf of the government asserting claims arising under the False Claims Act.
Added
In addition, as a manufacturer of U.S. FDA-approved devices reimbursable by federal healthcare programs, we are subject to the Physician Payments Sunshine Act, which requires us to annually report certain payments and other transfers of value we make to U.S.-licensed physicians, U.S. teaching hospitals or other U.S. covered recipients.
Removed
Privacy Shield that was invalidated in 2020. The EU-U.S. DPF is in development and there is no guarantee that it will be approved in its current form.
Added
Any failure to comply with these laws and regulations could subject us or our officers and employees to criminal and civil financial penalties.
Removed
The costs of attempting to protect IT systems and data may increase, and there can be no assurance that these added security efforts will prevent all breaches of our IT systems or thefts of our data.
Added
Furthermore, we occasionally receive subpoenas or other requests for information from various governmental agencies around the world, and while these investigations typically relate primarily to financial arrangements with healthcare providers, regulatory compliance and product promotional practices, we cannot predict the timing, outcome or impact of any such investigations.
Removed
There can be no assurances that the resolution of the WMS issues will fully recover in 2023 the sales that were delayed or lost in the fourth quarter of 2022 and thereafter. Further, the implementation may disrupt our operations and our ability to fulfill customer orders.
Added
Any adverse outcome in one or more of these investigations could include the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, including exclusion from government reimbursement programs and/or entry into Corporate Integrity Agreements (CIAs) with governmental agencies. In addition, resolution of any of these matters could involve the imposition of additional, costly compliance obligations.
Removed
Our employees are our most important resource, and in many areas of the medical industry, competition for qualified personnel is intense. We seek to attract talented and diverse new employees and retain and motivate our existing employees.
Added
Hospitals and customers may reduce demand for surgical products if they reserve space for patients or experience staff shortages or disputes due to public health crises, pandemics, epidemics or similar events.
Added
Although we believe sales are no longer being delayed or lost as a result of WMS issues, there can be no assurances that such issues will not re-occur. We rely on a third party to obtain, process and distribute sports medicine allograft tissue.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeLocation Square Feet Own or Lease Lease Expiration Utica, NY 500,000 Own — Largo, FL 278,000 Own — Chihuahua, Mexico 207,720 Lease October 2024 Chihuahua, Mexico 40,626 Lease March 2028 Lithia Springs, GA 188,400 Lease January 2025 Brussels, Belgium 58,276 Lease June 2024 Mississauga, Canada 36,054 Lease July 2036 Greenwood Village, CO 27,763 Lease July 2024 Westborough, MA 19,533 Lease November 2025 Frenchs Forest, Australia 16,959 Lease July 2025 Our principal manufacturing facilities are located in Utica, NY, Largo, FL and Chihuahua, Mexico.
Biggest changeLocation Square Feet Own or Lease Lease Expiration Utica, NY 500,000 Own — Largo, FL 278,000 Own — Chihuahua, Mexico 207,720 Lease October 2024 Chihuahua, Mexico 40,626 Lease March 2028 Lithia Springs, GA 188,400 Lease January 2025 Atlanta, GA 110,096 Lease March 2026 Brussels, Belgium 58,276 Lease June 2024 Mississauga, Canada 36,054 Lease July 2036 Greenwood Village, CO 27,763 Lease January 2025 Westborough, MA 19,533 Lease November 2025 Frenchs Forest, Australia 16,959 Lease July 2025 Our principal manufacturing facilities are located in Utica, NY, Largo, FL and Chihuahua, Mexico.
Lithia Springs, GA and Brussels, Belgium are our principal distribution centers. We also maintain sales and administrative offices in countries throughout the world.
Lithia Springs and Atlanta, GA as well as Brussels, Belgium are our principal distribution centers. We also maintain sales and administrative offices in countries throughout the world.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not a party to any pending legal proceedings other than ordinary routine litigation incidental to our business. Item 4. Mine Safety Disclosures Not applicable. 19 PART II
Biggest changeWe are not a party to any pending legal proceedings other than ordinary routine litigation incidental to our business. Item 4. Mine Safety Disclosures Not applicable. 20 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAt February 6, 2023, there were 468 registered holders of our common stock and approximately 61,445 accounts held in “street name”. Our Board of Directors has authorized a share repurchase program; see Note 10 for further details. The Board of Directors declared a quarterly cash dividend of $0.20 per share in 2021 and 2022.
Biggest changeOur Board of Directors has authorized a share repurchase program; see Note 10 for further details. The Board of Directors declared a quarterly cash dividend of $0.20 per share in 2022 and 2023. The fourth quarter dividend for 2023 was paid on January 5, 2024 to shareholders of record as of December 18, 2023.
Risk Factors - Other Risk Factors Related to our Business - Our Board of Directors may, in the future, limit or discontinue payment of a dividend on common stock." Refer to Item 12 for information relating to compensation plans under which equity securities of CONMED Corporation are authorized for issuance. 20 Performance Graph The performance graph below compares the cumulative five-year total shareholder return on the Company’s Common Stock with the cumulative total return of the S&P 500 Index and the Standard & Poor’s Health Care Equipment Index.
Risk Factors - Other Risk Factors Related to our Business - Our Board of Directors may, in the future, limit or discontinue payment of a dividend on common stock." Refer to Item 12 for information relating to compensation plans under which equity securities of CONMED Corporation are authorized for issuance. 21 Performance Graph The performance graph below compares the cumulative five-year total shareholder return on the Company’s Common Stock with the cumulative total return of the S&P 500 Index and the Standard & Poor’s Health Care Equipment Index.
In each case, the cumulative total return assumes reinvestment of dividends into the same class of equity securities at the frequency with which dividends are paid on such securities during the applicable fiscal year. Item 6. [Reserved] 21
In each case, the cumulative total return assumes reinvestment of dividends into the same class of equity securities at the frequency with which dividends are paid on such securities during the applicable fiscal year. Item 6. [Reserved] 22
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock, par value $.01 per share, is traded on the New York Stock Exchange ("NYSE"), effective February 10, 2020, under the symbol “CNMD”. Prior to this date, our common stock was traded on the NASDAQ Global Market under the same symbol.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock, par value $.01 per share, is traded on the New York Stock Exchange ("NYSE") under the symbol “CNMD”. At February 1, 2024, there were 447 registered holders of our common stock and approximately 70,385 accounts held in “street name”.
The fourth quarter dividend for 2022 was paid on January 5, 2023 to shareholders of record as of December 16, 2022. The total dividend payable at December 31, 2022 was $6.1 million and is included in other current liabilities in the consolidated balance sheet.
The total dividend payable at December 31, 2023 was $6.2 million and is included in other current liabilities in the consolidated balance sheet. Future decisions as to the payment of dividends will be at the discretion of the Board of Directors. See "Item 1A.
Removed
Future decisions as to the payment of dividends will be at the discretion of the Board of Directors. See "Item 1A.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConsolidated Results of Operations The following table presents, as a percentage of net sales, certain categories included in our consolidated statements of comprehensive income (loss) for the periods indicated: Years Ended December 31, 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 45.4 43.8 46.6 Gross profit 54.6 56.2 53.4 Selling and administrative expense 43.4 41.0 43.3 Research and development expense 4.5 4.3 4.7 Income from operations 6.7 10.9 5.3 Interest expense 2.8 3.5 5.1 Other expense 10.7 0.1 — Income (loss) before income taxes (6.8) 7.2 0.2 Provision (benefit) for income taxes 0.9 1.0 (0.9) Net income (loss) (7.7) % 6.2 % 1.1 % 24 Net Sales The following table presents net sales by product line for the years ended December 31, 2022, 2021 and 2020: % Change from 2021 to 2022 2022 2021 As Reported Impact of Foreign Currency Constant Currency a Orthopedic surgery $ 461.5 $ 438.4 5.3 % 1.2 % 6.5 % General surgery 584.0 572.2 2.1 % 1.0 % 3.1 % Net sales $ 1,045.5 $ 1,010.6 3.4 % 1.2 % 4.6 % Single-use products $ 874.9 $ 820.1 6.7 % 1.1 % 7.8 % Capital products 170.6 190.5 -10.5 % 1.1 % -9.4 % Net sales $ 1,045.5 $ 1,010.6 3.4 % 1.2 % 4.6 % % Change from 2020 to 2021 2021 2020 As Reported Impact of Foreign Currency Constant Currency a Orthopedic surgery $ 438.4 $ 374.7 17.0 % -1.3 % 15.7 % General surgery 572.2 487.8 17.3 % -0.6 % 16.7 % Net sales $ 1,010.6 $ 862.5 17.2 % -0.9 % 16.3 % Single-use products $ 820.1 $ 703.0 16.7 % -0.9 % 15.8 % Capital products 190.5 159.5 19.5 % -1.1 % 18.4 % Net sales $ 1,010.6 $ 862.5 17.2 % -0.9 % 16.3 % (a) Refer to Non-GAAP Financial Measures below for further details.
Biggest changeConsolidated Results of Operations The following table presents, as a percentage of net sales, certain categories included in our consolidated statements of comprehensive income (loss) for the periods indicated: Years Ended December 31, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 45.7 45.4 43.8 Gross profit 54.3 54.6 56.2 Selling and administrative expense 40.4 43.4 41.0 Research and development expense 4.2 4.5 4.3 Income from operations 9.7 6.7 10.9 Interest expense 3.2 2.8 3.5 Other expense — 10.7 0.1 Income (loss) before income taxes 6.5 (6.8) 7.2 Provision for income taxes 1.3 0.9 1.0 Net income (loss) 5.2 % (7.7) % 6.2 % Net Sales The following table presents net sales by product line for the years ended December 31, 2023, 2022 and 2021: % Change from 2022 to 2023 2023 2022 As Reported Impact of Foreign Currency Constant Currency a Orthopedic surgery $ 533.1 $ 461.5 15.5 % 2.2 % 17.7 % General surgery 711.6 584.0 21.9 % 1.5 % 23.4 % Net sales $ 1,244.7 $ 1,045.5 19.1 % 1.8 % 20.9 % Single-use products $ 1,038.5 $ 874.9 18.7 % 1.8 % 20.5 % Capital products 206.2 170.6 20.9 % 1.9 % 22.8 % Net sales $ 1,244.7 $ 1,045.5 19.1 % 1.8 % 20.9 % 25 % Change from 2021 to 2022 2022 2021 As Reported Impact of Foreign Currency Constant Currency a Orthopedic surgery $ 461.5 $ 438.4 5.3 % 1.2 % 6.5 % General surgery 584.0 572.2 2.1 % 1.0 % 3.1 % Net sales $ 1,045.5 $ 1,010.6 3.4 % 1.2 % 4.6 % Single-use products $ 874.9 $ 820.1 6.7 % 1.1 % 7.8 % Capital products 170.6 190.5 -10.5 % 1.1 % -9.4 % Net sales $ 1,045.5 $ 1,010.6 3.4 % 1.2 % 4.6 % (a) Refer to Non-GAAP Financial Measures below for further details.
An impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value. For all other indefinite-lived intangible assets, we perform a qualitative impairment test. Based upon this assessment, we have determined that our indefinite-lived intangible assets are not impaired. 23 See Note 7 for further discussion of goodwill and other intangible assets.
An impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value. For all other indefinite-lived intangible assets, we perform a qualitative impairment test. Based upon this assessment, we have determined that our indefinite-lived intangible assets are not impaired. See Note 7 for further discussion of goodwill and other intangible assets.
The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of CONMED Corporation. Actual results may or may not differ from these estimates. Goodwill and Intangible Assets We have a history of growth through acquisitions.
The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of CONMED Corporation. Actual results may or may not differ from these estimates. 23 Goodwill and Intangible Assets We have a history of growth through acquisitions.
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 26 results, provides a more complete understanding of our business.
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.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our Consolidated Financial Statements and related notes contained elsewhere in this report. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our Consolidated Financial Statements and related notes contained elsewhere in this report. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
The seventh amended and restated senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and restrictions as of December 31, 2022.
The seventh amended and restated senior credit agreement contains covenants and restrictions which, among other things, require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. We were in full compliance with these covenants and restrictions as of December 31, 2023.
We expect to use operating cash flows to satisfy capital spending requirements. The following table summarizes our contractual obligations for the next five years and thereafter (amounts in thousands) as of December 31, 2022. Purchase obligations represent purchase orders for goods and services placed in the ordinary course of business.
We expect to use operating cash flows to satisfy capital spending requirements. The following table summarizes our contractual obligations for the next five years and thereafter (amounts in thousands) as of December 31, 2023. Purchase obligations represent purchase orders for goods and services placed in the ordinary course of business.
The identification and measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based on the best information available as of the date of the assessment. We completed our goodwill impairment testing of our single reporting unit during the fourth quarter of 2022.
The identification and measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based on the best information available as of the date of the assessment. We completed our goodwill impairment testing of our single reporting unit during the fourth quarter of 2023.
In performing a sensitivity analysis on the pension benefit obligation, a 0.25% increase in our discount rate would decrease the pension benefit obligation by $1.6 million and a 0.25% decrease in the discount rate would increase the pension benefit obligation by $1.7 million. See Note 13 for further discussion of the pension plan.
In performing a sensitivity analysis on the pension benefit obligation, a 0.25% increase in our discount rate would decrease the pension benefit obligation by $1.5 million and a 0.25% decrease in the discount rate would increase the pension benefit obligation by $1.6 million. See Note 13 for further discussion of the pension plan.
Contingent consideration is remeasured each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized as income or expense within operating expense in the consolidated statements of comprehensive income (loss).
Contingent consideration is remeasured each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized as income or expense within selling and administrative expense in the consolidated statements of comprehensive income (loss).
These product lines as a percentage of consolidated net sales are as follows: 2022 2021 2020 Orthopedic surgery 44 % 43 % 43 % General surgery 56 57 57 Consolidated net sales 100 % 100 % 100 % A significant amount of our products are used in surgical procedures with approximately 84% of our revenues derived from the sale of single-use products.
These product lines as a percentage of consolidated net sales are as follows: 2023 2022 2021 Orthopedic surgery 43 % 44 % 43 % General surgery 57 56 57 Consolidated net sales 100 % 100 % 100 % A significant amount of our products are used in surgical procedures with approximately 83% of our revenues derived from the sale of single-use products.
However, we may need to take further steps to reduce our costs, or to refinance our debt. See “Item 1A. Risk Factors - Risks Related to Our Indebtedness." There were $134.6 million in borrowings outstanding on the term loan facility as of December 31, 2022.
However, we may need to take further steps to reduce our costs, or to refinance our debt. See “Item 1A. Risk Factors - Risks Related to Our Indebtedness." There were $114.6 million in borrowings outstanding on the term loan facility as of December 31, 2023.
See "Item 1A. Risk Factors - Other Risks Related to our Business - Our Board of Directors may, in the future, limit or discontinue payment of a dividend on common stock." We expect an increased level of capital spending during the year ending December 31, 2023 compared to 2022. Capital spending will be monitored and controlled as the year progresses.
Risk Factors - Other Risks Related to our Business - Our Board of Directors may, in the future, limit or discontinue payment of a dividend on common stock." We expect an increased level of capital spending during the year ending December 31, 2024 compared to 2023. Capital spending will be monitored and controlled as the year progresses.
Orthopedic surgery consists of sports medicine instrumentation and small bone, large bone and specialty powered surgical instruments as well as imaging systems for use in minimally invasive surgical procedures and fees related to the promotion and marketing of sports medicine allograft tissue.
Orthopedic surgery consists of sports medicine instrumentation and lower extremities instrumentation and implants, small bone, large bone and specialty powered surgical instruments as well as imaging systems for use in minimally invasive surgical procedures and service fees related to the promotion and marketing of sports medicine allograft tissue.
In conjunction with the pension plan, we recorded a pension benefit obligation totaling $71.2 million as of December 31, 2022. In accounting for this pension plan, we are required to make a number of assumptions, including the discount rate and mortality.
In conjunction with the pension plan, we recorded a pension benefit obligation totaling $70.6 million as of December 31, 2023. In accounting for this pension plan, we are required to make 24 a number of assumptions, including the discount rate and mortality.
There were $70.0 million in borrowings outstanding under the revolving credit facility as of December 31, 2022. Our available borrowings on the revolving credit facility at December 31, 2022 were $513.2 million with approximately $1.8 million of the facility set aside for outstanding letters of credit.
There were $2.0 million in borrowings outstanding under the revolving credit facility as of December 31, 2023. Our available borrowings on the revolving credit facility at December 31, 2023 were $581.4 million with approximately $1.6 million of the facility set aside for outstanding letters of credit.
In addition, management believes we could access capital markets, as necessary, to fund future business acquisitions. The Company is also being impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures, ongoing supply chain challenges and the impact of the warehouse management system implementation.
In addition, management believes we could access capital markets, as necessary, to fund future business acquisitions. The Company is also being impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures and ongoing supply chain challenges. We continue to 28 monitor our spending and expenses in light of these factors.
Research and Development Expense Research and development expense was $47.2 million in 2022 and $43.6 million in 2021. As a percentage of net sales, research and development expense was 4.5% in 2022 and 4.3% in 2021. The higher spend as a percentage of net sales in 2022 was mainly driven by the In2Bones and Biorez acquisitions.
Research and Development Expense Research and development expense was $52.6 million in 2023 and $47.2 million in 2022. As a percentage of net sales, research and development expense was 4.2% in 2023 and 4.5% in 2022. The lower spend as a percentage of net sales in 2023 was mainly driven by higher sales.
Cost of Sales Cost of sales was $474.2 million in 2022 compared to $442.6 million in 2021. Gross profit margins were 54.6% in 2022 and 56.2% in 2021.
Cost of Sales Cost of sales was $568.5 million in 2023 compared to $474.2 million in 2022. Gross profit margins were 54.3% in 2023 and 54.6% in 2022.
Total pre-tax stock-based compensation expense recognized in the consolidated statements of comprehensive income (loss) was $21.7 million, $16.3 million and $13.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Total pre-tax stock-based compensation expense recognized in the consolidated statements of comprehensive income (loss) was $24.3 million, $21.7 million and $16.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. New Accounting Pronouncements See Note 2 for a discussion of new accounting pronouncements.
As compared to the federal statutory rate of 21.0%, the 2022 effective tax rate was lower primarily due to the premium on extinguishment of the 2.625% Notes and the change in fair value of convertible notes hedges upon settlement as these items were not deductible for tax purposes.
These benefits were offset by state tax expense and foreign tax expense from jurisdictions with higher statutory tax rates. The 2022 effective tax rate was lower primarily due to the premium on extinguishment of the 2.625% Notes and the change in fair value of convertible notes hedges upon settlement as these items were not deductible for tax purposes.
Stock options, SARs, RSUs and PSUs are generally non-transferable other than on death and generally become exercisable over a four to five year period from date of grant. Stock options and SARs expire ten years from date of grant. SARs are only settled in shares of the Company’s stock (See Note 10).
PSUs are generally non-transferable other than on death and cliff vest after three years from date of grant. Stock options and SARs expire ten years from date of grant. SARs are only settled in shares of the Company’s stock (See Note 10).
In addition, during 2022, we incurred costs for inventory step-up adjustments of $4.5 million related to the In2Bones acquisition and $2.0 million in consulting fees related to a cost improvement initiative. Selling and Administrative Expense Selling and administrative expense was $454.0 million in 2022 compared to $414.8 million in 2021.
In addition, during 2023, we incurred costs for the amortization of inventory step-up to fair value of $8.6 million related to the In2Bones acquisition compared to $4.5 million of such costs during 2022. During both 2023 and 2022, we incurred $2.0 million in consulting fees related to a cost improvement initiative.
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.
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.
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.
A reconciliation of the United States statutory income tax rate to our effective tax rate is included in Note 9. 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.
Selling and administrative expense as a percentage of net sales was 43.4% in 2022 and 41.0% in 2021. 25 The increase in selling and administrative expense as a percentage of net sales in 2022 was primarily driven by the following costs in 2022: • $10.1 million in consulting fees, legal fees and other integration related costs associated with the acquisitions of In2Bones and Biorez as further described in Note 3; • $6.8 million in costs related to the implementation of a new warehouse management system.
The decrease in selling and administrative expense as a percentage of net sales in 2023 was primarily driven by: • a decrease of $9.3 million in consulting fees, legal fees and other integration related costs associated with the acquisitions of In2Bones and Biorez ($0.8 million in 2023 compared to $10.1 million in 2022); • a decrease of $4.9 million in costs related to fair value adjustments to contingent consideration ($2.4 million of income in 2023 compared to $2.5 million expense in 2022), see Note 16; • $0.8 million in costs related to a legal settlement during 2022; • a decrease of $0.7 million in costs related to the implementation of a new warehouse management system ($6.1 million in 2023 compared to $6.8 million in 2022).
Investing Cash Flows Net cash used in investing activities increased to $249.5 million in 2022 compared to $14.9 million in 2021 primarily due to the $144.7 million payment for the In2Bones Acquisition and $83.0 million for the Biorez Acquisition. In addition, capital expenditures were higher in 2022 compared to 2021.
During 2022, sales and earnings were generally below incentive targets. Investing Cash Flows Net cash used in investing activities decreased to $20.0 million in 2023 compared to $249.5 million in 2022 primarily due to the $144.7 million payment for the In2Bones Acquisition and $83.0 million for the Biorez Acquisition in 2022.
Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows.
The fair value of contingent consideration at December 31, 2023 was $41.4 million for the In2Bones acquisition and $128.8 million for the Biorez acquisition. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows.
Below is a summary of the significant financing activities impacting the change during 2022 compared to 2021: • We received proceeds of $800.0 million in 2.250% Notes as further described in Note 8. • We paid $275.0 million in aggregate principal on the repurchase and extinguishment of the 2.625% Notes as further described in Note 8. • We had net payments on our revolving line of credit of $70.0 million as compared to $67.0 million in net payments during 2021 as we used proceeds from our 2.250% Notes to pay down our outstanding balance. • We had net payments on our term loan of $93.0 million as we prepaid $90.0 million with proceeds from the 2.250% Notes, compared to $14.2 million in 2021, inclusive of a $52.4 million impact on both borrowings and repayments between independent counterparties associated with the seventh amended and restated credit agreement. • We paid $187.6 million to purchase hedges related to our 2.250% Notes.
Below is a summary of the significant financing activities impacting the change during 2023 compared to 2022: • During 2022, we received proceeds of $800.0 million in 2.250% Notes as further described in Note 8. • During 2022, we paid $275.0 million in aggregate principal on the repurchase and extinguishment of the 2.625% Notes as further described in Note 8. • During 2022, we paid $187.6 million to purchase hedges related to our 2.250% Notes.
Total revenues associated with sales to third party distributors in these countries are not material to the consolidated financial results, and we have fully reserved the outstanding accounts receivable from distributors in these territories which are not material. We will continue to monitor and adjust our business strategy in this region as necessary.
The Company has no direct operations in these regions with our business limited to selling to third party distributors. Total revenues and accounts receivable associated with sales to third party distributors in these regions are not material to the consolidated financial statements. We will continue to monitor and adjust our business strategy in response to the conflicts in these regions.
Operating Cash Flows Our net working capital position was $284.7 million at December 31, 2022. Net cash provided by operating activities was $33.4 million in 2022 and $111.8 million in 2021 generated on net income (loss) of $(80.6) million in 2022 and $62.5 million in 2021.
Net cash provided by operating activities was $125.3 million in 2023 and $33.4 million in 2022 generated on net income (loss) of $64.5 million in 2023 and $(80.6) million in 2022.
Partially offsetting this, were proceeds of $72.0 million from the issuance of warrants as further described in Note 8. • We paid $69.5 million to settle warrants related to the 2.625% Notes and received $86.2 million to settle the hedges related to the 2.625% Notes as further described in Note 8. 27 • We paid $21.8 million in debt issuance costs mainly related to the 2.250% Notes in 2022 compared to $2.0 million in debt issuance costs related to the seventh amended and restated senior credit agreement in 2021. • We paid $0.8 million and $6.2 million in 2022 and 2021, respectively, in contingent consideration related to prior acquisitions.
Partially offsetting this, were proceeds of $72.0 million from the issuance of warrants as further described in Note 8. • During 2022, we paid $69.5 million to settle warrants related to the 2.625% Notes and received $86.2 million to settle the hedges related to the 2.625% Notes as further described in Note 8. • During 2022, we paid $21.8 million in debt issuance costs mainly related to the 2.250% Notes. • During 2023, we had net payments on our term loan of $20.0 million compared to $93.0 million in 2022 as we prepaid $90.0 million with proceeds from the 2.250% Notes. • During 2023, we had net payments on our revolving line of credit of $68.0 million as compared to $70.0 million in net payments during 2022 as we continued to reduce outstanding borrowings. • During 2023, we paid $13.9 million in contingent consideration related to the In2Bones Acquisition.
We have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility. 28 The Board of Directors declared a quarterly cash dividend of $0.20 per share in 2021 and 2022. Future decisions as to the payment of dividends will be at the discretion of the Board of Directors.
The Board of Directors declared a quarterly cash dividend of $0.20 per share in 2022 and 2023. Future decisions as to the payment of dividends will be at the discretion of the Board of Directors. See "Item 1A.
The decrease in gross profit margin of 1.6 percentage points in 2022 was driven by recognition of unfavorable production variances resulting from cost increases and inflation in raw materials, freight and other costs of production.
The decrease in gross profit margin of 0.3 percentage points in 2023 was driven by cost increases and inflation in raw materials and other costs of production offset by higher sales volumes and more favorable product mix.
We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.
We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales. In February 2024, the Company repaid the $70.0 million then outstanding of the 2.625% Notes through borrowings on our revolving credit facility.
We had total cash on hand at December 31, 2022 of $28.9 million, of which approximately $23.3 million was held by our foreign subsidiaries outside the United States with unremitted earnings.
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. 27 We had total cash on hand at December 31, 2023 of $24.3 million, of which approximately $19.7 million was held by our foreign subsidiaries outside the United States with unremitted earnings.
Interest Expense Interest expense decreased to $28.9 million in 2022 compared to $35.5 million in 2021. The weighted average interest rates on our borrowings were 2.58% in 2022 decreasing from 2.76% in 2021.
Interest Expense Interest expense increased to $39.8 million in 2023 compared to $28.9 million in 2022. The weighted average interest rates on our borrowings were 3.12% in 2023 increasing from 2.58% in 2022. The increase in interest expense in 2023 was driven by higher interest rates on our senior credit agreement.
Stock-based Compensation We have reserved shares of common stock for issuance to employees and directors under two shareholder-approved share-based compensation plans (the "Plans"). The Plans provide for grants of stock options, stock appreciation rights (“SARs”), dividend equivalent rights, restricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and other equity-based and equity-related awards.
The Plans provide for grants of stock options, stock appreciation rights (“SARs”), dividend equivalent rights, restricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and other equity-based and equity-related awards. The exercise price on all outstanding stock options and SARs is equal to the quoted fair market value of the stock at the date of grant.
See Note 8 for further information on our financing agreements and outstanding debt obligations. Our Board of Directors has authorized a $200.0 million share repurchase program. Through December 31, 2022, 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.
Through December 31, 2023, we have repurchased a total of 6.1 million shares of common stock aggregating $162.6 million under this authorization and have $37.4 million remaining available for share repurchases. The repurchase program calls for shares to be purchased in the open market or in private transactions from time to time.
The repurchase program calls for shares to be purchased in the open market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any time. We have not purchased any shares of common stock under the share repurchase program during 2022.
We may suspend or discontinue the share repurchase program at any time. We have not purchased any shares of common stock under the share repurchase program during 2023. We have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility.
Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Long-term debt $ 1,074,587 $ 70,000 $ — $ 1,004,587 $ — Purchase obligations 203,838 197,926 5,912 — — Contingent consideration payments 186,432 18,633 123,369 44,430 — Lease obligations 21,788 7,097 7,873 2,546 4,272 Total contractual obligations $ 1,486,645 $ 293,656 $ 137,154 $ 1,051,563 $ 4,272 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.
Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Long-term debt $ 986,588 $ — $ 186,588 $ 800,000 $ — Contingent consideration payments 170,144 77,581 92,563 — — Purchase obligations 166,804 158,078 7,786 940 — Lease obligations 23,652 8,217 8,004 3,210 4,221 Total contractual obligations $ 1,347,188 $ 243,876 $ 294,941 $ 804,150 $ 4,221 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.
The Company is also being impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures and ongoing supply chain challenges. We continuously work with suppliers to mitigate these impacts; however, we expect these challenges to continue in 2023. This will likely impact our results of operations. See "Item 22 1A.
We work with suppliers to mitigate these impacts; however, we expect these challenges to continue in 2024. This will likely impact our results of operations. See "Item 1A. Risk Factors" for more information. The Company has not been materially impacted by the conflicts in Ukraine and the Middle East.
During 2022, we redeployed $17.2 million of cash from certain non-U.S. subsidiaries primarily for U.S. debt reduction which consisted primarily of earnings that were taxed in 2017 as part of the deemed repatriation toll charge implemented by Tax Reform. We may repatriate funds from certain foreign subsidiaries in the future. Refer to Note 9 for further details.
During 2023, we redeployed $11.7 million of cash from certain non-U.S. subsidiaries primarily for U.S. debt reduction. We may repatriate funds from certain foreign subsidiaries in the future. Refer to Note 9 for further details. Operating Cash Flows Our net working capital position was $304.9 million at December 31, 2023.
The change in cash provided by operating activities in 2022 as compared to 2021 was mainly driven by: • A decrease in cash flows from inventory as we increased inventory levels to mitigate inventory supply challenges as well as the impact from lower sales in the fourth quarter of 2022 resulting from the implementation of a warehouse management system; • An increase in cash flows from accounts payable is primarily due to the timing of payments; • A decrease in cash from accrued compensation and benefits resulting from lower incentive compensation accruals as sales and earnings were lower than incentive targets; and • Lower net income as we experienced higher costs due to the integration associated with acquisitions and warehouse management system implementation.
The change in cash provided by operating activities in 2023 as compared to 2022 was mainly driven by higher net income as 2022 experienced higher costs due to the integration associated with acquisitions and the warehouse management system implementation.
Financing Cash Flows Financing activities in 2022 provided cash of $225.0 million compared to the use of cash of $101.5 million in 2021.
In addition, capital expenditures were lower in 2023 compared to 2022. Financing Cash Flows Financing activities in 2023 used cash of $110.4 million compared to providing cash of $225.0 million in 2022.
“Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” and Note 8). The above table also does not include unrecognized tax benefits of approximately $0.2 million, the timing and certainty of recognition for which is not known (See Note 9).
The above table also does not include unrecognized tax benefits of approximately $1.7 million, the timing and certainty of recognition for which is not known (See Note 9). 29 Stock-based Compensation We have reserved shares of common stock for issuance to employees and directors under two shareholder-approved share-based compensation plans (the "Plans").
The exercise price on all outstanding stock options and SARs is equal to the quoted fair market value of the stock at the date of grant. RSUs and PSUs are valued at the market value of the underlying stock on the date of grant.
RSUs are valued at the market value of the underlying stock on the date of grant. PSUs are valued using a Monte Carlo valuation model at the date of grant. Stock options, SARs, and RSUs are generally non-transferable other than on death and generally become exercisable over a four to five year period from date of grant.
Removed
International sales approximated 45% in 2022, 45% in 2021 and 44% in 2020. Business Environment On June 13, 2022, we acquired In2Bones and all of its stock (the "In2Bones Acquisition") for an aggregate upfront payment of $145.2 million in cash.
Added
International sales approximated 44% in 2023, 45% in 2022 and 45% in 2021. Business Environment The Company has been and continues to be impacted by the macro-economic environment and we are experiencing higher manufacturing and operating costs caused by inflationary pressures and ongoing supply chain challenges.
Removed
In addition, there are potential earn-out payments to In2Bones’ equity holders in an amount up to $110.0 million based on the achievement of certain revenue targets for In2Bones products during the sixteen (16) successive quarters commencing on July 1, 2022.
Added
Net sales increased 19.1% in 2023 due to increases across the majority of our product lines, including In2Bones and Biorez product lines.
Removed
We financed the purchase through a combination of cash on hand and long term borrowings as further described in Note 8. On August 9, 2022, we acquired Biorez and all of its stock (the "Biorez Acquisition") for an aggregate upfront payment of $85.5 million in cash.
Added
Further contributing to sales growth during 2023 was the significant progress and improvement we made with the performance of our warehouse management system and significant reduction in the shipping delays that existed at year-end 2022. • Orthopedic surgery sales increased 15.5% in 2023 as a result of growth in the In2Bones and Biorez product lines and increases in our orthopedic product offerings. • General surgery sales increased 21.9% in 2023 as a result of growth in the AirSeal, Buffalo Filter and other surgical product offerings.
Removed
We paid $83.7 million as of December 31, 2022, with a $1.8 million holdback, pursuant to the merger agreement for the Biorez Acquisition.
Added
Selling and Administrative Expense Selling and administrative expense was $503.0 million in 2023 compared to $454.0 million in 2022. Selling and administrative expense as a percentage of net sales was 40.4% in 2023 and 43.4% in 2022.
Removed
In addition, there are potential earn-out payments to Biorez’ equity holders in an amount up to $165.0 million based on the achievement of certain revenue targets for Biorez products during the sixteen (16) successive quarters commencing on October 1, 2022. The Biorez Acquisition was funded through a combination of cash on hand and long-term borrowings.
Added
These costs mainly consisted of incremental freight, labor and professional fees; and • overall decrease in selling and administrative expense as a percentage of sales as we leverage our existing selling and administrative structure.
Removed
Refer to Note 3 for further information on the business acquisitions. Our business has been and may continue to be impacted by the COVID-19 pandemic as variants of the virus emerge. We believe we will continue to experience market variability as a result of the pandemic that could influence sales, suppliers, patients and customers.
Added
These decreases were partially offset by: • $2.1 million in costs related to the termination of distribution agreements during 2023; and 26 • an increase of $0.8 million in costs consisting of severance related to the elimination of certain positions ($1.6 million in 2023 compared to $0.8 million in 2022).
Removed
There remains uncertainty related to the COVID-19 pandemic, including the duration and severity of future impacts to the business and we continue to see our customers and suppliers impacted in a variety of ways.
Added
In addition, the issuance of the 2.250% Notes in June 2022 contributed to higher interest expense during 2023.
Removed
Risk Factors" for more information. For additional discussion regarding COVID 19, see Liquidity and Capital Resources below. During 2022, the world experienced, and continues to experience, the impact of Russia's invasion of Ukraine. The Company has no direct operations in either Russia or Ukraine and our business is limited to selling to third party distributors.
Added
Provision for Income Taxes A provision for income taxes was recorded at an effective rate of 20.3% and (13.7)% in 2023 and 2022, respectively. As compared to the federal statutory rate of 21.0%, the 2023 effective tax rate was lower primarily due to federal tax benefits from the research credit and US tax on worldwide earnings at different rates.
Removed
While the direct impact on the Company of Russia's invasion of Ukraine is limited, we are being affected by increases in the price of oil as a result of sanctions on Russia, which contributes to overall inflation and increased costs.
Added
In addition, below is a summary of significant changes in assets and liabilities: • A decrease in cash flows from accounts receivable as we experienced higher sales in the fourth quarter of 2023 as well as the timing of cash receipts; • An increase in cash flows from inventory as we moderate our inventory levels; • A decrease in cash flows from income taxes due to higher payments; and • An increase in cash flows from accrued compensation and benefits due to higher incentive compensation and commission accruals.
Removed
During the fourth quarter of 2022, we implemented a warehouse management system to increase capacity and efficiency, however this also caused significant delays in shipping. As a result, we believe we lost a significant amount of sales and incurred incremental costs during this period. See Risk Factors - Other Risks Related to Our Business.
Added
In addition, we expect to finance contingent consideration payments related to our Biorez and In2Bones acquisitions in whole or in part through borrowings on our revolving credit facility. See Note 8 for further information on our financing agreements and outstanding debt obligations. Our Board of Directors has authorized a $200.0 million share repurchase program.
Removed
We rely on various software programs and information technology systems to run our business, some of which may be old or no longer supported and requiring replacements or updates.
Added
“Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” and Note 8).
Removed
The failure of any of these software systems or information technology systems to operate properly, or disruptions associated with updating or implementing new software or information technology systems, may have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
Removed
Net sales increased 3.4% to $1,045.5 million in 2022 from $1,010.6 million in 2021 driven by increases in our product lines.
Removed
Net sales of In2Bones and Biorez products account for $24.8 million of sales in 2022. • Orthopedic surgery sales increased 5.3% in 2022 to $461.5 million from $438.4 million in 2021 which was primarily driven by $24.8 million of sales from the recent acquisitions as well as growth in our sports medicine and procedures specific product offerings.
Removed
This was offset by declines in capital equipment sales. • General surgery sales increased 2.1% in 2022 to $584.0 million from $572.2 million in 2021 which was primarily driven by the continued growth in our AirSeal and other advanced surgical product offerings as well as advanced endoscopic technologies products.
Removed
These costs mainly consisted of incremental freight, professional fees and other costs; • $2.5 million in costs related to fair value adjustments to contingent consideration; • $0.8 million in legal fees related to the settlement of litigation; and • $0.8 million in costs consisting of severance related to the elimination of certain positions.
Removed
The decrease in interest expense in 2022 was primarily due to decreases in our term loan and revolving credit facility borrowings and 2021 including $10.2 million in interest expense related to the amortization of debt discount that is no longer applicable in 2022 as a result of the adoption of ASU 2020-06, as further described in Note 2.
Removed
These are offset by the increased borrowings of the 2.250% Notes entered into on June 6, 2022.
Removed
During 2021, we recorded $1.1 million related to a loss on early extinguishment and third party fees associated with the seventh amended and restated senior credit agreement. Provision (Benefit) for Income Taxes A provision (benefit) for income taxes was recorded at an effective rate of (13.7)% and 14.4% in 2022 and 2021, respectively.
Removed
The 2021 effective tax rate was lower than the federal statutory rate primarily due to benefits from federal income tax items including stock compensation and changes in the valuation allowance relating to certain foreign operations. A reconciliation of the United States statutory income tax rate to our effective tax rate is included in Note 9.
Removed
As noted above, there also remains uncertainty related to the COVID-19 pandemic, including the duration and severity of future impacts to the business and we continue to see our customers and suppliers impacted by staffing shortages. We continue to monitor our spending and expenses in light of these factors.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed4 unchanged
Biggest changeComparatively, if market interest rates for similar borrowings average 1.0% less in 2023 than they did in 2022, our interest expense would decrease, and income (loss) before income taxes would increase by $2.0 million.
Biggest changeComparatively, if market interest rates for similar borrowings average 1.0% less in 2024 than they did in 2023, our interest expense would decrease, and income before income taxes would increase by $1.2 million. 30
We have not designated these forward contracts as hedges and have not applied hedge accounting to them. Refer to Note 16 for further discussion. Interest Rate Risk At December 31, 2022, we had approximately $204.6 million of variable rate long-term debt outstanding under our senior credit agreement.
We have not designated these forward contracts as hedges and have not applied hedge accounting to them. Refer to Note 16 for further discussion. Interest Rate Risk At December 31, 2023, we had approximately $116.6 million of variable rate long-term debt outstanding under our senior credit agreement.
Assuming no repayments, if market interest rates for similar borrowings averaged 1.0% more in 2023 than they did in 2022, interest expense would increase, and income (loss) before income taxes would decrease by $2.0 million.
Assuming no repayments, if market interest rates for similar borrowings averaged 1.0% more in 2024 than they did in 2023, interest expense would increase, and income before income taxes would decrease by $1.2 million.
We manage our exposure to these and other market risks through regular operating and financing activities and as necessary through the use of derivative financial instruments. Foreign Currency Risk Approximately 45% of our total 2022 consolidated net sales were to customers outside the United States.
We manage our exposure to these and other market risks through regular operating and financing activities and as necessary through the use of derivative financial instruments. Foreign Currency Risk Approximately 44% of our total 2023 consolidated net sales were to customers outside the United States.
The remaining 11% of sales to customers outside the United States was on an export basis and transacted in United States dollars.
The remaining 12% of sales to customers outside the United States was on an export basis and transacted in United States dollars.
We have sales subsidiaries in a significant number of countries in Europe as well as Australia, Brazil, Canada, China, Japan and Korea. In those countries in which we have a direct presence, our sales are denominated in the local currency amounting to approximately 34% of our total net sales in 2022.
We have sales subsidiaries in a significant number of countries in Europe as well as Australia, Brazil, Canada, China, Japan and Korea. In those countries in which we have a direct presence, our sales are denominated in the local currency amounting to approximately 32% of our total net sales in 2023.
During 2022, foreign currency exchange rates, including the effects of the hedging program, caused sales to decrease by approximately $11.6 million. We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts. We account for these forward contracts as cash flow hedges.
During 2023, foreign currency exchange rates, including the effects of the hedging program, caused sales to decrease by approximately $16.1 million. We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts. We account for these forward contracts as cash flow hedges.

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