Contents
Introduction
Company Financial Snapshot
Letter to Shareholders
Innovations and CONMED Making a Difference
Board Members and Executive Officers
Memoriam
Additional Information
GAAP to Non-GAAP Reconciliations
CONMED 10K
4
5
6
8
10
12
13
14
16
4
Introduction
Annual Report 2021
Partnership and
Perseverance
The last two years serve as a reminder that unpredictable change can happen at any time and
that partnerships and trust are invaluable when faced with adversity.
2021 was initially expected to be a year filled with recovery. Instead, we facff ed prolonged
barriers to interaction with our customers and vendors; but the trust and faith of our employees
and partners helped us thrive during these unprecedented times. We sWW ought ways to be
effective in an adapting world, and we succeeded in 2021 by nurturing and strengthening the
bonds we had created.
Through crisis comes change. We hWW ave facff ed new and unfamiliar challenges, but we have the
people to ensure the forff ging of a safe pff
sionals
and the teams who support them on this path, and while we can’t predict tomorrow, our mission
remains steadfast and true.
ath forff ward. We wWW alk alongside healthcare profesff
Enabling exceptional outcomes for patients is what we do.
5
FY 2021 Revenue
Annual Report 2021
Company Snapshot
$1.01BILLION
Geographic Revenue
Product Revenue
Orthopedic
Surggery 43%
45%
International
Revenue
Employees Globally
3,800
General Surgery
Genera
al
SurSurgergery 5y 7%
Products used in the areas of advanced surgical
and advanced endoscopic technologies.
Orthopedic Surgery
Surgical devices including capital, single-use, and im-
plants used in the repair of soft tissue and joint injuries.
Revenue ($ in Thousands)
Adjusted Net Earnings per Share*
*Adjusted net earnings per share is a non-GAAP measure. Refer to the “GAAP to Non-GAAP
Reconciliations” section for the most directly comparable GAAP measure, GAAP diluted net
earnings per share.
6
Letter to Shareholders
Annual Report 2021
Annual Report 2021
Letter to Shareholders
Whilemanagingthroughtheseissueshasthepotentialtobecomeanall-consumingtask,
theCONMEDteamisfocusedonremaininggreatstewardsofyourcompanythroughour
focusonpeople,innovativeproducts,andgrowingprofitability.
Dear Shareholders,
In 2021, CONMED recorded revenue of $1.01 billion, surpassing the billion-dollar level for the first
time in our history. Revenue grew 17.2% as reported and 16.3% in constant currency when compared
to the COVID-suppressed levels of 2020. Adjud sted net earnings per share finished the year at $3.21,
an increase of 47.2% over 2020 adjud sted net earnings per share of $2.18.
Throughout 2021, we continued to face turbulence brought about by the global pandemic. Still,
in the face of this adversity, our Board and management team remained focused on the long-
term growth and prosperity of CONMED. Central to that tenet remains the safety and well-being
of our employees, which is supported by enhanced safety protocols matched to COVID-19 case
volumes, free vaccination and wellness resources, and ongoing investments to enhance workplace
engagement. Further, i
r n 2021, we remained focused on creating innovative solutions for our
customers and increasing our investment in digital strategy and an ESG agenda that we are proud of
and can deliver—all while improving the company’s cash flow and financial strength.
While global market conditions had an obvious impact to our financial performance, I am proud
the year. We,WW like others, dealt with the
of how our leaders managed the business throughout
proliferation of COVID-19 variants, which impacted the global health system and led to workforce
shortages, inflation, and transportation and logistics interruptions. I view all of these as circumstances
to navigate as we continue to strengthen and grow the company for long-term success.
In 2020, I used the words Agile and Resilient to describe our response to the pandemic. Looking
back on 2021, the words that best describe our approach throughout the year are Partnership and
Perseverance.
We built and strengthened partnerships with external parties such as customers, suppliers, and
local communities. We aWW lso further strengthened partnerships internally across the markets and
geographies we serve, as we focused on ensuring our customers were fully supported throughout
the year.
Perseverance was a daily demand, as known challenges found kinship with new surprises and disrupted
long-established processes and approaches. Our employees embraced these opportunities to drive
change, advance our business, and, in the process, continue to strengthen our culture. Again, I
could not be prouder of the people who represent our company and propelled us forward in 2021.
7
Looking Forward
As we enter 2022, current circumstances still present us with a number of challenges, including the
continued impact of COVID-19 and its variants, inflationary pressures, and staffing challenges within
the healthcare community and the global workforce, just to name a few. While managing through
these issues has the potential to become an all-consuming task, the CONMED team is focused
on remaining great stewards of your company through our focus on people, innovative products,
and growing profitability. Further, or ur continued investment in a comprehensive digital strategy and
the development of a responsible ESG program will further sharpen our performance, strengthen
our culture, and increase our stewardship of the company. As I noted last year, history has shown
that in a crisis many companies emerge even stronger, ar dapting and overcoming the challenges
presented. Given the actions we took and the results we delivered, I believe that CONMED
continues to strengthen as an organization and is well positioned for success over the long-term.
Closing
2022 is upon us, and we have all become pandemic veterans—a title none of us ever aspired
to earn. My views of CONMED and our opportunities remain unchanged. Each employee of the
company can impact the business and build a great career; each employee of the company will
have the opportunity to make a difference for our customers and be a part of a growing business;
and each employee of the company will benefit from a strong and growing culture with exceptional
values. Behind all of these points are the people of CONMED, who I have emphasized from day
one will define our success as a company. Because of them, I remain confident that CONMED will
outperform in our chosen markets.
On behalf of our management team and the Board of Directors, I thank you for your confidence in
CONMED.
Sincerely,
Curt Hartman
Chair of the Board, President and Chief Executive Officer
*Constant currency net sales growth and adjusted net earnings per share are non-GAAP financial measures. Refer to the “GAAP to Non-GAAP Reconciliations” section for
reconciliations to the most directly comparable GAAP financial measures, reported net sales and diluted net earnings per share.
8
Innovations and CONMED Making a Difference
Annual Report 2021
anGuide®
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high standards for medical device
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cleanin and storage is critical to patient safety. For
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oced es have come under heavy scrutiny by the
CoC
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EDME
launched CleanGuide™ Disposable
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EW Esos phageal Dilators - the first and only sterile-
pack d,ed over-the-wire bougies available in the
S
United States.
Closer Than Ever:
The Role of VR!
Digital Medical Education
Generating a global buzz, this captivating
technology was quickly integrated into
our marketing strategies. We solidified
efforts with the trademark VRthroscopy™
and secured a leadership position in next
generation medical education.
9
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suuuusustsststaiainan blb eee memememedididdd caacall teteteteteteeechchchchchchchchchhhhhhnononononononononononononnolololooloollolool gigigigiigigigigigiggig eseseseeseseseseses ththhhhhhhatatatatataatattatatata adddaa drddresssssssssssssss ununuuuunnnunuuu memeeeeeemmettttttttttt
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ppppopuppuppp llal
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It’It s As
CON
NMED‘
ll About the Patient
artnership with MTF
s p‘
cartilage allograft. The clinical benefits of live, viable cells
In 01820 , through our partnership with MTF, we launched CartiMax®,
a v ble
ia
comb
bined
abilit
ty
with optimized handling characteristics enhance a surgeon’s
to treat complex cartilage injuries.
Last year, we had the opportunity to speak with patients
impacted by CartiMax®. One story was recalled by Kelley,
an OR nurse who enjoys playing competitive tennis. Kelley
had a knee injury during a match and unfortunately suffered
significant cartilage damage. She met with Dr. Deryk Jones
who recommended CartiMax® for treatment. She underwent
the procedure, rehab, and 10 months later was back on the
competitive tennis court.
10
Board Members and Executive Officers
Annual Report 2021
Board Members
Curt R. Hartman
Chair of the Board,
President and Chief Executive Officer
Martha Goldberg Aronson
Lead Independent Director
David Bronson
Director
Jerome J. Lande
Director
Brian P. Concannon
Director
Barbara J. Schwarzentraub
Director
rne Council
LaVea
Director
Mark E. Tryniski
Director
Charles M. Farkas
Director
Dr. John L. Workman
Director
Annual Report 2021
11
Executive Officers
Terence M. Bergé
Vice President, Corporate Controller
John E. (Jed) Kennedy*
Group Executive Vice President
Advanced Endoscopic Technologies
Patrick J. Beyer
President
CONMED International & Global Orthopedics
Brent Lalomia
Executive Vice President
Quality Assurance and Regulatory Affairs**
Heather L. Cohen
Executive Vice President
Human Resources
Sarah M. Oliker, Esq.
Assistant General Counsel & Assistant Secretary
Shanna Cotti-Osmanski
Executive Vice President
Information Technology
Johonna Pelletier
Treasurer & Vice President, Tax
Todd W. Garner
Executive Vice President & Chief Financial Offcer
Stanley W. (Bill) Peters
President Advanced Surgical
and Advanced Endoscopic Technologies**
Curt R. Hartman
Chair of the Board,
President and Chief Executive Officer
Jackie Peterson
Vice President
Manufacturing and Advanced Engineering
Daniel S. Jonas, Esq.
Executive Vice President
Legal Affairs, General Counsel & Secretary
Peter K. Shagory
Executive Vice President
Strategy & Corporate Development
*Effective April 1, 2022, Mr. Kennedy retired from this role.
**This position is effective April 1, 2022
12
Memoriam
Annual Report 2021
In Memoriam and in Recognition for
Past Service to CONMED
2021 saw the passing of two of CONMED’s long-serving directors, whose sage
counsel helped shape the Company. We note their contributions and passing below:
William D. Matthews
Director 1997 - 2008
A graduate of Union College, and then Cornell University Law School, William (“Bill”) Matthews
first worked in the Division of Corporate Finance for the Securities and Exchange Commission
before, ultimately, taking on a position in-house at Oneida, Ltd. Bill became General
Counsel and then the Chief Executive Officer and Chair of Oneida’s Board, prior to serving
on CONMED’s Board of Directors from 1997 through 2008. Bill was acutely aware of the
challenges in creating and executing on a corporate strategy, and provided valuable counsel
while on CONMED’s Board. Bill passed on November 21, 2021.
Stuart J. Schwartz, M.D.
Director 1998-2014
A graduate of Cornell University and SUNY Upstate Medical School, Stuart Schwartz performed
his residency at University Hospital in Cleveland, followed by a urology residency at Yale New
Haven Hospital. After serving in the Air Force, Dr. Schwartz engaged in the private practice
of medicine in Utica, New YorkYY
through 2014. Dr. Schwartz provided valuable advice concerning medical technology and
procedures, and a common sense approach to business strategy. Stuart passed on September
14, 2021.
. Dr. Schwartz served on CONMED’s Board from 1998
13
Additional Information
CORPORATE OFFICE
CONMED Corporation
11311 Concept Blvd.
Largo, FL 33773
Phone: 1-866-4CONMED
CUSTOMER SERVICE
1-866-4CONMED
customerexperience@CONMED.com
www.CONMED.com
Ethics policy available at
www.CONMED.com
STOCK
CONMED Corporation’s stock is
traded on the New York Stock
Exchange with the symbol: CNMD
SHAREHOLDER INFO
Interested shareholders may
obtain a copy of the Company’s
Annual Report without charge
upon written request to:
Investor Relations Department
CONMED Corporation
Attn: Todd Garner
11311 Concept Blvd.
Largo, FL 33773
727-214-2975
Transfer Agent/Registrar
Computershare Investor
Services
P.O. Box 505000
Louisville, KY 40233-5000
1-800-368-5948
www.computershare.com/investor
14
CONMED GAAP to Non-GAAP Reconcilliations
Annual Report 2021
GAAPAA
to Non-GAAPAA
Reconciliations*
Reconciliations of Reported Net Income to Adjusted Net Earnings
(in thousands, except per share amounts, unaudited)
Year Ended December 31, 2021
Selling &
Administrative
Expense
Operating
Income
Interest
Expense
Other
Expense
$
35,485
$
1,127
Tax
Expense
$
10,563
Effective Tax
Rate
14.4%
Net
Income
$
62,542
Diluted EPS
$
1.94
As reported
% of sales
Restructuring and related costs
Debt refinancing costs
Adjusted gross profit %
Amortization
Adjusted net earnings
% of sales
Gross Profit
$
568,036
56.2%
-
-
$
$
568,036
56.2%
6,000
$
$
$
$
414,754
41.0%
(414)
-
109,717
10.9%
414
-
414,340
$
110,131
$
(27,133)
387,207
38.3%
$
33,133
143,264
14.2%
$
-
-
35,485
(13,943)
21,542
$
$
-
(1,127)
-
-
-
109
281
10,953
11,394
22,347
$
$
305
846
63,693
$
18.4%
$
35,682
99,375
$
3.21
Diluted shares outstanding
Additional potential dilutive shares from in-the-money convertible notes
Diluted shares, as reported
Convertible note hedges
Diluted shares, as adjusted
30,437
1,779
32,216
(1,273)
30,943
As reported
% of sales
Plant underutilization costs
Product rationalization costs
Restructuring and related costs
Acquisition and integration costs
Manufacturing consolidation costs
Adjusted gross profit %
Amortization
Adjusted net earnings
% of sales
As reported
% of sales
Acquisition and integration costs
Manufacturing consolidation costs
Debt refinancing costs
Adjusted gross profit %
Amortization
Adjusted net earnings
% of sales
Gross Profit
460,300
$
53.4%
6,586
2,169
1,087
2,820
3,993
476,955
55.3%
6,000
$
$
Year Ended December 31, 2020
Selling &
Administrative
Expense
Operating
Income
Interest
Expense
Other
Expense
$
$
$
$
373,817
43.3%
-
(2,095)
(4,782)
(1,192)
-
365,748
$
(27,945)
337,803
39.2%
$
46,010
5.3%
6,586
4,264
5,869
4,012
3,993
70,734
33,945
104,679
12.1%
$
44,052
$
-
-
-
-
-
44,052
(13,414)
30,638
$
$
$
$
355
-
-
-
-
-
355
-
355
Tax
Expense/
(Benefit)
$
(7,914)
739
460
1,807
888
485
(3,535)
13,037
9,502
$
$
Effective Tax
Rate
-493.9%
Net
Income
$
9,517
Diluted EPS
$
0.32
5,847
3,804
4,062
3,124
3,508
29,862
34,322
64,184
$
12.9%
$
$
2.18
Year Ended December 31, 2019
Gross Profit
524,715
$
54.9%
1,335
2,858
-
$
$
528,908
55.4%
6,000
Selling &
Administrative
Expense
Operating
Income
$
$
$
$
400,141
41.9%
(13,066)
-
-
387,075
$
(26,075)
361,000
37.8%
$
79,114
8.3%
14,401
2,858
-
96,373
32,075
128,448
13.4%
$
$
$
Interest
Expense
Other
Expense
42,701
$
5,188
Tax
Expense
$
2,605
Effective Tax
Rate
8.3%
Net
Income
$
28,620
Diluted EPS
$
0.97
-
-
-
42,701
(11,756)
30,945
$
$
-
-
(3,904)
1,284
-
1,284
3,609
354
1,149
7,717
10,590
18,307
$
$
10,792
2,504
2,755
44,671
$
19.0%
$
33,241
77,912
$
2.64
Annual Report 2021
15
As reported
% of sales
Impairment charges
Business acquisition costs
Tax reform
Gross profit %
Amortization of intangible assets
Adjusted net earnings
% of sales
As reported
% of sales
Restructuring costs
Business acquisition costs
Legal matters
Tax reform
Adjusted gross profit %
Amortization of intangible assets
Adjusted net earnings
% of sales
Gross Profit
,
469,110
$
54.6%
-
-
-
$
$
469,110
,
54.6%
6,000
Gross Profit
,
431,041
$
54.1%
2,903
-
-
-
$
$
,
433,944
54.5%
6,000
$
$
$
$
$
Selling &
Administrative
Expense
,
355,617
3
41.4%
-
(2,372)
-
$
Research &
Development
Expense
,
42,188
4
4.9%
(4,212)
-
-
37,976
,
3
353,245
3
,
$
(
17,174)
,
336,071
39.1%
$
-
,
37,976
3
4.4%
$
Selling &
Administrative
Expense
,
351,799
3
44.2%
(1,347)
(2,336)
(17,480)
-
$
Research &
Development
Expense
,
32,307
3
4.1%
-
-
-
-
32,307
,
3
330,636
3
,
$
(
15,295)
,
315,341
39.6%
$
-
,
32,307
3
4.1%
Net Sales
2021
,
1,010.6
$
$
2020
862.5
8
Effective Tax
Rate
1
9.3%
Net
Income
40,854
,
$
Diluted EPS
.41
1
2,095
1,217
912
5,078
4
17,761
62,839
,
2
1.9%
$
2
.18
Effective Tax
Rate
93.1%
-
Net
Income
55,487
$
,
Diluted EPS
.97
1
2,831
1,489
11,799
(32,058)
9,548
3
2
8.0%
$
13,765
53,313
,
$
1.89
Year Ended December 31, 2018
Operating
Income
,
71,305
7
8.3%
4,212
2,372
-
77,889
,
7
23,174
,
101,063
1
11.8%
$
$
$
Other
Expense
-
-
$
-
-
-
-
-
-
-
-
$
$
Year Ended December 31, 2017
Operating
Income
,
46,935
4
5.9%
4,250
2,336
17,480
-
71,001
,
7
21,295
,
92,296
9
11.6%
$
$
$
Other
Expense
-
-
$
-
-
-
-
-
-
-
-
-
$
$
Sales Summary
(in millions, unaudited)
Tax
Expense/
(Benefit)
9,799
9
$
,
2,117
1,155
(912)
12,159
,
1
5,413
17,572
,
1
$
$
Tax
Expense/
(Benefit)
(26,755)
)
,
(
1,419
847
5,681
32,058
13,250
,
1
7,530
20,780
,
2
$
$
% Change from 2020 to 2021
Impact of
Foreign
Currency
As Reported
1
7.2%
-0.9%
Constant
Currency
16.3%
*Refer to our 2021 Annual Report on Form 10-K, available both within this document and at www.CONMED.com, as well as our Form 8-K filings with the SEC on January 26, 2022,
January 27, 2021, January 29, 2020, January 22, 2019 and February 1, 2018 for additional information regarding our non-GAAP measures.
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2021 Commission file number: 001-39218
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11311 Concept Boulevard
Largo, Florida
(Address of principal executive
offices)
16-0977505
(I.R.S. Employer Identification
No.)
33773
(Zip Code)
((727)) 392-6464
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
g y
Trading Symbol
Name of each exchange on
g
g
which registered
Common Stock, $0.01 par value
CNMD
NYSE
Yes ☒
Yes ☐
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in RuleRR
No ☐
405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer", "accelerated filer", "smaller reporting company", and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
ff
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Yes ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
No ☒
As of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of
the shares of voting common stock held by non-affiliates of the registrant was approximately $2.9 billion based upon the closing price of the
Company’s common stock on the NYSE Stock Market.
The number of shares of the registrant's $0.01 par value common stock outstanding as of February 16, 2022 was 29,411,246.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Definitive Proxy Statement and any other informational filings for the 2022 Annual Meeting of Shareholders are
incorporated by reference into Part III of this report.
CONMED CORPORATRR ION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
m 9.
Item 9A.
Item 9B.
Item 10.
m 11.
Item 12.
m 13.
Item 14.
Item 15.
Exhibits, Financial Statement Schedules
Signatures
Item 16.
Form 10-K Summary
Part IV
1
Pageg
2
8
19
19
19
19
20
21
22
29
29
29
30
30
31
31
31
31
31
32
33
75
CONMED CORPORATION
Item 1. Business
Forward Lookingii
Statements
This Annual Report
e
on Form 10-K for the Fiscii al Year Ended December 31, 2021 (“FormFF
d in the Private Securities Litigation Reforme
”,
any”, “we” or “us” — refereff
the “CompCC
OO
(as such term is defineff
forward-looking statementstt
relating to CONME
on (“CONMEDNN
rr
DEE Corporati
“Company
requires)s which are based on the beliefse
available to our management.
CC
”, “we” or “us” shall be deemed to include our direct and indirect subsidiaries unless the contextee
of our management, as well as assumptions made by and informat
Act of 1995) and informat
nces to “CONMEDNN
10-K”) contains certain
ion
”,
the
otherwiseii
ion currentlyll
ff
ff
ssions are intended to identifyi
When used in thisii Form 10-K, the words “estimate”, “project”, “believe”, “anticipate
exprex
similarl
forward-looking statements.tt
uncertainties and other factors, including those identifieff d under the caption “Item 1A-Risk Factors” and elsewher
Form 10-K which may cause our actual results,tt performance or achievements,tt or industryt
from any future results, performanc
the following:
include, among others,rr
”, “intend”, “expect” and
involve known and unknown risks,kk
e in thisii
ent
Such factors
sed or implied by such forward-looking statements.tt
results, to be materially differff
e or achievementstt expres
These statementstt
x
r
i
ll
skk to our business, financial condition and resultstt of operations
to it,t continue;
regulatory and/or administrative agencies may initiate enforcem
ff
ent
ion and ongoing supply chain challenges;
ff
;
l customer purchasing patterns due to budgetary, staffff shortages and other constraints
including lack of availability of sterilization withtt Ethyl
ene Oxidedd (“EtO“
”) or other
tt
tt
quality of our management and business abilities and the judgment of our personnel, as well as our abilitytt
to
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ii
ff
s
e
possibilitytt
that United States or foreigni
butors;
e of new products;
availabilitytt and cost of materials, including inflat
ion security breach, including a cybersecuritytt breach;
general economic and business conditions;
compliance with and changes in regulatory requirements;
thett COVID-19 global pandemic poses signifii cant riskii
which may be heightened as the pandemic, government and hospital responses
thett
actions against us or our distri
introduction and acceptanc
thett
thett
risk of an informat
competition;
changes in customer preferences;
changes in technology;
thett
c
cyclica
environmental compliance risks,kk
compliance costs associated with the use of EtO;
thett
tt
attract,
thett
future
ff
changes in foreign exchange and interest rates;
thett
changes in business strategy;
thett
appropriate high standards for screening and/or processing of such tissue
the abilitytt
propertytt
thett
trade
tt
weather related eventstt which may disrupt our operations; and
various other
in connection with our international operations;
ff
risk of pate
protection measures, tariffi sff and other border taxeaa s, and importm
factors refee renced in this Formrr 10-K.
risk of a lack of allograft tissue
levels of indebtedness and capita
es at all levels of the Company;
motivate, and retain employe
intellectual property,tt
including the riskii
terms and deploy
ment of capital;l
al spending;
availability,tt
ff
and enforce
to defendff
m
s;
e
tt
ii
ii
ability to evaluate, finance and integrate acquired businesses, products and companie
m
s;
s due to reduced donations of such tissue
ii
s or due to tissue
ii
s not meeting the
skk related to thefte or compromiseii
of intellectual
nt, product and other litigation as well as the cost associated with such litigati
i
on;
x
or export
licensing requirements;
See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Item 1-
Business” and “Item 1A-Risk Factors” for a further discussion of these factors. You are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or
to reflect the occurrence of unanticipated events.
2
General
CONMED Corporation was incorporated under the laws of the State of New York in 1970 and became a Delaware
corporation in May 2020. CONMED is a medical technology company that provides 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 3,800 employees
distribute its products worldwide from three primary manufacturing locations. In January 2021, we changed the designation of
our headquarters from Utica, New York to Largo, Florida.
We have historically used strategic business acquisitions, internal product development and distribution relationships
to diversify our product offerings, increase our market share in certain product lines, realize economies of scale and take
advantage of growth opportunit
ies in the healthcare field.
t
We are committed to offering products with the highest standards of quality, technological excellence and customer
n under the ISO international quality standards and other
service. Substantially all of our facilities have attained certificatio
domestic and international quality accreditations.
ff
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
) as
//
of charge through the Investor Relations section of our website (http:/
/www.c
after such materials have been electronically filed with, or furnished to, the United States Securities and
) containing reports,
In addition, the SEC maintains an Internet site (http:/www.sec.gov
those reports are accessible freeff
soon as practicablea
Exchange Commission (the "SEC").
proxy and information statements and other information regarding issuers that file with the SEC.
onmed.com
p
t
g
p
COVID-19
Our business continues to be impacted by the COVID-19 pandemic as variants of the virus emerge, with hospitals and
surgery centers reducing the number of, or postponing, non-urgent surgical procedures in order to minimize the risk of infection
and allow for proper staffing. We continue to restrict access to our facilities while maintaining production and distribution.
While revenues increased in 2021 compared to 2020, we believe we will continue to experience market variabia lity as a result of
the pandemic that could influence sales, suppliers, patients and customers. There remains significant uncertainty related to the
COVID-19 pandemic, including the duration and severity of future impacts to the business. See additional discussion under
Item 1A Risk Factors and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources.
Business Strategy
CONMED's vision is to empower healthcare providers worldwide to deliver exceptional outcomes for patients through
the following initiatives:
•
•
•
Introduction of New Products and Product Enhancements. We pursue organic growth through developing new
products and enhancing existing products. We seek to develop new technologies which improve the durability,
performance and usability of existing products.
In addition to our internal research and development efforts, we
receive new ideas for products and technologies, particularly in procedure-specific areas, from surgeons, inventors and
other healthcare professionals.
Pursue Strategic Acquisitions. We pursue strategic acquisitions, distribution and similar arrangements in existing
diversification and market
and new growth markets to achieve increased operating efficiencies, geographic
shed brand
penetration. Targeted companies have historically included those with proven technologies and establia
names which provide potential sales, marketing and manufacturing synergies. This includes the February 11, 2019
acquisition of Buffalo Filter.
a
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.
3
• Geographic Diversification. We believe that significant growth opportunities exist for our surgical products outside
our products include Europe, Latin America, Canada and the
the United States. Principal international markets forff
Asia/Pacific Rim.
•
Active Participation in the Medical Community. We believe that excellent working relationships with physicians
us to gain an understanding of trends and emerging opportunities. Active
and others in the medical industry enablea
participation allows us to quickly respond to the changing needs of physicians and patients.
In addition, we are an
active sponsor of medical education both in the United States and internationally, offering training on new and
innovative surgical techniques as well as other medical education programs on the use of our products.
Products
The following tablea
ff
sets forth
the percentage of net sales for each of our product lines during each of the three years
ended December 31:
Orthopedic surgery
General surgery
Consolidated net sales
Net sales (in thousands)
Year Ended December 31,
2020
2019
2021
43 %
57
100 %
43 %
57
100 %
49 %
51
100 %
$ 1,010,635
$
862,459
$
955,097
Orthopedi
tt
c Surgery
We provide products that support sports medicine, the repair of soft tissue in the knee, hip, shoulder and increasingly
In these procedures, we offer products such as TruShot® with Y-Knot® All-In-One Soft
in the upper and lower extremities.
Tissue Fixation System, Y-knot® All-Suture Anchors, and PopLok® Knotless Suture Anchors which provide unique clinical
In addition to the implants, we offer the supporting
solutions to orthopedic surgeons for the repair of soft tissue injuries.
products that enablea
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 disposables which are marketed
under a number of brands, including CONMED Linvatec®, Concept® and Shutt®. In sports medicine, we compete with Smith
& Nephew, plc; Arthrex, Inc.; Stryker Corporation; Johnson & Johnson: DePuy Mitek, Inc. and Zimmer Biomet, Inc.
We also provide our customers with a comprehensive line of battery-powered, autoclavablea
, large and small bone
power tool systems forff
use in orthopedic, arthroscopic, oral/maxillofacial, podiatric, spinal and cardiothoracic surgeries. 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 2021, approximately 71% of orthopedic surgery revenue came from single-use products that are expected to be
recurring.
General Surgery
Our general surgery product line offers a large range of products in the areas of advanced surgical and advanced
endoscopic technologies.
Our advanced surgical product offering includes the leading clinical insufflation system (AirSeal®). AirSeal® includes
the proprietary valveless access ports that deliver significant benefits to traditional minimally invasive surgery and robotic
surgical procedures. The Buffalo Filter acquisition complemented the CONMED portfolio of smoke removal devices, which
provides the Company with the broadest portfolio of disposablea
al smoke evacuation products available in the medical
device market today. In addition to AirSeal® and the Buffalo Filter® products, the Company manufactures and sells an extensive
energy line and a broad offering of endomechanical products. The electrosurgical offering consists of monopolar and bipolar
generators, argon beam coagulation generators, handpieces, smoke management systems and other accessories. Our
line of instruments, including the Anchor1 line of tissue retrieval bags, trocars, suction
endomechanical products offer a full
irrigation devices, graspers, scissors and dissectors, used in minimally invasive surgery. Our competition includes Medtronic
and capita
ff
1
Anchor is a trademark of the Anchor Products Company, Addison, Illinois.
4
plc; Johnson & Johnson: Ethicon Endo-Surgery, Inc.; Stryker Endoscopy, Olympus, ERBE Elektromedizin GmbH; and Applied
Medical Resources Corporation.
Our advanced endoscopic technologies offering includes a comprehensive line of therapeutic and diagnostic products
used in gastroenterology procedures which utilize flexible endoscopes, as well as patient monitoring products. In addition to
these offerings, we offer a unique energy platform specifically designed for gastroenterology and pulmonology procedures.
Devices include products for dilatation, hemostasis, biliary structuret
management, infection prevention and patient monitoring.
Patient monitoring includes ECG electrodes, EEG electrodes and cardiac defibrillation pads. Our competition includes Boston
Scientific Corporation - Endoscopy; Cook Medical, Inc.; Merit Medical Endotek; Olympus, Inc.; STERIS Corporat
ion - U.S.
Endoscopy and Cantel Medical- Medivators, Inc., Cardinal and 3M Company.
r
In 2021, 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 foreign countries.
International sales efforts are coordinated through local country dealers (including sub-
distributors or sales agents) or through direct in-country sales. We distribute our products through sales subsidiaries and
branches with offices located in Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Italy,
Japan, Korea, the Netherlands, Poland, Spain, Sweden and the United Kingdom. In these countries, our sales are denominated
in the local currency and amounted to approximately 34% of our total net sales in 2021. In the remaining countries where our
products are sold through independent distributors, sales are denominated in United States dollars.
Competition
We compete in orthopedic and general surgery medical device markets across the world. Our competitors range from
large manufacturers with multiple business units to smaller manufacturers with limited product offerings. We believe we have
te product offerings and adequate market share to compete effectively in these markets. The global markets are
a
appropria
constantly changing due to technological advances. We seek to closely align our research and development with our key
business objectives, namely developing and improving products and processes, applying innovative technology to the
manufacture of products for new global markets and reducing the cost of producing core products.
The breadth of our product lines in our key product areas enablea
s us to meet a wide range of customer requirements
and preferences. This has enhanced our ability to market our products to surgeons, hospitals, surgery centers, group purchasing
organizations ("GPOs"), integrated delivery networks ("IDNs") and other customers, particularly as instituti
ons seek to reduce
costs and minimize the number of suppliers.
t
Marketing
A significant portion of our products are distributed domestically directly to more than 6,000 hospitals, surgery centers
ons as well as through medical specialty distributors. We are not dependent on any single customer
and other healthcare instituti
and no single customer accounted for more than 10% of our net sales in 2021, 2020 and 2019.
t
A significant portion of our U.S. sales are to customers affiliated with GPOs, IDNs and other large national or regional
accounts, as well as to the Veterans Administration and other hospitals operated by the Federal government. For hospital
inventory management purposes, some of our customers prefer to purchase our products through independent third-party
medical product distributors.
Our employee sales representatives are extensively trained in our various product offerings. Each employee sales
area and compensated on a commission basis or through a combination of salary
representative is assigned a defined geographic
In certain
and commission. The sales force is supervised and supported by either area directors or district managers.
geographie
s, sales agent groups are used in the United States to sell our orthopedic products. These sales agent groups are paid
a
a commission for sales made to customers while home office sales and marketing management provide the overall direction and
training for marketing and positioning of our products. Our sales professionals provide surgeons and other healthcare
professionals with information relating to the technical features and benefits of our products.
a
5
Our healthcare systems organization is responsible for interacting with large regional and national accounts (e.g.
GPOs, IDNs, etc.). We have contracts with many such organizations and believe that the loss of any individual group
purchasing contract would not materially impact our business.
We sell to a diversified base of customers around the world and, therefore, believe there is no material concentration of
credit risk.
Manufacturing
Raw material costs constitutet
a substantial portion of our cost of production. Substantially all of our raw materials and
select components used in the manufacturing process are procured from external suppliers. Where possible, we work closely
ity. As a consequence of
with multiple suppliers to ensure continuity of supply while maintaining high quality and reliabila
supply chain best practices, new product development and acquisitions, we often form strategic partnerships with key suppliers.
As a result, components and raw materials may be sole sourced. 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 performanc
e. We seek to
stock based on a number of factors, including experience,
schedule production and maintain adequate levels of safetyt
knowledge of customer ordering patterns, demand, manufacturing lead times and optimal quantities required to maintain the
highest possible service levels. Customer orders are generally processed for immediate shipment and backlog of firm orders is
therefore not generally material to an understanding of our business.
ff
Research and Development
New and improved products play a critical role in our continued sales growth.
Internal research and development
efforts focus on the development of new products and technological and design improvements. We maintain close working
relationships with surgeons, inventors and other healthcare professionals who often suggest to us new product and technology
ideas, principally in procedure-specific areas.
In certain cases, we seek to obtain rights to these ideas through negotiated
agreements. Such agreements typically compensate the originator through payments based upon a percentage of licensed
product net sales. Annual royalty expense approximated $2.0 million, $1.5 million and $2.0 million in 2021, 2020 and 2019,
respectively.
Amounts expended for Company research and development were approxim
a
ately $43.6 million, $40.5 million and
$45.5 million during 2021, 2020 and 2019, respectively.
Intellectual Property
property,
Patents and other proprietary rights, in general, are important to our business. We have rights to intellectual
including United States patents and foreign equivalent patents which cover a wide range of our products with expiration dates
from 2022 to 2040. We own a majori
ty of these patents and have exclusive and non-exclusive licensing rights to the
remainder. We believe that the development of new products and technological and design improvements to existing products
will continue to be important to our competitive position.
a
t
Government Regulation and Quality Systems
The development, manufacture, sale and distribution of our products are subject to regulation by numerous agencies
foreign counterparts. In the
and legislative bodies, including the U.S. Food and Drug Administration ("FDA") and comparablea
United States, these regulations were enacted under the Medical Device Amendments of 1976 to the Federal Food, Drug and
Cosmetic Act and its subseu
quent amendments, and the regulations issued or proposed thereunder.
The FDA’s Quality System Regulations set forth requirements for our product design and manufacturing processes,
require the maintenance of certain records, provide for on-site inspection of our facilities and continuing review by the
FDA. Many of our products are also subjeu
ct to industry-defined standards. Authorization to commercially market our products
in the U.S. is granted by the FDA under a procedure referred to as a 510(k) pre-market notification and clearance or Premarket
Approval ("PMA"). We believe that our products and processes presently meet applicable standards in all material respects.
Medical device regulations continue to evolve world-wide. Products marketed in the European Union and other
countries require preparation of technical files and design dossiers which demonstrate compliance with applicablea
international
regulations. As government regulations continue to change, there is a risk that the distribution of some of our products may be
interrupted or discontinued if they do not meet the country specific requirements.
6
ff
a
We market our products in numerous foreign countries and therefore are subject to regulations affecting, among other
ing requirements, import laws and on-site inspection by
things, product standards, sterilization, packaging requirements, label
independent bodies with the authority to issue or not issue certificatio
ns we may require to be able to sell products in certain
countries. Many of the regulations applicable to our devices and products in these countries are similar to those of the
FDA. The member countries of the European Union (“EU”) follow the requirements under the EU Medical Device Regulation
("EU MDR") which replaced a single set of regulations in May 2017 for all member countries. EU MDR imposes stricter
requirements for the marketing and sale of medical devices, including in the areas of clinical evaluation requirements, quality
ing and post-market surveillance with an effective date of May 2021. During the transition period, medical
systems, label
devices with notified body certificates issued under the EU MDD prior to May 2021 may continue to be placed on the market
or May 2024. These regulations require companies that wish to
for the earlier of the remaining validity of the certificate
ff
manufacture and distribute medical devices in the European Union to maintain quality system certificatio
ns through European
Union recognized Notified Bodies. These Notified Bodies authorize the use of the CE Mark allowing free movement of our
products throughout the member countries. Requirements pertaining to our products vary widely from country to country,
ranging from simple product registrations to detailed submissions such as those required by the FDA. We believe that our
products and quality procedures currently meet applicable standards for the countries in which they are marketed.
a
ff
As noted above, our facilities are subject to periodic inspection by the United States Food and Drug Administration
(“FDA”) and foreign regulatory agencies or notified bodies for, among other things, conformance to Quality System Regulation
and Current Good Manufacturing Practice (“CGMP”) requirements and foreign or international standards. Refer to Note 13 for
further discussion.
We are also subject to various environmental health and safetyt
laws and regulations both in the United States and
internationally, as are our suppliers and sterilization service providers. Our operations involve the use of substances regulated
under environmental laws, primarily in manufacturing and sterilization processes. We believe our policies, practices and
procedures are properly designed to comply, in all material respects, with applicable environmental laws and regulations. We
do not expect internal compliance with these requirements to have a material effeff ct on purchases of property, plant and
equipment, cash flows, net income or our competitive position. Refer to Item 1A, Risk Factors, for further discussion of the use
of outside EtO sterilization service providers.
CONMED Workforce Overview
One of CONMED's core values is our belief in the power of engaged talent. As of December 31, 2021, we had
ately 3,800 full-time employees, including approximately 2,400 in operations and the remaining in sales, marketing,
a
approxim
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.
Accordingly, the success and growth of our business depends in large part on our ability to attract, engage and develop a
diverse population of talented employees at all levels of our organization.
Talent Management and Succession Planning
All levels of Company management are engaged in talent management practices. The Board reviews the Company’s
people strategy in support of its business strategy at least annually and frequently discusses talent opportunities, including a
detailed discussion of the Company’s global leadership talent and succession plans with a focus on key positions at the senior
executive level. High-potential leaders are given exposure and visibility to Board members through formal presentations and
informal events. More broadly, the Board is regularly updated on key talent indicators for the overall workforce, including
diversity, recruitment and development programs.
Compm etitive Pay and Benefitff stt
Our compensation programs are designed to align the compensation of our employees with CONMED’s performance
of our
e. Our compensation
and to provide the proper incentives to attract, retain and motivate employees to achieve positive results. The structuret
compensation programs balances incentive earnings for both short-term and long-term performanc
programs are evaluated regularly not only for market competitiveness but as importa
ntly for equality and fairness.
m
ff
7
DDiversi yty
dand
Inclusion
l
A demonstrated commitment to diversity and inclusion is vital to CONMED's success as we seek out individuals who
bring their unique capaa bia lities to our Company. We believe that diverse teams stimulate innovation, enhance our understanding
of the needs of our global customer base and ultimately deliver better results for our stakeholders. We value individual strengths
and are committed to hiring and retaining employees of all different backgrounds and experiences. 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. 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.
DDevellopm tent
Development at CONMED comes in many forms to serve the diverse interests and needs of our global workforce and
to support our culture and strategy by ensuring the development of key skills. Development offerings include company-wide
and job-specific in person and e-learning training, as well management and leadership training and coaching. Additionally, we
offer tuition reimbursement programs to support ongoing education at all levels. Employees are encouraged to partner with
their manager and HR representative to create an individual plan to guide their own learning and development path that
incorporates CONMED development and training resources and opportunities.
Employee Engagement
Measuring our team members' engagement helps us understand what is working well and where we have opportunities
to improve. CONMED utilizes an annual anonymous employee engagement survey both to measure engagement across the
organization, and to provide a basis for the individual team action planning session. Survey results are reviewed both at the
individual manager level and corporate wide at the senior executive level to continuously drive and support employee
engagement. Managers at all levels are provided with training and coaching resources to act on insights gained through surveys
and feedback sessions in partnership with their team members.
Item 1A. Risk Factors
An investment in our securities, including our common stock, involves a high degree of risk.
Investors should
carefully consider the specific factors set forth below as well as the other information included or incorporated by reference in
this Form 10-K. See “Forward Looking Statements”.
ii
(i) Risks
Related to Our Business
ii
and the Medical Device Industrytt
Our financial performance is dependent on conditions
tt
in the healthcare
tt
industrytt
and the broader economy.yy
The results of our business are directly tied to the economic conditions in the healthcare industry and the broader economy as a
whole. We will continue to monitor and manage the impact of the overall economic environment on the Company.
In this regard, approximately 19% of our revenues are derived from the sale of capita
al 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.
VV
The COVID-19
.ee
for an extended period of timeii
ii
continue
global pandemic may pose signifii cant risks to our business
ii
if the pandemic, and various responses to it,tt
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.
As of the date of this report:
1.
a
In some geographie
s or territories, our field-based sales representatives are limited in their ability to travel to
service or call on customers, with in-person visits in many cases dependent on requests by physicians to cover
surgeries, the policies of individual hospitals, surgery centers or other institutions, and the availabila
ity of
appropriate personal protective equipment, testing or vaccines;
8
2. Our office-based employees continue to work remotely,
3. Our manufacturing facilities and warehouses continue to operate with precautions, including increased hygiene
and cleaning within facilities, social distancing and personal protective equipment.
4. Some hospitals have delayed certain procedures to reserve space for COVID patients, or have experienced
slowdowns due to staffing shortages.
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, rapidl
y changing and cannot be predicted with precision or certainty at this time, including:
a
•
•
•
•
•
•
•
•
•
•
the duration and scope of the COVID-19 pandemic, including any resurgence of new strains, as well as the
effectiveness of vaccines, and the extent to which they are administered;
governmental, business and individual actions that have been, continue to be, or may in the future be taken in
response to the COVID-19 pandemic including, for example, business and travel restrictions, quarantines, and
slowdowns or delays of commercial activity;
the effect of the COVID-19 pandemic on our partners and customers, including their conduct of surgeries,
continued purchase of our products, or their decision to do so consistently at normal procedure volumes;
t of the COVID-19 pandemic and the various responses thereto on the budgets and staffing
ff
the effecff
and customers;
of our partners
our ability during the COVID-19 pandemic to continue operations in an efficient manner, as a result of periodic
variations in demand and/or availability of raw materials from our suppliers;
periodic reductions in demand for certain surgeries or for certain of our products;
the effecff
t of the COVID-19 pandemic on our supply chain’s reliabila
ity and costs;
costs incurred as a result of actions intended to protect the health and safetyt of our employees and continued
operations, including enhanced cleaning processes and protocols designed to implement appropriate social
distancing practices;
our ability to comply with the financial covenants in our debt agreements if a material economic downturn as a
result of the COVID-19 pandemic results in substantially increased indebtedness and/or lower earnings; and
the exacerbation of negative impacts resulting from the COVID-19 pandemic.
We continue to monitor our spending and expenses in light of the uncertainty concerning forecasting demand, and consequently
revenues. While the results of operations support continued recovery, there remains uncertainty in the financial markets related
to the COVID-19 pandemic which may have an impact on the demand for post-pandemic surgery levels that are difficul
t to
predict. If the downturn is more severe and prolonged than we currently expect, we may need to take further steps to reduce
our costs, or to refinance our debt.
ff
Limi
tt
tat
ions
ii
ii
products.
on the availabi
liii tyii of Ethylh ene
ll
ii
Oxide (“EtO”) sterilizati
ll
on services may limi
tii our abiliii tyii
ii
to sellll certainii
ell
steril
tt
Approximately 32% 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. 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. If, however, there are further restrictions on capac
ity
a
or further government actions adverse to EtO sterilization, it is possible that we could be impacted materially in the future.
t
9
As a manufact
rr
intertt nati
urer of medical devices that
onally,ll we face risks under domestic and foreigni
u
intertt actstt withii
physicians and healthll
care providers domesticallyll
and
regulationtt
s,s includingdd
thett Foreigni Corrupt Practictt es Act.tt
Manufacturers of medical devices have been the subject of various investigations or enforcement actions relating to interactions
with health care providers domestically or internationally. The interactions with domestic health care providers are subject to
regulations, known as the Anti-Kickback Statutet
, the Stark Act and the False Claims Act, that generally govern incentives for
health care providers, or methods of reimbursement funded in whole or in part by the government. Similarly, the Foreign
Corrupt Practices Act (“FCPA”), and similar foreign laws, prohibit certain conduct by manufacturers, generally described as
bribery, with respect to interactions, either directly through foreign subsidiaries or indirectly through distributors, with health
care providers who may be considered government officials because they are affiliated with public hospitals. The FCPA also
imposes obligations on manufacturers listed on U.S. stock exchanges to maintain accurate books and records, and maintain
internal accounting controls sufficient to provide assurance that transactions are accurately recorded, lawful and in accordance
with management’s authorization. The FCPA can pose unique challenges for manufacturers who operate in foreign cultures
where conduct prohibited by the FCPA may not be viewed as illegal in local jurisdictions, and because, in some cases, a United
States manufacturer may face risks under the FCPA based on the conduct of third parties over whom the manufacturer may not
have complete control.
a
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
the
Occupational Safety and Health Administration, the United States Food and Drug Administration, the Department of Labor,
Treasury Department or other federal and state agencies or foreign governments or government agencies. Alternatively,
employees or private parties may provide us with reports of alleged misconduct. These information requests or subpoenas may
or may not be routine inquiries, or may begin as informal or routine inquiries and over time develop into investigations or
enforcement actions of various types under the FCPA or otherwise. Similarly, the employee and third party reports may prompt
us to conduct internal investigations into the alleged misconduct. As a medical device company, CONMED’s operations and
interactions with government hospitals, healthcare professionals and purchasers may be subject to various federal and state
regulations, including the federal False Claims Act, which provides, in part, that the federal government may bring a lawsuit
against any person or entity that it believes has knowingly presented, or caused to be presented, a false or fraudulent request for
payment to the government, or has made or used, or caused to be made or used, a false statement or false record material to a
false claim. In addition, in certain circumstances, private parties may bring so-called Qui Tam claims as plaintiffs purportedly
on behalf of the government asserting claims arising under the False Claims Act. A violation of the False Claims Act may
result in fines up to $11,000 for each false claim, plus up to three times the amount of damages sustained by the government,
and may also provide the basis for the imposition of administrative penalties and exclusion from participation in federal
healthcare programs. Many states have enacted false claims acts that are similar to the federal False Claims Act. No inquiry or
claim that the Company currently faces or has faced to date, and no report of misconduct that the Companym
has received to date,
has had a material adverse effect on our financial condition, results of operations or cash flows. There can be no assurance,
however, that any pending inquiries will not become investigations or enforcement actions, or the costs associated with
responding to such inquiries, investigations, enforcement actions or investigations relating to reports of misconduct will not
have a material adverse effect
on our financial condition, results of operations or cash flows.
ff
ii
Failure
implim cations.
to complym
with regulatory requirements maya result in recalls,
ll
i
loss of revenues, fines or materi
all
yll adverse
tt
Substantially all of our products are classified as class II medical devices subject to regulation by numerous agencies and
international counterparts. As a
legislative bodies, including the U.S. Food and Drug Administration ("FDA") and comparablea
of medical devices, our manufacturing processes and facilities are subject to on-site inspection and continuing
manufacturer
review by the FDA for compliance with the Quality System Regulations. We may have future
inspections at our sites and there
can be no assurance that the costs of responding to such inspections will not be material.
ff
t
Manufacturing and sales of our products outside the United States are also subject to international regulatory requirements
which vary from country to country. Moreover, we are generally required to obtain regulatory clearance or approval prior to
marketing a new product. The time required to obtain approvals from foreign countries may be longer or shorter than that
required for FDA clearance, and requirements for such approvals may differ from FDA requirements. Failure to comply with
a
appli
domestic and/or foreign regulatory requirements may result in:
cablea
•
•
•
•
finff es or other enforcement actions;
recall or seizure of products;
total or partial suspension of production;
loss of certification;
10
•
•
•
•
withdrawal of existing product approvals or clearances;
refusa
l to approve or clear new applications or notices;
ff
increased quality control costs; or
criminal prosecution.
In addition to the Quality System Regulations, many of our products are also subject to industry-defined standards. We may
not be able to comply with these regulations and standards due to deficiencies in component parts or our manufacturing
processes. If we are not able to comply with the Quality System Regulations or industry-defined standards, we may not be able
to fill customer orders and we may decide to cease production or sale of non-compliant products. Failure to produce products
could affect our revenues, profit margins and could lead to loss of customers.
Our products are subject to product recall and we have conducted product recalls in the past. Although no recall has had a
material adverse effect on our business or financial condition, we cannot be certain that regulatory issues will not have a
material adverse effect on our business, financial condition or results of operations in the future or that product recalls will not
harm our reputation and our customer relationships.
i
The highly
competm ittt ivtt e market for our products may creatett adverse pricingii
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.
In addition, many of our competitors are large, technically
competent firms with substantial assets. Competitive pricing pressures or the introduction of new products by our competitors
could have an adverse effect on our revenues. See “Products” in Item 1 - Business for a further discussion of these competitive
forces.
Factors which may influence our customers’ choice of competitor products include:
•
•
•
•
•
•
changes in surgeon preferences;
increases or decreases in healthcare spending related to medical devices;
our inabila
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.
ity to supply products to them as a result of product recall, market withdrawal or back-order;
Cost reductiontt
efforts in the healthcare
tt
industrytt
could put pressures on our prices and marginsii
.
In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs. Such efforts
include national healthcare reform, trends towards managed care, cuts in Medicare reimbursement for procedures, consolidation
of healthcare distribution companies and collective purchasing arrangements by GPOs and IDNs. Demand and prices for our
products may be adversely affecff
ted by such trends.
We use a variety of raw material
sll
our operatingn costs and adversely
rr
tt
in our businesse
impactm
ii
the competitiii ve positions of our products.tt
i
s, and signific
ant shortages,
tt
inflatn
iontt
or price increases could increase
r
Our reliance on certain suppliers and commodity markets to secure raw materials used in our products exposes us to volatility in
the prices and availability of raw materials.
In some instances, we participate in commodity markets that may be subject to
allocations by suppliers. A disrupti
on in deliveries from our suppliers, price increases or decreased availability of raw materials
or commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating
efficiencies and/or costs. The increases in costs or availability of raw materials may be exacerbated as a result of the
COVID-19 pandemic and ongoing global supply chain challenges. In addition, increased inflation in wages and materials may
also increase our costs. We believe that our supply management practices are based on an appropriate balancing of the
foreseeable risks and the costs of alternative practices. Nonetheless, price increases or the unavailability of some raw materials
may have an adverse effecff
t on our results of operations or financial condition.
11
We may not be able to keepee pace withii
,e which could cause us to lose
tt
acceptance
ll
technologico
ii
busines
or to successfullyll
al changen
.
s to competitors
ii
developo new products withii wideii market
The market for our products is characterized by rapidly changing technology. Our future financial performance will depend in
part on our ability to develop and manufacture new products on a cost-effective basis, to introduce them to the market on a
timely basis and to have them accepted by surgeons and other healthcare professionals.
new products. In addition, many of our competitors are
We may not be able to keep pace with technology or to develop viablea
substantially larger with greater financial resources which may allow them to more rapia dly develop new products. Factors
which may result in delays of new product introductions or cancellation of our plans to manufacture and market new products
include:
•
•
•
•
research and development delays;
capital and other financial constraints;
delays in securing regulatory approvals; and
changes in the competitive landscape, including the emergence of alternative products or solutions which
reduce or eliminate the markets for pending products.
Ordering patterns
tt
of our custome
tt
rs maya change resultill ngii
in reductions in sales.
Our hospital and surgery center customers purchase our products in quantities sufficient
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. Hospitals and customers may
experience reduced demand if they reserve space for COVID patients or in response to staff shortages. 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.
to meet
(ii)i Risks Related to Our Indebtedness
The terms of our indebtedness outstandi
from timeii
current and future operations, partictt ularlyll our abiliii tyii
ngii
tt
to timeii
,e including our senior credit agreement, maya restrict our
s
to respond
to changes or to take certain actions.
tt
The senior credit agreement contains, and future credit facilities are expected to contain, a number of restrictive covenants that
impose significant operating and financial restrictions on us and may limit our ability to respond to changes in our business or
competitive activities, or to otherwise engage in acts that may be in our long-term best interest, including restrictions on our
ability to:
•
•
•
•
•
•
•
•
•
•
•
•
iates;
incur indebtedness;
allow for liens to be placed on our assets;
make investments;
engage in transactions with affilff
make certain restricted payments;
enter into certain restrictive agreements;
enter into certain swapa agreements;
change our line of business;
pay dividends or make other distributions on, or redeem or repurchase, capita
consolidate, merge or sell all or substantially all of our assets;
prepay and/or modify the terms of certain indebtedness; and
pursue acquisitions.
al stock;
These covenants, unless waived, may prevent us from pursuing and/or securing acquisitions, significantly limit our operating
and financial flexibility and limit our ability to respond to changes in our business or competitive activities. Our ability to
comply with such provisions may be affect
In the event of any default under our credit
agreement, the credit agreement lenders may elect to declare all amounts borrowed under our credit agreement, together with
accrued interest, to be due and payablea
If we were unable to repay such borrowings, the credit agreement lenders could
.
proceed against collateral securing the credit agreement which consists of substantially all of our property and assets. Our
credit agreement also contains a material adverse effect clause which may limit our ability to access additional funding under
our credit agreement should a material adverse change in our business occur.
ed by events beyond our control.
ff
12
We may not be able to generate sufficient cash to service our indebtedness, and, our leverage and debt service requiremii
maya requireii us to adopt altell rnativtt e business
tt
strategi
es.
ii
entstt
As of December 31, 2021, we had $712.6 million of debt outstanding, representing 47% of total capita
have sufficient cash flow availablea
be forced to adopt an alternative strategy that may include actions such as foregoing acquisitions, reducing or delaying capita
expenditures,
selling assets, restructuring or refinancing our indebtedness or seeking additional equity capita
certain that any of these strategies could be implemented on terms acceptablea
and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 7.
alization. We may not
us to meet our obligations. If we are unable to service our indebtedness, we will
al
al. We cannot be
to us, if at all. See “Management’s Discussion
to enablea
t
The degree to which we are leveraged could have important consequences to investors, including but not limited to the
following:
•
•
•
•
•
•
t
al expenditures,
acquisitions, dividends and other purposes;
a portion of our cash flow from operations must be dedicated to debt service and will not be available for operations,
capita
al, capita
our ability to obtain additional financing in the future for working capita
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 variablea
al expenditures, acquisitions or general
rates of interest.
Our variablell
antly.yy
significi
rate indebtednes
tt
s subjects us to interest rate riskii
,k which could cause our debt service obligati
i
ons to increase
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 variabla e rate indebtedness would increase even though the amount
borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will
correspondingly decrease. In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed
rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect
to all of our variable rate indebtedness, and any swapsa we enter into may not fully mitigate our interest rate risk.
Our intertt est rates may be impactm
edtt
by the phase out of LIBOR.
LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending transactions between banks on the
London interbank market and is widely used as a reference for setting the interest rate on loans globally. Certain of the interest
rates applicablea
to our seventh amended and restated senior credit agreement are calculated using LIBOR. On July 27, 2017,
the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR. It
is currently anticipated that LIBOR will be completely phased out by June 30, 2023. A reference rate based on the Secured
Overnight Financing Rate, or another alternative benchmark rate, is expected to be established to replace LIBOR. While our
nce rates in the event that
seventh amended and restated credit agreement includes provisions for establia
nce rate, any such alternative refereff
LIBOR is no longer available or the determination is made to adopt an alternative refereff
nce
rently than LIBOR. The consequences of
rate could be higher and more volatile than LIBOR or may otherwise perform diffeff
the adoption of any such alternative reference rates cannot be predicted at this time and may result in exposure to additional
interest rate risk and increase the cost of indebtedness under our seventh amended and restated credit agreement.
shing alternative refereff
Despiteii our current level of indebtedness, we and our subsidiarie
could furthett
ii
to our financial
r exacerbatett
ii
the risks
ii
conditiii on described above.ee
s may stillll be able to incur substantial
lyll more debt.tt Thisii
tt
u
We may incur substa
ntial additional indebtedness, including secured indebtedness. As of December 31, 2021, we have $442.5
million of availability under the senior credit agreement. If we incur secured indebtedness and such secured indebtedness is
cy, liquidation or reorganization, our assets would be used to satisfy
either accelerated or becomes subject to a bankrupt
obligations with respect to the indebtedness secured thereby before any payment could be made on the debt that is not
similarly secured. If new debt or other liabilities are added to our current debt levels, the related risks that we now face could
intensify. Our senior credit agreement restricts our ability to incur additional indebtedness, including secured indebtedness,
but if the facilities mature or are repaid, we may not be subject to such restrictions under the terms of any subsequent
indebtedness.
r
13
The conditiodd
may adversely affect our financiali
nal conversion features of our 2.625% Convertibleii
tt
condition.
Notes due 2024 (the “ConCC vertiblell NoteNN s”), if trigger
i
ed,
In the event the conditional conversion features of the Convertible Notes issued on January 29, 2019 are triggered, holders of
the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If
one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering
solely shares of our common stock, we would be required to make cash payments to satisfy all or a portion of our conversion
obligation based on the conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to
convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the
outstanding principal of the Convertible Notes as a current rather than long-term liabia lity, which could result in a material
reduction of our net working capita
al. Refer to Note 7 for further details on the Convertible Notes.
The convertiblell notes hedge and warrant transactions that we entered into in connectiontt
Notes may affect the value of the Convertibleii
Notes and our common stock.
tt
withii
the offeringn of the Convertibleii
In connection with the offering of the Convertible Notes, we entered into convertible notes hedge transactions with certain
option counterparties (each an “Option Counterparty”). The convertible notes hedge transactions are expected generally to
reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments we are required to make
in excess of the principal amount of converted Convertible Notes, as the case may be. We also entered into warrant transactions
with each Option Counterparty. The warrant transactions could separately have a dilutive effeff ct on our common stock to the
extent that the market price per share of our common stock exceeds the strike price of the warrants, unless we elect to settle the
warrants in cash. In connection with establia
shing its initial hedge of the convertible notes hedge and warrant transactions, each
Option Counterparty or an affiliate thereof may have entered into various derivative transactions with respect to our common
stock concurrently with or shortly after the pricing of the Convertible Notes. This activity could increase (or reduce the size of
In addition, each Option
any decrease in) the market price of our common stock or the Convertible Notes at that time.
Counterparty or an affiliate thereof may modify its hedge position by entering into or unwinding various derivatives with
respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market
transactions prior to the maturity of the Convertible Notes (and is likely to do so during any observation period related to a
conversion of the Convertible Notes). This activity could also cause or avoid an increase or a decrease in the market price of
our common stock or the Convertible Notes. In addition, if any such convertible notes hedge and warrant transactions fail to
become effective, each Option Counterparty may unwind its hedge position with respect to our common stock, which could
adversely affecff
t the value of our common stock and the value of the Convertible Notes.
We are subject to counterpart
tt
ytt risk withtt
respect to the convertiblell notes hedge transactions.
Each Option Counterparty to the convertible notes hedge transactions is a financial instituti
on whose obligation to perform
under the convertible notes hedge transaction will not be secured by any collateral. If an Option Counterparty becomes subject
to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at
that time under our transactions with the Option Counterparty. Our exposure will generally correlate to the increase in the
market price and in the volatility of our common stock. In addition, upon a default
by an Option Counterparty, we may sufferff
adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. Although these
counterparties are large, reputablea
ity or
viabila
U.S. financial institutions, we can provide no assurances as to the financial stabila
ity of any Option Counterparty.
ff
t
(iii)ii Risks
ii
Relatedtt
to Our Acquisitionii
tt
StSS rtt ategy
Our financial performanc
tt
and integrati
ff
on of newly acquired businesse
ii
.
s or product lines
ii
e is subject to the risks inherent in any acquisition, including the effects of increased borrowing
A key element of our business strategy has been to expand through acquisitions and we may seek to pursue additional
acquisitions in the future. Our success in pursuing acquisitions depends on our ability to identify target companies or product
lines that are available for sale, and, negotiating successful terms with the sellers, as the sellers may also be negotiating with
other bidders with greater financial resources than we have. Even when we win a bid, our success is also dependent in part
upon our ability to integrate acquired companies or product lines into our existing operations. We may not have sufficient
management and other resources to accomplish the integration of our past and future acquisitions, which may strain our
relationship with customers, suppliers, distributors, personnel or others. There can be no assurance that we will be able to
identify and make acquisitions, or that we will be able to obtain financing for such acquisitions, on acceptablea
In
addition, while we are generally entitled to customary indemnification from sellers of businesses or coverage from
representation and warranty insurance for any difficulties that may have arisen prior to our acquisition of each business,
terms.
14
acquisitions may involve exposure to unknown liabilities and the amount and time for claiming under these indemnification
provisions is often limited. As a result, our financial performanc
e 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.
ff
The terms of any future preferred equitytt or debt finaii ncingii maya give holdersrr of any preferred securities or debt securities
on our company.
rightsgg
that are senior to rightstt of our common shareholdersrr or imposem
tt
more stringe
nt operatingii
tt
restrictions
Debt or equity financing may not be available to us on acceptablea
terms. If we incur additional debt or raise equity through the
issuance of preferred stock or convertible securities, the terms of the debt or the preferred stock issued may give the holders
rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The
terms of the debt may also impose additional and more stringent restrictions on our operations. If we raise funds through the
issuance of additional equity, the ownership percentage of our existing shareholders would be diluted.
(iv)v Other Risks Related to Our Business
ii
We couldll experience a failure of a key information technology
including a cybersecurityii
sitestt
associatedtt
ll
breach or failure of one or more key information technology
, process or site or a breach of information security,yy
s, networks, processes,
systemtt
for a breach of various datatt privacyc regulations.
and could potentiallyll become liable
or service providers,
systemtt
i
i
ll
tt
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 enablea
, sustain, and support our global business activities. In addition,
we rely on networks and services, including internet sites, data hosting and processing facilities and tools and other hardware,
software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or
their vendors, to assist in conducting our business. The data we store and process may include customer payment information,
personal information concerning our employees, confidential financial information, and other types of sensitive business-related
information.
In limited instances, we may also come into possession of information related to patients of our physician
customers. Numerous and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and
services, as well as the confidentiality, availability and integrity of our data.
In addition, the laws and regulations governing
security of data on IT systems and otherwise collected, processed, stored, transmitted, disclosed and disposed of by companies
are evolving, adding another layer of complexity in the form of new requirements. We have made, and continue to make
investments, seeking to address these threats, including monitoring of networks and systems, hiring of third party service
providers with expertise in cybersecurity, employee training and security policies for employees and third-party providers. The
techniques used in these attacks change frequently and may be difficult to detect for periods of time and difficult to anticipate
by implementing adequate preventative measures.
t
Our worldwide operations mean that we are subject to laws and regulations, including data protection and cybersecurity laws
and regulations, in many jurisdictions. For example, the European Union ("EU") General Data Protection Regulation ("GDPR")
requires us to manage personal data in the EU and may impose fines of up to four percent of our global revenue in the event of
Consumer Privacy Act imposes obligations on companies that conduct business in
certain violations. Likewise, the California
Californi
a, and meet other requirements, with respect to the collection or sale of specified personal information. Other
ff
jurisdictions are also implementing or proposing a variety of data privacy laws and regulations. Further, there has been a
developing trend of civil lawsuits and class actions relating to breaches of consumer data held by large companies or incidents
arising from other cyber-attacks. Any data security breaches, cyber-attacks, malicious intrusions or significff ant 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.
ff
The costs of attempting to protect IT systems and data may increase, and there can be no assurance that these added security
If our IT systems are damaged or cease to function
efforts will prevent all breaches of our IT systems or thefts of our data.
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.
15
We rely on a thirdii
is not acceptedtt
negativtt elyll
impacm ted.
party to obtain,ii
process and distribu
by the market or is not acceptedtt
tt
te sports medicineii
allograft
under numerous government regue
ll
tissii ue. If such tissue
ii
lations, our resultstt of operations
cannot be obtained,
ii
could be
tt
A portion of our orthopedic revenues relate to our share of the service fees from the Musculoskeletal Transplant Foundation
("MTF") allograft tissues for which we have exclusive worldwide sales representation, marketing and promotion rights, as
further described in our revenue recognition policy in Note 1. Our primary costs related to these revenues come from our
commission expense and certain marketing costs. Our ability to increase the service fees may be constrained by certain factors
which are outside of our control, such as the limited supply of donors and donated tissue that meets the quality standards of
MTF. Similarly, under the terms of the agreement, MTF remains responsible for tissue procurement and processing, shipment
of tissues and invoicing of service fees to customers. To the extent MTF’s performance does not meet customer expectations or
replacement for MTF on
otherwise fails, CONMED may be unable to increase the allograft service fees or to find a suitablea
terms that are acceptable.
The FDA and several states have statutory
authority to regulate allograft processing and allograft-based materials. The FDA
could identify deficiencies in future inspections of MTF or MTF's suppliers or promulgate future regulatory rulings that could
disrupt our business, reducing profitability.
t
We distribuii
products willii continue
te some products for third-part
e
indefinit
eltt y.ll
ii
ii
m
ytt companie
s, and cannot ensure that our rights to distributett
ytt
such third-part
ii
While we generally own the products' designs and rights to the products we sell, in some cases we distribute products for third-
parties. While these third-parties may have business reasons for contracting with us to distribute their products, we may face
the risk that the third-parties may seek alternate distribution partners when their distribution contracts with us expire or are
scheduled for renewal. If we lose the distribution rights to such products, we may not be able to find replacement products that
are acceptablea
to our customers, or to us.
If we lose our patents or theye are heldll
i
become subject to liabil
itll ytt and our competitiii ve position could be harmed.
to be invalid,ii
or if our products or services infringe
ii
on third party patents, we could
Much of the technology used in the markets in which we compete is covered by patents. We have numerous U.S. patents and
corresponding international patents on products expiring at various dates from 2022 through 2040 and have additional patent
Property” for a further description of
applications pending. See Item 1 Business “Research and Development” and “Intellectual
The loss of our patents could reduce the value of the related products and any related competitive
our patents.
advantage. Competitors may also be abla e 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.
t
While we seek to take reasonable steps to avoid infringing on patents we do not own or license, we cannot be sure that our
services and products do not infringe on the intellectual property rights of third parties, and we may have infringement claims
asserted against us. These claims could cost us money, prevent us from offering some services or products, or damage our
reputation. We cannot 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
advantage; or
we will be successful in defending against pending or futuret
ff
to be valid or sufficiently broad to protect our technology or provide us with a competitive
patent infringement claims asserted against our products.
We may be sued for product liabil
of any product liabiliii tyii
claimll
i
s.
itll ytt claimll
s and our insurance coverage may be insuffiff cient to cover the nature and amount
Even if our products are properly designed and perform as intended, we may be sued. The naturet
of our products as medical
devices, and the litigious environment, should be regarded as potential risks which could significantly and adversely affect our
financial condition and results of operations. The insurance we maintain to protect against claims associated with the use of our
products has deductibles and may not adequately cover the amount or naturet
of any claim asserted against us. We are also
exposed to the risk that our insurers may become insolvent or that premiums may increase substantially. See “Item 3 - Legal
Proceedings” for a further discussion of the risk of product liability actions and our insurance coverage.
16
Damage to our physical properties as a resultll of windst
tt
orm,
cause a financiali
loss and a loss of customers.
ii
earthquake, fire or other natural or man-made disaster may
Although we maintain insurance coverage for physical damage to our property and the resultant losses that could occur during a
business interruption, we are required to pay deductibles and our insurance coverage is limited to certain caps.a
For example,
our deductible for windstorm damage to our Florida property amounts to 2% of any loss. Any increase in the frequency or
severity of natural disaster events could result in increased insurance premiums.
Further, while insurance reimburses us for our lost gross earnings during a business interruption, if we are unable to supply our
customers with our products for an extended period of time, there can be no assurance that we will regain the customers’
business once the product supply is returned to normal.
Our significant international
operatingii
tt
.
in countries outside the Uniteii d Statestt
operations subject us to foreign currency fluctuations and other risks associatedtt
withii
A significant portion of our revenues, approximately 45% of 2021 consolidated net sales, were to customers outside the United
States. We have sales subsidi
aries in a significant number of countries in Europe as well as Australia, Canada, China, Japana
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 2021. The remaining 11% of sales
to customers outside the United States was on an export basis and transacted in United States dollars.
u
Because a significant portion of our operations consist of sales activities in jurisdictions outside the United States, our financial
results may be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the
markets in which we distribute products. While we have a hedging strategy involving foreign currency forward contracts for
2021, 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 2023. 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 instabila
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.
ity;
We cannot be certain that such risks will not have a material adverse effecff
t on our business and results of operations.
Our new products may fail to achieve expecxx
ted levels of market
rr
tt
acceptance.
New product introductions may fail to achieve market acceptance. The degree of market acceptance forff
will depend upon a number of factors, including:
any of our products
•
•
•
•
•
•
our ability to develop and introduce new products and product enhancements in the time frames we currently estimate;
our ability to successfully implement new technologies;
the market’s readiness to accept new products;
having adequate financial and technological resources for future product development and promotion;
the efficff
the prices of our products compared to the prices of our competitors’ products.
acy of our products; and
If our new products do not achieve market acceptance, we may be unable to recover our investments and may lose business to
competitors.
In addition, some of the companies with which we now compete, or may compete in the future, have or may have more
lities and significantly greater technical and personnel resources than
extensive research, marketing and manufacturing capabi
a
17
we do, and may be better positioned to continue to improve their technology in order to compete in an evolving industry. See
“Products” in Item 1 - Business for a further discussion of these competm itive forces.
Our Board of Direct
tt may,a in the future, limi
ors
tii or discontinue
ii
ii
ii
payment of a dividend
i
on common stock.
tt
We have paid a quarterly dividend to our shareholders since 2012. However, we may not pay such dividends in the future at
the prior rate, or at all. All decisions regarding our payment of dividends will be made by our Board of Directors from time to
al requirements, applicable law,
time, and are subject to an evaluation of our financial condition, results of operations and capita
industry practice, contractual restraints and other business considerations.
In addition, our senior credit agreement may
restrict our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit
or prohibit dividend payments. We may not have sufficient surplus or net profits under Delaware law to be able to pay any
dividends, which may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of
capita
or increases in reserves.
al expenditures
t
tt
Anti-tii akeov
er provisions in our organization
ii
al documents and Delaware law could delay or prevent a change in control.
Provisions of our certificate of incorporation and bylaws may delay or prevent a merger or acquisition that a shareholder may
consider favorablea
. These provisions include:
• the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those
shares, including preferences and voting rights, without shareholder approval, which could be used to significantly dilute
the ownership of a hostile acquirer;
• the requirement that a special meeting of shareholders may be called only by the board of directors, the chair of the board
of directors, the president, or stockholders holding at least 25% of our outstanding stock (subject to certain procedural
and informational requirements), which may delay the ability of our shareholders to force consideration of a proposal or
to take action;
• the procedural safeguards in place in connection with stockholder action by written consent, including a requirement that
stockholders of at least 25% of our outstanding common stock request that the board of directors set a record date to
determine the stockholders entitled to act by written consent;
• providing indemnification and exculpation rights to our directors and officers;
• advance notice procedures that shareholders must comply with in order to nominate candidates to our board of directors or
to propose matters to be acted upon at a shareholders’ meeting, which may discourage or deter a potential acquirer from
conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control
of us; and
• exclusive forum provisions, including provisions providing for the Court of Chancery of the State of Delaware as the
exclusive forum for bringing certain actions.
As a Delaware corporation, we are also subject to Section 203 of the Delaware General Corporat
ion Law, which provides that
we may not engage in a business combination, such as a merger, consolidation, recapitalization, asset sale or disposition of
stock, with any "interested stockholder" for a period of three years from the date that the interested stockholder first became an
interested stockholder unless certain conditions are met.
r
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.
Environi mental laws and regulati
tt
financial condition,
e
and resultsll of operations.
ons and clima
ll
te change initiat
ivtt es could materiallyll and adversely affect our business,
tt
ii
Our business and facilities and those of our suppliers are subject to a number of federal, state, local and international laws and
regulations governing the protection of human health and the environment.
In addition, concern over climate change and
sustainability has led to foreign and domestic legislative and regulatory initiatives directed at limiting carbon dioxide and other
greenhouse gas emissions. A failure to comply with current or future environmental laws and regulations could result in fines
or penalties. Any such expenses or liability could have a material adverse effect on our financial condition, results of
operations or cash flows.
18
Our abilityii
tt
to attrac
t and retain qualifiei
d employees is cii
ritiii cal to our success.
CONMED’s employees are its most important resource, and in many areas of the medical industry,rr
competition for qualified
personnel is intense. CONMED seeks to attract talented and diverse new employees and retain and motivate its existing
employees. If we are unable to continue to attract or retain qualified employees, including our executives, CONMED’s
performance, including its competitive position, could be materially and adversely affected.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Facilities
The following tablea
ff
sets forth
certain information with respect to our principal operating facilities. We believe that our
facilities are generally well maintained, are suitable to support our business and adequate forff
present and anticipated needs.
Location
Square Feet
Own or Lease
Lease Expiration
Utica, NY
Largo, FL
Chihuahua, Mexico
Chihuahua, Mexico
Lithia Springs, GA
Brussels, Belgium
Mississauga, Canada
Greenwood Village, CO
Westborough, MA
Frenchs Forest, Australia
500,000
278,000
207,720
40,626
188,400
58,276
36,054
27,763
19,533
16,959
Own
Own
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
—
—
October 2024
March 2028
January 2025
June 2024
July 2031
July 2024
November 2025
July 2025
Our principal manufacturing facilities are located in Utica, NY, Largo, FL and Chihuahua, Mexico. Lithia Springs,
GA and Brussels, Belgium are our principal distribution centers. We also maintain sales and administrative offices in countries
throughout the world.
Item 3. Legal Proceedings
We are involved in various proceedings, legal actions and claims arising in the normal course of business, including
property and other matters that are more fully described in Note 13. We
proceedings related to product, labor and intellectual
are not a party to any pending legal proceedings other than ordinary routine litigation incidental to our business.
t
Item 4. Mine Safety Disclosures
.
Not applicablea
19
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock, par value $.01 per share, is traded on the New York Stock Exchange ("NYSE"), effective
February 10, 2020, under the symbol “CNMD”. Prior to this date, our common stock was traded on the NASDAQ Global
15, 2022, there were 484 registered holders of our common stock and
Market under the same symbol. At Februaryrr
approximately 43,137 accounts held in “street name”.
Our Board of Directors has authorized a share repurchase program; see Note 9 for further details.
The Board of Directors declared a quarterly cash dividend of $0.20 per share in 2020 and 2021. The fourth quarter
dividend for 2021 was paid on January 5, 2022 to shareholders of record as of December 15, 2021. The total dividend payablea
at December 31, 2021 was $5.9 million and is included in other current liabilities in the consolidated balance sheet. Future
decisions as to the payment of dividends will be at the discretion of the Board of Directors. See "Item 1A. Risk Factors - Other
Risk Factors Related to our Business - Our Board of Directors may, in the future, limit or discontinue payment of a dividend on
common stock."
Refer to Item 12 for information relating to compensation plans under which equity securities of CONMED
ion are authorized for issuance.
r
Corporat
20
Performance Graph
ff
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 freff quency
with which dividends are paid on such securities during the applicable fisca
l year.
a
Item 6. [Reserved]
21
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 FinFF ancial Statements att
nd related notes
contained elsewhere in this report.
to
This section of
en 2021 and 2020. Discussions of 2019 items and year-to-year comparisons betwett
ormFF
10-K can be found in “Management’s Discussion and Analysis
on Form 10-K for the fiscff
e
iscusses 2021 and 2020 items and year-to-year comparisons
en 2020 and 2019 that are not included
of Financial Condition and Results of OperO ations”
al year ended December 31, 2020.
Item 7 of to he Company’s
10-K generally d
ll
Annual Report
betwett
in this Fii
in Part II,II
hitt s Fii
ormFF
m
ll
Overview of CONMED Corporation
CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) 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.
Our product lines consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine
instrumentation and small bone, large bone and specialty powered surgical instruments as well as, imaging systems forff
use in
minimally invasive surgical procedures and fees related to the promotion and marketing of sports medicine allograft tissue.
General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopi
c and
gastrointestinal procedures, smoke evacuation devices, a line of cardiac monitoring products as well as electrosurgical
generators and related instruments. These product lines as a percentage of consolidated net sales are as follows:
a
Orthopedic surgery
General surgery
Consolidated net sales
2021
2020
2019
43 %
57
100
%
43 %
57
00 %
1
49 %
51
100 %
A significant amount of our products are used in surgical procedures with approxim
ately 81% of our revenues derived
from the sale of single-use products. Our capita
al equipment offerings also facilitate the ongoing sale of related single-use
products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products
in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to
customers and through distributors. International sales approximated 45% in 2021, 44% in 2020 and 46% in 2019.
a
COVID-19
Our business continues to be impacted by the COVID-19 pandemic as variants of the virus emerge, with hospitals and
surgery centers reducing the number of, or postponing, non-urgent surgical procedures in order to minimize the risk of infection
and allow for proper staffing. We continue to restrict access to our facilities while maintaining production and distribution.
While revenues increased in 2021 compared to 2020, we believe we will continue to experience market variability as a result of
the pandemic that could influence sales, suppliers, patients and customers. There remains significant uncertainty related to the
COVID-19 pandemic, including the duration and severity of future impacts to the business. See "Item 1A. Risk Factors" for
more information. For additional discussion regarding COVID 19, see Liquidity and Capia tal Resources below.
Critical Accounting Policies
Preparation of our financial statements requires us to make estimates and assumptim ons which affect the reported
amounts of assets, liabilities, revenues and expenses. Note 1 describes the significant accounting policies used in preparation of
the consolidated finaff
ncial statements. The most significant areas involving management judgments and estimates are described
below and are considered by management to be critical to understanding the financial condition and results of operations of
CONMED Corporation. Actual
results may or may not differ fromff
these estimates.
t
22
Goodwill and Intangible Assets
We have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their
estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying
net assets of acquired businesses. Factors that contribute to the recognition of goodwill include synergies that are expected to
increase net sales and profits; acquisition of a talented workforce; cost savings opportunities; the strategic benefit of expanding
our presence in core and adjacent markets; and diversifying our product portfolio. Customer and distributor relationships,
trademarks, tradenames, developed technology, patents and other intangible assets primarily represent allocations of purchase
price to identifiablea
intangible assets of acquired businesses. Sales representation, marketing and promotional rights represent
intangible assets created under our agreement with Musculoskeletal Transplant Foundation (“MTF”). Determining the fair
value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates
include the amount and timing of projected future cash flows of each project or technology, revenue growth rates, projected
cost of sales, customer attrition rates, the discount rate used to discount those cash flows to present value, the assessment of the
asset’s useful life, and the consideration of legal, technical, regulatory, economic, and competitive risks. As these are
significant estimates, we would obtain the assistance of a third-party valuation specialist in estimating fair values of intangible
assets for significant acquisitions.
Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to at least annual
impairment testing.
It is our policy to perform our annual impairment testing in the fourth quarter. The identification and
measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based
on the best information available as of the date of the assessment. We completed our goodwill impairment testing of our single
reporting unit during the fourth quarter of 2021. We performed our impairment test utilizing the market capia talization approach
to determine whether the fair value of a reporting unit is less than its carrying amount. Based upon our assessment, the fair
value of our reporting unit continues to exceed carrying value.
Intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each
reporting period to determine whether events and circumstances warrant a revision to the remaining period of
to amortization are reviewed for impairment whenever events or changes in
amortization.
. The carrying amount of an intangible asset subject to
circumstances indicate that its carrying amount may not be recoverablea
amortization is not recoverablea
if it exceeds the sum of the undiscounted cash flows expected to result from the use of the
asset. An impaim rment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value.
Intangible assets subject
For all other indefinite-lived intangible assets, we perforff m a qualitative impairment test. Based upon this assessment,
we have determined that our indefinite-lived intangible assets are not impaired.
See Note 6 for further discussion of goodwill and other intangible assets.
Pension Plan
We sponsor a defined benefit pension plan (the “pension plan”) that was frozen in 2009. It covered substantially all
In conjunction with the pension plan, we recorded a pension
our United States based employees at the time it was frozen.
benefit obligation totaling $95.5 million as of December 31, 2021. In accounting for this pension plan, we are required to make
a number of assumptim ons, including the discount rate and mortality. The discount rate represents the interest rate used in
estimating the present value of projected cash flows to settle the Company’s pension obligations. The discount rate assumptim on
is determined by using a full yield curve approach, which involves applying the specific spot rates along the yield curve used in
the determination of the benefit obligation that correlates to the relevant projected cash flows. The mortality assumptim ons are
based on the Pri-2012 Mortality Tabla es using the MP-2021 mortality improvement scale.
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 $2.6 million and a 0.25% decrease in the discount rate would increase the pension
benefit obligation by $2.7 million. See Note 12 for further discussion of the pension plan.
23
Consolidated Results of Operations
The following tablea
presents, as a percentage of net sales, certain categories included in our consolidated statements of
comprehensive income for the periods indicated:
Net sales
Cost of sales
Gross profit
Selling and administrative expense
Research and development expense
Income fromff
operations
Interest expense
Other expense
Income beforeff
income taxes
Provision (benefit) for income taxes
Net income
Net Sales
Years Ended December 31,
2020
100.0 %
46.6
53.4
43.3
2021
100.0 %
43.8
56.2
41.0
2019
100.0 %
45.1
54.9
41.9
4.3
10.9
3.5
0.1
7.2
1.0
6.2 %
4.7
5.3
5.1
—
0.2
(0.9)
1.1 %
4.8
8.3
4.5
0.5
3.3
0.3
3.0 %
The following tablea
presents net sales by product line for the years ended December 31, 2021, 2020 and 2019:
Orthopedic surgery
General surgery
Net sales
Single-use products
Capita
al products
Net sales
Orthopedic surgery
General surgery
Net sales
Single-use products
Capita
al products
Net sales
$
$
$
$
$
$
$
$
% Change from
2021 to 2020
Impact of
Foreign
Currency
2021
2020
As
Reported
438.4
572.2
1,010.6
820.1
190.5
1,010.6
$
$
$
$
374.7
487.8
862.5
703.0
159.5
862.5
17.0%
17.3%
17.2%
16.7%
19.5%
17.2%
-1.3%
-0.6%
-0.9%
-0.9%
-1.1%
-0.9%
Constant
Currency a
15.7%
16.7%
16.3%
15.8%
18.4%
16.3%
% Change from
2020 to 2019
Impact of
Foreign
Currency
2020
2019
As
Reported
374.7
487.8
862.5
703.0
159.5
862.5
$
$
$
$
463.3
491.8
955.1
756.3
198.8
955.1
-19.1%
-0.8%
-9.7%
-7.0%
-19.8%
-9.7%
0.7%
0.1%
0.4%
0.4%
0.2%
0.4%
Constant
Currency a
-18.4%
-0.7%
-9.3%
-6.6%
-19.6%
-9.3%
(a) Refer to Non-GAAP Financial Measures below for further details.
24
Net sales increased 17.2% to $1,010.6 million in 2021 from $862.5 million in 2020 driven by increases across all
product lines as the COVID-19 pandemic had a significant impact on sales during 2020 as hospitals and surgery centers
deferred non-urgent surgeries.
•
•
Orthopedic surgery sales increased 17.0% in 2021 to $438.4 million from $374.7 million in 2020 as procedure
volumes returned
to more normal levels in 2021 after a 2020 which was significantly impacted by the COVID-19
pandemic.
t
General surgeryrr
sales increased 17.3% in 2021 to $572.2 million from $487.8 million in 2020. The increase was
mainly driven by continued growth in our advanced surgical products, including our AirSeal® and Buffalo Filter®
products, and our advanced endoscopic technology products.
Cost of Sales
Cost of sales was $442.6 million in 2021 compared to $402.2 million in 2020. Gross profit margins were 56.2% in
2021 and 53.4% in 2020. The increase in gross profit margin of 2.8 percentage points in 2021 was driven by an increase in
sales and more favorablea
product mix as well as the absence in 2021 of certain costs incurred in 2020 including the following:
•
•
•
•
•
$6.6 million in costs related to plant underutilization due to abnormally low production as a result of decreased sales
caused by the COVID-19 pandemic;
$4.0 million in costs related to the consolidation of manufacturing operations including winding down operations at
certain locations and moving production lines to other facilities;
$2.8 million in costs related to inventory step-up adjustments from a previous acquisition;
$2.2 million in costs related to product rationalization; and
$1.1 million in restructuring costs related to a voluntary separation arrangement as a result of the COVID-19
pandemic.
Refer to Note 14 for further details.
Selling and Administrative Expense
Selling and administrative expense was $414.8 million in 2021 compared to $373.8 million in 2020. Selling and
administrative expense as a percentage of net sales was 41.0% in 2021 and 43.3% in 2020.
The decrease in selling and administrative expense as a percentage of net sales in 2021 was mainly driven by higher
sales in 2021 while continuing to manage our expense levels in response to the COVID-19 pandemic. In addition, 2020
included the following expenses:
•
•
•
$4.8 million in severance costs related to a voluntary termination program and costs associated with the restructuring
of our Orthopedic sales force;
a $2.1 million write-off of field inventory used for customer demonstration and evaluation of products resulting from
the product rationalization initiative; and
$1.2 million in severance and integration costs mainly related to the Buffalo Filter acquisition.
Research and Development Expense
Research and development expense was $43.6 million in 2021 and $40.5 million in 2020. As a percentage of net sales,
research and development expense was 4.3% in 2021 and 4.7% in 2020. The lower spend as a percentage of net sales in 2021
was driven by higher sales in 2021.
Interest Expense
Interest expense decreased to $35.5 million in 2021 compared to $44.1 million in 2020. The weighted average interest
rates on our borrowings were 2.76% in 2021 decreasing from 3.65% in 2020. The decrease in interest expense is primarily due
to decreases in our weighted average interest rates compared to prior year driven by lowering borrowings and lower interest
rates as a result of the seventh amended and restated senior credit agreement.
Other Expense
25
Other expense during the year ended December 31, 2021 was related to costs associated with our seventh amended and
restated senior credit agreement entered into July 16, 2021, as further described in Note 7. These costs included $1.1 million
related to a loss on the early extinguishment of debt and third party fees.
Provision for Income Taxes
A provision (benefit) for income taxes was recorded at an effective rate of 14.4% and (493.9)% in 2021 and 2020,
respectively. As compared to the federal statutory rate of 21.0%, the 2021 effective tax rate was lower primarily due to benefits
from federal tax items including stock compensation and changes in the valuation allowance relating to certain foreign
operations. The 2020 effective tax rate was lower than the federal statutory rate primarily due to benefits from federal tax items
including stock compensation and tax regulations regarding United States tax on foreign earnings at different rates as well as
settlements with taxing authorities. A reconciliation of the United States statutory income tax rate to our effective tax rate is
included in Note 8.
Non-GAAP Financial Measures
Net sales on a "constant currency" basis is a non-GAAP measure. The Company analyzes net sales on a constant
currency basis to better measure the comparability of results between periods. To measure percentage sales growth in constant
currency, the Company removes the impact of changes in foreign currency exchange rates that affect the comparability and
trend of net sales.
Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure
with other companies' non-GAAP financial measures having the same or similar names. This adjud sted financial measure should
GAAP financial
not be considered in isolation or as a substitute for reported net sales growth, the most directly comparablea
measure. This non-GAAP financial measure is an additional way of viewing net sales that, when viewed with our GAAP
results, provides a more complete understanding of our business. The Company strongly encourages investors and shareholders
to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Liquidity and Capital Resources
Our liquidity needs arise primarily from capita
al requirements and payments on
indebtedness under the seventh amended and restated senior credit agreement, described below. We have historically met these
liquidity requirements with funds generated from operations and borrowings under our revolving credit facility. In addition, we
have historically used term borrowings, including borrowings under the amended and restated senior credit agreement and
borrowings under separate loan facilities, in the case of real property purchases, to finance our acquisitions. We also have the
ability to raise funds through the sale of stock or we may issue debt through a private placement or public offering.
investments, working capita
al
We had total cash on hand at December 31, 2021 of $20.8 million, of which approximately $17.7 million was held by
our foreign subsidiaries outside the United States with unremitted earnings. During 2021, we redeployed $28.2 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 8 for further details.
Operating Cash Flows
Our net working capita
al position was $263.5 million at December 31, 2021. Net cash provided by operating activities
was $111.8 million in 2021 and $64.5 million in 2020 generated on net income of $62.5 million in 2021 and $9.5 million in
2020. The increase in cash provided by operating activities in 2021 as compared to 2020 was mainly driven by higher sales
and net income in 2021 as the COVID-19 pandemic had a negative impact on sales during 2020. Significant impacts to
operating cash flows include:
•
•
•
•
•
based on the timing of sales and cash receipts;
A decrease in cash flows from accounts receivablea
A decrease in cash flows from inventory as we increased inventory levels to mitigate inventory supply challenges;
A decrease in cash flows from other assets primarily related to higher field inventory requirements due to more sales
force activity in 2021;
An increase in cash flows from accounts payable is primarily due to the timing of payments; and
An increase in cash from accrued compensation and benefits caused by higher commissions and incentive
compensation accrual
s associated with increased sales.
r
26
Investing Cash Flows
Net cash used in investing activities increased to $14.9 million in 2021 compared to $13.6 million in 2020 primarily
due to higher capita
al expenditures
t
in 2021 compared to 2020.
Financing Cash Flows
Financing activities in 2021 used cash of $101.5 million compared to $52.1 million in 2020. Below is a summaryrr of
the significant financing activities impacting the change during 2021 compared to 2020:
• We had net payments on our revolving line of credit of $67.0 million, inclusive of the impact of the seventh amended
and restated senior credit agreement, compared to $13.0 million in net payments during 2020.
• We had net payments on our term loan of $14.2 million, inclusive of a $52.4 million impact on both borrowings and
repayments between independent counterparties associated with the seventh amended and restated credit agreement,
compared to $13.3 million in payments during the prior year.
• We paid $6.2 million and $2.7 million in 2021 and 2020, respectively, in contingent consideration related to prior
acquisitions.
Other Liquidity Matters
Our cash balances and cash flows generated from operations may be used to fund strategic investments, business
acquisitions, working capita
al needs, research and development, common stock repurchases and payments of dividends to our
shareholders. Management believes that cash flow from operations, including cash and cash equivalents on hand and available
ity under our seventh amended and restated senior credit agreement, will be adequate to meet our anticipated
borrowing capac
a
al expenditures, dividend payments and common stock
operating working capita
al requirements, debt service, funding of capita
repurchases in the foreseeable future. In addition, management believes we could access capita
al markets, as necessary, to fund
future business acquisitions.
We continue to monitor our spending and expenses in light of our expectation that our revenues will continue to be
impacted by the pandemic. While the results of operations support continued recovery, there remains uncertainty in the
financial markets related to the COVID-19 pandemic which may have an impact on the demand for post-pandemic surgery
t to predict. If the downturn is more severe and prolonged than we currently expect, we may need to take
levels that are difficul
further steps to reduce our costs, or to refinance our debt. See “Item 1A. Risk Factors - Risks Related to Our Indebtedness."
ff
On July 16, 2021, we entered into a seventh amended and restated senior credit agreement which extends the maturity
interest rate margins and
of the term loan and revolving credit facilities to July 16, 2026 and reduced the applicablea
commitment fees on the borrowings.
There were $227.6 million in borrowings outstanding on the term loan facility as of December 31, 2021. There were
$140.0 million in borrowings outstanding under the revolving credit facility as of December 31, 2021. Our available
borrowings on the revolving credit facility at December 31, 2021 were $442.5 million with approximately $2.5 million of the
facility set aside for outstanding letters of credit.
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, 2021. We are also required, under certain circumstances, to make mandatory prepayments from
net cash proceeds from any issuance of equity and asset sales.
See Note 7 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, 2021, we
have repurchased a total of 6.1 million shares of common stock aggregating $162.6 million under this authorization and have
$37.4 million remaining available for share repurchases. The repurchase program calls for shares to be purchased in the open
market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any
time. We have not purchased any shares of common stock under the share repurchase program during 2021. We have financed
the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our
revolving credit facility.
27
The Board of Directors declared a quarterly cash dividend of $0.20 per share in 2020 and 2021. Future decisions as to
the payment of dividends will be at the discretion of the Board of Directors. See "Item 1A. Risk Factors - Other Risk Factors
Related to our Business - Our Board of Directors may, in the future, limit or discontinue payment of a dividend on common
stock."
We expect an increased level of capita
al spending during the year ending December 31, 2022 compared to 2021.
al spending will be monitored and controlled as the year progresses. We expect to use operating cash flows to satisfy
al spending requirements.
Capita
capita
The following tablea
summarizes our contractual obligations for the next fivff e years and thereafter (amounts in
thousands) as of December 31, 2021. Purchase obligations represent purchase orders for goods and services placed in the
ordinary course of business.
Payments Due by Period
1-3
Years
Less than
1 Year
3-5
Years
More than
5 Years
Total
Long-term debt
Purchase obligations
Lease obligations
Total contractual obligations
$
$
712,569
141,854
22,741
877,164
$
$
11,925
138,401
7,486
157,812
$
$
380,775
3,337
10,635
394,747
$
$
319,869
116
2,445
322,430
$
$
—
—
2,175
2,175
In addition to the above contractual obligations, we are required to make periodic interest payments on our long-term
debt obligations (see additional discussion under Item 7A. “Quantitative and Qualitative Disclosures About Market Risk—kk
Interest Rate Risk” and Note 7). The above tablea
mately $0.2
million, the timing and certainty of recognition for which is not known (See Note 8).
also does not include unrecognized tax benefits of approxi
a
Stock-based Compensation
We have reserved shares of common stock for issuance to employees and directors under two shareholder-approved
share-based compensation plans (the "Plans"). The Plans provide for grants of stock options, stock appreciation rights
(“SARs”), dividend equivalent rights, restricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and
other equity-based and equity-related awards. The exercise price on all outstanding stock options and SARs is equal to the
quoted faiff
r market value of the stock at the date of grant. RSUs and PSUs are valued at the market value of the underlying
stock on the date of grant. Stock options, SARs, RSUs and PSUs are generally non-transferable other than on death and
generally become exercisable over a four
date of grant. Stock options and SARs expire ten years from
date of grant. SARs are only settled in shares of the Company’s stock (See Note 9). Total pre-tax stock-based compensation
expense recognized in the consolidated statements of comprehensive income was $16.3 million, $13.1 million and $11.8
million for the years ended December 31, 2021, 2020 and 2019, respectively.
to five year period fromff
a
ff
Other Matters
Through April 1, 2020, our credit facility allowed us to seek to sell products to certain customers in Iran in compliance
by us and our lenders
with applicable laws and regulations and subject to certain terms and conditions, including pre-approval
of the identity of any distributor and prior review of each of the end-customers. We had sales to a third-party distributor in Iran
during the first quarter of 2020. We limited such sales into Iran to products that qualified as “medical suppli
es” within the
meaning of the general license, or covered by specific licenses, provided by the Iranian Transactions and Sanctions Regulations
set forth in the regulations promulgated by the Office of Foreign Assets Control (“OFAC”) of the United States Department of
the Treasury set forth at 31 C.F.R. § 560.530. We have implemented certain controls and processes designed to ensure that the
ultimate end-users for the products are those permitted under the OFAC general license, and that the sales and transactions with
the Iranian distributor otherwise comply with the requirements of the OFAC regulations. The expected revenues and net profits
associated with sales to the Iranian distributor were not material to our overall results of operations.
u
a
We do not believe that our activities to date have been subject to required disclosure under Section 13(r) of the
Securities Exchange Act of 1934 (the “Exchange Act”), which, among other things, requires disclosure of transactions and
entered into with the Government of Iran that do not benefit from an OFAC license and with certain
k
activities knowingly
28
designated parties. If, however, activities are in the future discovered to be within the scope of the transactions and activities
a
capture
d by Section 13(r) of the Exchange Act, we will make the required disclosures and notices.
New Accounting Pronouncements
See Note 17 for a discussion of new accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices such as commodity prices,
foreign currency exchange rates and interest rates. In the normal course of business, we are exposed to various market risks,
including changes in foreign currency exchange rates and interest rates. We manage our exposure to these and other market
risks through regular operating and financing activities and as necessary through the use of derivative financial instruments.
Foreign currency risk
Approximately 45% of our total 2021 consolidated net sales were to customers outside the United States. We have
sales subsidiaries in a significant number of countries in Europe as well as Australia, Canada, China, Japan and Korea. In those
countries in which we have a direct presence, our sales are denominated in the local currency amounting to approximately 34%
of our total net sales in 2021. The remaining 11% of sales to customers outside the United States was on an export basis and
transacted in United States dollars.
Because a significant portion of our operations consist of sales activities in foreign jurisdictions, our financial results
may be affect
ed by factors such as changes in foreign currency exchange rates or weak economic conditions in the markets in
ff
which we distribute products. During 2021, foreign currency exchange rates, including the effects of the hedging program,
caused sales to increase by approximately $8.2 million.
We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts. We
account for these forward contracts as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria,
changes in their fair value are not included in current earnings but are included in accumulated other comprehensive
loss. These changes in fair value will be recognized into earnings as a component of sales or cost of sales when the forecasted
transaction occurs.
We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our
currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle
each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts
as hedges and have not applied hedge accounting to them.
Refer to Note 16 for further discussion.
Interest rate risk
At December 31, 2021, we had approximately $367.6 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 2022
interest expense would increase, and income before income taxes would decrease by $4.1
than they did in 2021,
million. Comparatively, if market interest rates for similar borrowings average 1.0% less in 2022 than they did in 2021, our
interest expense would decrease, and income before income taxes would increase by $4.1 million.
Item 8. Financial Statements and Supplementary Data
Our 2021 Financial Statements are included in this Form 10-K beginning on page 39 and incorporated by reference
herein.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
There were no changes in or disagreement with accountants on accounting and financial disclosure.
29
Item 9A. Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out by CONMED Corporation’s
management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures
were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial
reporting (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) occurred during the fourth quarter of the year
ended December 31, 2021 that has materially affecff
ted, or is reasonably likely to materially affect, our internal control over
financial reporting.
c
Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Publiu
Accounting Firm thereon are set forth in Part IV, Item 15 of the Annual Report on Form 10-K.
Item 9B. Other Information
Not applicable.
30
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated herein by reference to the sections captia
oned “Proposal One:
Election of Directors”, “Directors, Executive Officers, Other Company Officers and Nominees forff
the Board of Directors”,
“Delinquent Section 16(a) Reports", “Ethics Disclosure” and "Meetings of the Board of Directors and Committees, Leadership
Structure and Risk Oversight” in CONMED Corporation’s definitive Proxy Statement or other informational filff ing to be filed
with the Securities and Exchange Commission on or about April 15, 2022.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the sections captia
oned “Compensation
Discussion and Analysis”, “Compensation Committee Report on Executive Compensation”, “Summary Compensation Tablea
”,
“Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal Year-End”, “Option Exercises and Stock Vested”,
“Non-Qualified Deferred Compensation”, “Potential Payments on Termination or Change in Control”, “Director
Compensation,” “Pay Ratio” and “Board of Directors and Compensation Committee Interlocks and Insider Participation;
Certain Relationships and Related Transactions” in CONMED Corporation’s definitive Proxy Statement or other informational
filing to be filed with the Securities and Exchange Commission on or about April 15, 2022.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to the section captia
oned “Security Ownership
of Certain Beneficial Owners and Management” in CONMED Corporation’s definitive Proxy Statement or other informational
filing to be filed with the Securities and Exchange Commission on or about April 15, 2022.
Information relating to shareholder approved compensation plans under which equity securities of CONMED
Corporation are authorized forff
issuance is set fort
ff
h below:
Equity Compensation Plan Information
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities refleff cted in
column (a))
(c)
3,264,061
$
—
3,264,061
80.79
—
80.79
3,398,344
—
3,398,344
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the section captioned “Directors,
Executive Officers and Nominees forff
the Board of Directors” and “Board of Directors and Compensation Committee Interlocks
and Insider Participation; Certain Relationships and Related Transactions” in CONMED Corporation’s definitive Proxy
Statement or other informational filing to be filed with the Securities and Exchange Commission on or about April 15, 2022.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the section captia
oned “Principal
Accounting Fees and Services” in CONMED Corporation’s definitive Proxy Statement or other informational filff ing to be filed
with the Securities and Exchange Commission on or about April 15, 2022.
31
PART IV
Item 15. Exhibits, Financial Statement Schedules
Index to Financial Statements
(a)(1) List of Financial Statements
Page in Form 10-K
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets at December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income forff
2020 and 2019
the Years Ended December 31, 2021,
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2021,
2020 and 2019
Consolidated Statements of Cash Flows forff
2019
the Years Ended December 31, 2021, 2020 and
Notes to Consolidated Financial Statements
(2)
List of Financial Statement Schedules
Valuation and Qualifying Accounts (Schedule II) for the Years Ended December 31, 2021,
2020 and 2019
All other schedules have been omitted because they are not applicable, or the required
information is shown in the financial statements or notes thereto.
(3)
List of Exhibits
The exhibits listed on the accompanying Exhibit Index on page 35 below are fileff d as part of
this Form 10-K.
39
40
42
43
44
45
47
75
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CONMED CORPORATIRR
ON
y
By: /s/ Curt R. Hartman
Curt R. Hartman
(Chair of the Board, President and
Chief Executive Offiff cer)
Date:
rr
February
22, 2022
33
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capac
a
ities and on the dates indicated.
Signature
g
Title
Date
/s/ CURT R. HARTMAN
Curt R. Hartman
AA
hair of the Board, President &
C
Chief Executive Officer
/s/ TODD W. GARNERR R
Todd W. Garner
Executive Vice President
and Chief Financial Officer
/s/ TERENCE M. BERGE
Terence M. Berge
Vice President-
Corporate Controller
rr
February
22, 2022
February 2rr
2, 2022
February 2rr
2, 2022
/s/ MARTHA GOLDBERG ARONSON
Martha Goldberg Aronson
Lead Independent Director
Februaryrr 22, 2022
/s/ DAVID BRONSON
David Bronson
/s/ BRIAN P. CONCANNON
Brian P. Concannon
/s/ LAVERNE COUNCIL
Laverne Council
/s/ CHARLES M. FARKAS
Charles M. Farkas
/s/ JEROME J. LANDE
AA
Jerome J. Lande
/s/ BARBARA SRR
Barbara Schwarzentraub
CHWARZENTRAUB
RR
/s/ MARK E. TRYNISKI
Mark E. Tryniski
rr
/s/ JOHN L. WORKMAN
John L. Workman
rr
February
22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
Director
Director
Director
Director
Director
Director
Director
Director
34
Exhibit No.
Exhibit Index
Description
p
2.1
3.1
3.2
4.1*
10.1+
10.2+
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Agreement and Plan of Merger, dated May 21, 2020, by and between CONMED Corporation, a New
York corporation, and CONMED Corporation, a Delaware corporation (Incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 22, 2020).
By-laws of CONMED Corporation, a Delaware corporation (Incorporated by reference to Exhibit 3.2 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May
22, 2020).
Certificate of Incorporation of CONMED Corporation, a Delaware corporation (Incorporated by
reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 22, 2020 ).
Description of the Common Stock of CONMED Corporation, a Delaware corporation.
Employment Agreement between the Company and Curt R. Hartman, dated November 9, 2014
(Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 10, 2014).
Amendment Number 1 to Employment Agreement between CONMED Corporation and Curt R.
Hartman dated December 28, 2020 (Incorporated by reference to Exhibit 10.2 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2020).
Amended and Restated 1999 Long Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the
Company’s Registration Statement on Form S-8 on November 3, 2009).
2002 Employee Stock Purchase Plan (Incorporated by reference to the Company’s Definitive Proxy
Statement for the 2002 Annual Meeting filed with the Securities and Exchange Commission on April 17,
2002).
Amendment to CONMED Corporation 2002 Employee Stock Purchase Plan (Incorporated by reference
to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the year ended December 31,
2005).
CONMED Corporation Amended and Restated 2020 Employee Stock Purchase Plan (incorporated by
reference to Exhibit E of the Registrant’s Proxy Statement on Schedule 14A filed on April 10, 2020).
2006 Stock Incentive Plan (Incorporated by reference to Exhibit 4.3 of the Company’s Registration
Statement on Form S-8 on August 8, 2006).
Amended and Restated 2007 Non-Employee Director Equity Compensation Plan of CONMED
Corporation (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form
S-8 on August 3, 2010).
Amended and Restated Long Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the
Company’s Registration Statement on Form S-8 on July 27, 2012).
CONMED Corporation Executive Severance Plan (Incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on July
27, 2015).
Amended and Restated 2015 Long-Term Incentive Plan (Incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-8 on October 23, 2015).
35
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23+
10.24+
10.25+
-
-
-
-
-
-
-
-
-
-
-
-
-
Amended and Restated 2016 Non-Employee Director Equity Compensation Plan (Incorporated by
reference to Exhibit 4.3 of the Company's Registration Statement on Form S-8 on October 28, 2016).
Amended and Restated 2020 Non-Employee Director Equity Compensation Plan of CONMED
Corporation (incorporated by reference to Exhibit D of the Registrant’s Proxy Statement on Schedule
14A filed on April 10, 2020).
2018 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.3 of the Registrants Form S-8
filed on November 5, 2018).
Guarantee and Collateral Agreement, dated August 28, 2002, made by CONMED Corporation and
certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated by reference to Exhibit 10.2
of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
First Amendment to Guarantee and Collateral Agreement, dated June 30, 2003, made by CONMED
Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank and the several banks and
other financial institutions or entities from time to time parties thereto (Incorporated by reference to
Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
Second Amendment to Guarantee and Collateral Agreement, dated April 13, 2006, made by CONMED
Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank and the several banks and
other financial institutions or entities from time to time parties thereto (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April
19, 2006).
Third Amendment to Guarantee and Collateral Agreement, dated as of January 17, 2013, made by
CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated
by reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K for the year ended December
31, 2012).
Fourth Amendment to Guarantee and Collateral Agreement, dated as of January 4, 2016, made by
CONMED Corporation and certain of its subsidiaries in favor of JP Morgan Chase Bank (Incorporated
by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 4, 2016).
Fifth Amendment to Guarantee and Collateral Agreement, dated as of July 16, 2021, made by CONMED
Corporation and certain of its subsidiaries in favor of JPMorgan Chase Bank, N.A., as administrative
agent (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 16, 2021).
Seventh Amended and Restated Credit Agreement, dated as of July 16, 2021, among CONMED
Corporation, the foreign subsidiary borrowers from time to time party thereto, the several lenders from
time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 16, 2021).
Sports Medicine Joint Development and Distribution Agreement by and between Musculoskeletal
Transplant Foundation, Inc. and CONMED Corporation dated as of January 3, 2012 (Incorporated by
reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated January 3, 2012).
Employment Agreement between the Company and Patrick Beyer, dated April 25, 2019 (Incorporated
by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2019).
Offer Letter from CONMED Corporation to Todd W. Garner dated January 2, 2018. (Incorporated by
reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 2, 2018).
Amendment Number 1 to Offer Letter from CONMED Corporation to Todd W. Garner dated December
28, 2020 (Incorporated by reference to Exhibit 10.27 on the Company's Annual Report on Form 10-K for
the year ended December 31, 2020).
36
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Stock Option Inducement Award (incorporated by reference to Exhibit 4.3 of the Registrants Form S-8
filed on February 27, 2018).
Restricted Stock Unit Inducement Award (incorporated by reference to Exhibit 4.4 of the Registrants
Form S-8 filed on February 27, 2018).
Securities Purchase Agreement, dated as of December 13, 2018, by and between CONMED Corporation
and Filtration Group FGC LLC (Incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2018).
Indenture, dated as of January 29, 2019, by and between CONMED Corporation and MUFG Union
Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and Barclays Bank PLC (Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and Bank of America, N.A (Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.3 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
January 29, 2019).
Base Notes Hedge Transaction Confirmation, dated as of January 24, 2019, between CONMED
Corporation and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association,
London Branch (Incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on January 29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and Barclays Bank PLC (Incorporated by reference to Exhibit 10.5 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and Bank of America, N.A (Incorporated by reference to Exhibit 10.6 of the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.7 of the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January
29, 2019).
Base Warrant Transaction Confirmation, dated as of January 24, 2019, between CONMED Corporation
and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association, London
Branch (Incorporated by reference to Exhibit 10.8 of the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 29, 2019).
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Barclays Bank PLC (Incorporated by reference to Exhibit 10.9 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Bank of America, N.A. (Incorporated by reference to Exhibit 10.10 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.11 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
January 29, 2019).
37
10.41
10.42
10.43
10.44
10.45
14
21*
23*
31.1*
31.2*
32.1*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Additional Notes Hedge Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association,
London Branch (Incorporated by reference to Exhibit 10.12 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Barclays Bank PLC (Incorporated by reference to Exhibit 10.13 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Bank of America, N.A. (Incorporated by reference to Exhibit 10.14 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.15 of
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
January 29, 2019).
Additional Warrant Transaction Confirmation, dated as of January 25, 2019, between CONMED
Corporation and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association,
London Branch (Incorporated by reference to Exhibit 10.16 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on January 29, 2019).
Code of Ethics. The CONMED code of ethics may be accessed via the Company’s website at http:t
www.conmed.com/en/about-us/
investors/investor-relations
a
//
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Curt R. Hartman pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Todd W. Garner. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of Curt R. Hartman and Todd W. Garner pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document - The instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Labea
l Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL
document (included in Exhibit 101)
*
Filed herewith
+ Management contract or compensatory plan or arrangement
38
MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
shing and maintaining adequate internal control over
The management of CONMED Corporation is responsible for establia
financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliabila
ity of financial reporting and the preparation of financial statements for external reporting purposes in accordance with
generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that
detail, accurately and fairly reflect transactions and dispositions of
pertain to the maintenance of records that, in reasonablea
assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures
are being made only in accordance with authorizations of management and the directors of the Company; and provide
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
reasonablea
could have a material effeff ct on our financial statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Management assessed the effectiveness of CONMED’s internal control
over financial reporting as of December 31, 2021. In making its assessment, management utilized the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework”,
released in 2013. Management has concluded that based on its assessment, CONMED’s internal control over financial
reporting was effective as of December 31, 2021. The effectiveness of the Company’s internal control over financial reporting
as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as stated in their report which appears herein.
t
/s/ Curt R. Hartman
Curt R. Hartman
Chair of the Board, President and
Chief Executive Offiff cer
/s/ Todd W. Garner
Todd W. Garner
Executive Vice President and
Chief Financial Officer
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of CONMED Corporation
Opinions on the Financ
ii
ial Statemtt
ents and Intertt nal
rr
Control over Financ
ii
ee
ial Reporti
ngii
We have audited the accompanying consolidated balance sheets of CONMED Corporation and its subsidiaries (the "Company")
as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income, shareholders’ equity and
cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial
statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
e
In our opinion, the consolidated financial statements referredr
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated
Framework (2013)
issued by the COSO.
e
Basis for Opinions
ii
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are freeff
of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definitiontt
and Limi
taii
ii
tions of Internal
tt
tt
Control
over Financial Reportingii
ity of financial reporting and the preparation of financial statements forff
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliabila
external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
of the company are being made only in accordance with authorizations of management and directors of the
expenditures
t
40
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Criticatt
l Auditdd MattMM ers
tt
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of the Pension Benefie t Obligati
i
on
As described in Note 12 to the consolidated financial statements, the Company’s consolidated pension benefit obligation was
$95.5 million as of December 31, 2021. Management's discount rate and mortality assumptim ons are the significant assumptim ons
in determining the projected benefit obligation of the Company’s pension plan. The discount rate assumption is determined by
management using a full yield curve approach, which involves applying the specific spot rates along the yield curve used in the
determination of the benefit obligation that correlates to the relevant projected cash flows. The mortality assumptim ons are based
on a mortality tabla e using the mortality improvement scale.
The principal considerations for our determination that performing procedures relating to the valuation of the pension benefit
obligation is a critical audit matter are (i) the significant judgment by management to determine the pension benefit obligation,
(ii) significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant
assumptim ons related to discount rate and mortality, and (iii) the audit effort involved the use of professionals with specialized
skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
valuation of the pension benefit obligation, including controls over management's methodology, significant assumptim ons, and
data. These procedures also included, among others, (i) testing the completeness and accuracy of underlying data used in the
valuation of the pension benefit obligation and (ii) the involvement of professionals with specialized skill and knowledge to
assist in (a) testing management’s process for determining the pension benefit obligation, (b) evaluating the appropriateness of
the methodology used by management, and (c) evaluating the reasonableness of the discount rate and mortality significant
assumptim ons.
/s/ PricewaterhouseCoopers LLP
Rochester, New York
February 22, 2022
We have served as the Company’s auditor since 1982.
41
CONMED CORPORATRR ION
CONSOLIDATED BALANCE SHEETS
December 31, 2021 and 2020
(In thousands except share and per share amounts)
assets:
ASSETS
r
Current
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $4,528 in 2021 and $3,876 in 2020
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Deferred income taxes
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued compensation and benefits
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Shareholders' equity:
Preferred stock, par value $.01 per share; authorized
500,000 shares, none issued or outstanding
Common stock, par value $.01 per share; 100,000,000
authorized; 31,299,194 issued in 2021 and 2020, respectively
Paid-in capia tal
Retained earnings
Accumulated other comprehensive loss
Less: Treasury stock, at cost;
1,925,893 and 2,410,045 shares in
2021 and 2020, respectively
Total shareholders' equity
Total liabilities and shareholders' equity
2021
2020
$
20,847
$
27,356
$
$
183,882
231,644
23,750
460,123
108,863
9,657
617,528
471,049
98,797
1,766,017
12,249
58,197
60,488
65,712
196,646
672,407
68,537
42,992
980,582
$
$
177,152
194,868
17,278
416,654
111,407
6,842
618,440
501,537
96,793
1,751,673
18,415
53,310
50,171
68,305
190,201
735,221
57,875
59,338
1,042,635
—
—
313
396,771
496,605
(54,203)
313
382,628
457,417
(63,681)
(54,051)
785,435
1,766,017
$
(67,639)
709,038
1,751,673
$
The accompanying notes are an integral part of the consolidated financial statements.
42
CONMED CORPORATRR ION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2021, 2020 and 2019
(In thousands except per share amounts)
Net sales
Cost of sales
Gross profit
2020
2019
$
1,010,635
$
862,459
$
955,097
442,599
402,159
430,382
568,036
460,300
524,715
Selling and administrative expense
414,754
373,817
400,141
Research and development expense
43,565
40,473
45,460
Operating expenses
Income fromff
operations
Interest expense
Other expense
458,319
414,290
445,601
109,717
46,010
79,114
35,485
44,052
42,701
1,127
355
5,188
Income beforeff
income taxes
73,105
1,603
31,225
Provision (benefit) for income taxes
10,563
(7,914)
2,605
Net income
Per share data:
Basic
Diluted
Other comprehensive income (loss), before income tax:
Cash flow hedging
Pension liability
Foreign currency translation adjustments
Other comprehensive income (loss), before income tax
Provision (benefit) for income taxes related to items in other
comprehensive income
Other comprehensive income (loss), net of income tax
Comprehensive income
$
$
$
$
$
$
$
62,542
$
9,517
$
28,620
2.14
1.94
12,660
9,163
(7,072)
14,751
5,273
9,478
72,020
$
$
$
$
$
$
0.33
0.32
$
$
1.01
0.97
(8,489) $
(6,499)
6,963
(8,025) $
(4,736)
35
25
(4,676)
(3,621)
(4,404) $
(1,136)
(3,540)
5,113
$
25,080
The accompanying notes are an integral part of the consolidated financial statements.
43
CONMED CORPORATRR ION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2021, 2020 and 2019
(In thousands)
Common Stock
Shares
Amount
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
(88,895) $
Balance at December 31, 2018
31,299 $
313 $ 341,738 $ 464,851 $
(55,737) $
Common stock issued under employee
plans
Stock-based compensation
Dividends on common stock ($.80 per
share)
Convertible notes discount, net
Convertible notes debt issuance costs
Convertible notes hedge, net
Issuance of warrants
Comprehensive income (loss):
Cash flow hedging loss, net
Pension liability, net
Foreign currency translation adjustments
Net income
Total comprehensive income
Balance at December 31, 2019
Common stock issued under employee
plans
Stock-based compensation
Dividends on common stock ($.80 per
share)
Comprehensive income (loss):
Cash flow hedging loss, net
Pension liability, net
Foreign currency translation adjustments
Net income
Total comprehensive income
Balance at December 31, 2020
Common stock issued under employee
plans
Stock-based compensation
Dividends on common stock ($.80 per
share)
Comprehensive income (loss):
Cash flow hedging gain, net
Pension liability, net
Foreign currency translation adjustments
Net income
Total comprehensive income
Balance at December 31, 2021
(3,843)
11,779
39,145
(1,233)
(38,829)
30,567
(22,627)
28,620
8,158
(3,592)
27
25
31,299 $
313 $ 379,324 $ 470,844 $
(59,277) $
(80,737) $
(9,807)
13,111
13,098
(22,944)
9,517
(6,438)
(4,929)
6,963
31,299 $
313 $ 382,628 $ 457,417 $
(63,681) $
(67,639) $
(2,192)
16,335
13,588
(23,354)
62,542
9,601
6,949
(7,072)
31,299 $
313 $ 396,771 $ 496,605 $
(54,203) $
(54,051) $
The accompanying notes are an integral part of the consolidated financial statements.
44
Shareholders’
Equity
662,270
4,315
11,779
(22,627)
39,145
(1,233)
(38,829)
30,567
25,080
710,467
3,291
13,111
(22,944)
5,113
709,038
11,396
16,335
(23,354)
72,020
785,435
CONMED CORPORATRR ION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2021, 2020 and 2019
(In thousands)
Cash flows fromff
e
Net incom
operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
2021
2020
2019
$
62,542
$
9,517
$
28,620
Depreciation
Amortization of debt discount
Amortization of deferred debt issuance costs
Amortization
Stock-based compensation
Impairment charges
Deferred income taxes
Loss on early extinguishment of debt
Increase (decrease) in cash flows fromff
liabilities, net of acquired assets:
Accounts receivable
Inventories
Accounts payablea
Income taxes
Accrued compensation and benefits
Other assets
Other liabia lities
Net cash provided by operating activities
changes in assets and
Cash flows from investing activities:
Purchases of property, plant and equipment
Payments related to business and asset acquisitions, net of cash acquired
Proceeds from sale of a facility
Net cash used in investing activities
Cash flows from financing activities:
Payments on term loan
Proceeds from term loan
Payments on revolving line of credit
Proceeds from revolving line of credit
Proceeds from convertible notes
Payments on mortgage notes
Payments related to contingent consideration
Payments related to debt issuance costs
Dividends paid on common stock
Purchases of convertible notes hedges
Proceeds from issuance of warrants
Other, net
Net cash provided by (used in) finaff
ncing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
16,494
10,217
3,726
54,249
16,335
—
3,005
899
(9,159)
(37,806)
4,890
(1,675)
11,067
(24,005)
991
111,770
(14,866)
—
—
(14,866)
(66,654)
52,411
(393,753)
326,753
—
—
(6,222)
(2,000)
(23,256)
—
—
11,173
(101,548)
(1,865)
(6,509)
18,044
9,692
3,723
54,581
13,111
—
(14,234)
—
13,920
(30,397)
(2,977)
(1,644)
(4,123)
(8,170)
3,488
64,531
(13,013)
(3,852)
3,227
(13,638)
(13,250)
—
(212,000)
199,000
—
—
(2,671)
(3,153)
(22,818)
—
—
2,833
(52,059)
2,666
1,500
Cash and cash equivalents at beginning of year
27,356
25,856
18,688
8,302
3,454
53,635
11,779
312
(6,310)
300
(13,943)
(117)
38
(1,867)
9,957
(22,263)
4,548
95,133
(20,066)
(367,596)
—
(387,662)
(154,312)
265,000
(484,000)
392,000
345,000
(836)
(6,466)
(16,210)
(22,600)
(51,198)
30,567
3,936
300,881
(7)
8,345
17,511
Cash and cash equivalents at end of year
$
20,847
$
27,356
$
25,856
45
Non-cash investing and finan
cing activities:
Contractual obligations from asset acquisition
Dividends payable
ff
Supplemental disclosures of cash flow information:
Cash paid during the year for:
ff
Interest
Income taxes
2021
2020
2019
— $
— $
5,874
5,775
5,639
5,684
$
21,797
8,559
$
30,448
9,120
27,274
10,576
$
$
accompanying notes are an integral part of the consolidated financial statements.
46
CONMED CORPORATRR ION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Note 1 — Operations and Significant Accounting Policies
Organization and operations
CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides
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.
Principles of consolidation
The consolidated financial statements include the accounts of CONMED Corporation and its controlled
subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and judgments which affect the reported amounts of assets,
liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. The Company considered COVID-19 related impacts on its estimates, as
appropriate, within its consolidated financial statements and there may be changes to those estimates in future periods. The
Company believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties
surrounding the severity and duration of the COVID-19 pandemic. Due to the inherent uncertainty involved in making
estimates, actual
periods may differ from those estimates.
results reported in futuret
t
Cash and cash equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost and net realizable value determined on the FIFO (first-in, first-out) cost
method.
We write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of
ity of the costs of our products and record a
current carrying costs. We make estimates regarding the future recoverabila
provision for excess and obsolete inventories based on historical experience and expected futuret
trends.
Property, plant and equipment
Property, plant and equipment are stated at cost and depreciated using the straight-line method over the following
estimated useful lives:
Building and improvements
Leasehold improvements
Machinery and equipment
12 to 40 years
Shorter of life of asset or life of lease
2 to 15 years
47
Leases
The Company leases various manufacturing facilities, office facilities and equipment under operating and finance
leases. We determine if an arrangement is a lease at inception. Right-of-use ("ROU") assets represent our right to use an
underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease
payments over the lease term. We use the implicit rate when readily determinablea
. As most of our leases do not provide an
implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining
the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease
term. Certain of our leases include variable lease payments, mainly when a lease is tied to an index rate. These variable lease
payments are recorded as expense in the period incurred and are not material.
The Company has lease agreements with lease and non-lease components, which we account for separately. For
certain equipment leases, we apply a portfolio approach to efficiently account for the operating lease ROU assets and lease
liabilities. We also elected the short-term lease exemption and do not recognize leases with terms less than one year on the
balance sheet. The related short-term lease expense is not material.
Our leases have remaining lease terms of one year to ten years, some of which include options to extend the leases for
up to five years, and some of which include options to terminate the leases within one year. We only account for such
extensions or early terminations when it is reasonably certain we will exercise such options. Refer to Note 5 for further detail
on leases.
The Company places certain of our capita
al equipment with customers on a loaned basis and at no charge in exchange
for commitments to purchase related single-use products over time periods generally ranging from one to three years. Placed
equipment is loaned and subject to returnt
if minimum single-use purchases are not met. The Company accounts for these
placements as operating leases but applies a practical expedient and does not separate the non-lease and lease components from
the combined component. Accordingly, the Company accounts for the combined component as a single performanc
e obligation
with revenue recognized upon shipment of the related single use-products. The cost of the equipment is amortized over its
estimated usefulff
life which is generally five years.
ff
Goodwill and other intangible assets
We have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their
estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying
net assets of acquired businesses. Factors that contribute to the recognition of goodwill include synergies expected to increase
net sales and profits; acquisition of a talented workforce; cost savings opportunities; the strategic benefit of expanding our
presence in core and adjacent markets; and diversifying our product portfolio. Customer and distributor relationships,
trademarks, tradenames, developed technology, patents and other intangible assets primarily represent allocations of purchase
price to identifiablea
intangible assets of acquired businesses. Sales representation, marketing and promotional rights represent
intangible assets created under our agreement with Musculoskeletal Transplant Foundation (“MTF”).
Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to at least annual
impairment testing.
It is our policy to perform our annual impairment testing in the fourth quarter. The identification and
measurement of goodwill impairment involves the estimation of the fair value of our business. Estimates of fair value are based
on the best information available as of the date of the assessment. We completed our goodwill impairment testing of our single
reporting unit during the fourth quarter of 2021. We performed our impairment test utilizing the market capitalization approach
to determine whether the fair value of a reporting unit is less than its carrying amount. Based upon our assessment, the fair
value of our reporting unit continues to exceed carrying value.
Intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each
reporting period to determine whether events and circumstances warrant a revision to the remaining period of
amortization.
impairment whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The carrying amount of an intangible asset subject to
amortization is not recoverablea
if it exceeds the sum of the undiscounted cash flows expected to result from the use of the
asset. An impaim rment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value.
to amortization are reviewed forff
Intangible assets subject
For all other indefinite-lived intangible assets, we perforff m a qualitative impairment test. Based upon this assessment,
we have determined that our indefinite-lived intangible assets are not impaired.
48
Other long-lived assets
We review other long-lived assets consisting of property, plant and equipment and field inventory for impairment
whenever events or circumstances indicate that such carrying amounts may not be recoverablea
If the sum of the expected
.
future undiscounted cash flows is less than the carryrr ing amount of the asset, an impairment loss is recognized by reducing the
recorded value to its current fair value.
The Company maintains field inventory consisting of capita
al equipment for customer demonstration and evaluation
purposes. Field inventory is generally not sold to customers but rather continues to be used over its useful life for
demonstration, evaluation and loaner purposes. An annual wear and tear provision has been recorded on field inventory. The
net book value of such equipment at December 31, 2021 and 2020 is $42.5 million and $43.3 million, respectively.
Translation of foreign currency financial statements
rates of
Assets and liabilities of foreign subsidiaries have been translated into United States dollars at the applicablea
exchange in effect at the end of the period reported. Revenues and expenses have been translated at the applicable weighted
average rates of exchange in effect during the period reported. Translation adjustments are reflected in accumulated other
comprehensive loss. Transaction gains and losses are included in net income.
Foreign exchange and hedging activity
We manage our foreign currency transaction risks through the use of forward contracts to hedge forecasted cash flows
associated with foreign currency transaction exposures. We account for these forward contracts as cash flow hedges. To the
extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings
but are included in accumulated other comprehensive loss. These changes in fair value will be reclassified into earnings as a
component of sales or cost of sales when the forecasted transaction occurs.
We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our
currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle
each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts
as hedges and have not applied hedge accounting to them. We record these forward contracts at fair value with resulting gains
and losses included in selling and administrative expense in the consolidated statements of comprehensive income.
Income taxes
ff
Deferred income tax assets and liabilities are based on the difference
between the financial statement and tax basis of
as measured by the enacted tax rates that are anticipated to
assets and liabilities and operating loss and tax credit carryforwards
be in effect in the respective jurisdictions when these difference
s reverse. The deferred income tax provision generally
represents the net change in the assets and liabilities for deferred income taxes. A valuation allowance is established when it is
necessary to reduce deferred income tax assets to amounts for which realization is likely. In assessing the need for a valuation
allowance, we estimate future taxabla e income, considering the feasibility of ongoing tax planning strategies and the realizability
of tax loss carryforwards following tax law ordering rules. Valuation allowances related to deferred tax assets may be impacted
by changes to tax laws, changes to statutory
tax rates, reversal of temporary differences and ongoing and future taxabla e income
levels.
ff
rr
t
Deferff
red income taxes are not provided on the unremitted earnings of certain subsidiaries outside of the United States
earned after December 31, 2017 as it is expected that these earnings are permanently reinvested. Such earnings may become
taxable upon a repatriation of assets from a subsidiary or the sale or liquidation of a subsidiary. Deferred income taxes are
provided when the Company no longer considers subsidiary earnings to be permanently invested, such as in situations where
the Company’s subsidiaries plan to make futuret
dividend distributions.
Revenue recognition
The Company recognizes revenue when we have satisfiedff
e obligation by transferring a promised good or
service (that is an asset) to a customer. An asset is transferred when the customer obtains control of that asset. The following
policies apply to our majoa r categories of revenue transactions:
ff
a performanc
49
•
Revenue is recognized when product is shipped at which point the performance obligation is satisfied and the customer
obtains control of the product.
• We place certain of our capita
al equipment with customers on a loaned basis and at no charge in exchange for
commitments to purchase related single-use products over time periods generally ranging from one to three years. In
these circumstances, no revenue is recognized upon capita
al equipment shipment as the equipment is loaned and subject
to returnt
if certain minimum single-use purchases are not met. Revenue is recognized upon the sale and shipment of
the related single-use products. The cost of the equipment is amortized over its estimated useful life which is generally
fiveff
years.
• We recognize revenues in accordance with the terms of our agreement with MTF on a net basis as our role is that of an
agent earning a commission or fee. MTF is responsible for the sourcing, processing and distribution of allograft tissue
for sports medicine procedures while the Company represents, markets and promotes MTF’s sports medicine allograft
tissues to customers. The Company is paid a fee by MTF which is calculated as a percentage of the net amounts
invoiced by MTF to customers for sports medicine allograft tissues. The Company accounts for the services provided
e obligations and each service is recognized over time as MTF
to MTF as a series of distinct performanc
simultaneously receives and consumes the benefit.
ff
•
•
•
Product returns are only accepted at the discretion of the Company and in accordance with our “Returned
t
Policy”. Historically, the level of product returns has not been significant. We accrue for sales returns,
allowances based upon an analysis of historical customer returns
conditions.
Goods
rebates and
and credits, rebates, discounts and current market
t
t
Our terms of sale to customers generally do not include any obligations to perform future services. Limited warranties
al equipment sales and provisions for warrantyt are provided at the time of product sale based
are provided for capita
upon an analysis of historical data.
Amounts billed to customers related to shipping and handling have been included in net sales. Shipping and handling
costs included in selling and administrative expense were $17.0 million, $14.6 million and $15.4 million for 2021,
2020 and 2019, respectively.
• We sell to a diversified base of customers around the world and, therefore, believe there is no material concentration of
credit risk.
• We assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk
assessment. We do so by applying historical loss rates to our accounts receivable aging schedule to estimate expected
adjusted expected credit losses for specifically identified and forecasted credit losses.
credit losses. We further
Historically, losses on accounts receivable have not been material. Management believes that the allowance for
doubtful accounts is adequate to provide for probablea
losses resulting from accounts receivable.
ff
• We sell extended warranties to customers that are typically for a period of one to three years. The related revenue is
recorded as a contract liabia lity and recognized over the life of the contract on a straight-line basis, which is reflective
of our obligation to stand ready to provide repair services.
Please refer to Note 10 for further detail on revenue.
50
Earnings per share
Basic earnings per share (“basic EPS”) is computed by dividing net income by the weighted average number of
common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive
potential shares outstanding resulting from employee stock options, restricted stock units, performance share units and stock
appreciation rights during
the computation of basic and diluted earnings per share at
ff
sets forth
December 31, 2021, 2020 and 2019, respectively:
the period. The following tablea
d
Net income
Basic-weighted average shares outstanding
Effect of dilutive potential securities
2021
2020
2019
$ 62,542
$
9,517
$ 28,620
29,162
28,581
28,325
3,054
883
1,170
Diluted-weighted average shares outstanding
32,216
29,464
29,495
Net income (per share)
Basic
Diluted
$
$
2.14
1.94
$
0.33
0.32
1.01
0.97
The shares used in the calculation of diluted EPS exclude options and stock appre
ciation rights ("SARs") to purchase
shares where the exercise price was greater than the average market price of common shares for the year and the effect of the
mately 0.6 million, 1.4 million and 0.7 million at
inclusion would be anti-dilutive. Such shares aggregated approxi
a
December 31, 2021, 2020 and 2019, respectively. As more fully described in Note 7, our 2.625% convertible notes dued
in 2024
into a combination of cash and
(the “Notes”) are convertible under certain circumstances, as defined in the indenture,
CONMED common stock.
a
t
The following is intended to describe the impact of the Notes and related hedge transactions on the calculation of
diluted EPS. Additional shares to be issued pursuant to the terms of the Notes and related hedge transactions, if any, would
occur at maturity.
The calculation of diluted EPS would include potential diluted shares uponu
conversion of the Notes when the average
market price per share of our common stock for the period, is greater than the conversion price of the Notes of $88.80. We
intend to settle in cash the principal outstanding and use the treasury stock method when calculating their potential dilutive
ff
effect
, if any.
During the year ended December 31, 2021, our average share price exceeded the conversion price of the Notes and we
included in our diluted share count 1.3 million shares assumed to be issued if the Notes were converted. During the years
ended December 31, 2020 and 2019, our average share price had not exceeded the conversion price of the Notes; therefore,
under the net share settlement method, there were no potential shares issuablea
under the Notes to be used in the calculation of
diluted EPS.
We previously entered into convertible note hedge transactions to increase the effective conversion price of the Notes
to $114.92. However, our convertible notes hedges are not included when calculating potential dilutive shares since their effff ecff
t
is always anti-dilutive.
Concurrently with entering into the hedge transactions, we also previously entered into warrant transactions under
which we agreed to sell shares of our common stock at $114.92.
The calculation of diluted EPS also includes potential diluted shares to be issued under the warrants when the average
market price per share of our common stock for the period is greater than $114.92. During the year ended December 31, 2021,
our average share price exceeded $114.92 and we therefore included in our diluted share count an additional 0.5 million shares
assumed to be issued under the warrants. During the years ended December 31, 2020 and 2019, our average share price had not
under the warrants to be used in the calculation of diluted
exceeded $114.92; therefore, there were no potential shares issuablea
EPS.
51
Stock-based compensation
All share-based payments to employees,
including grants of employee stock options, restricted stock units,
performance share units and stock appre
fair
values. Compensation expense is generally recognized using a straight-line method over the vesting period. Compensation
expense for performance share units is recognized using the graded vesting method.
ciation rights are recognized in the financial
statements at
their
a
We issue shares under our stock based compensation plans out of treasury stock whereby treasury stock is reduced by
the weighted average cost of such treasury stock. To the extent there is a difference between the cost of the treasury stock and
the exercise price of shares issued under stock based compensation plans, we record gains to paid in capital; losses are recorded
al to the extent any gain was previously recorded, otherwise the loss is recorded to retained earnings.
to paid in capita
Accumulated other comprehensive loss
Accumulated other comprehensive loss consists of the following:
Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Foreign
Currency
Translation
Adjustments
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2018
$
4,085
$
(31,718) $
(28,104) $
(55,737)
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified fromff
comprehensive income before tax(a)
Income tax
accumulated other
2,936
(2,158)
(8,607)
2,079
2,881
(696)
Net current-period other comprehensive income (loss)
(3,592)
27
25
—
—
25
803
(5,726)
1,383
(3,540)
Balance, December 31, 2019
$
493
$
(31,691) $
(28,079) $
(59,277)
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified fromff
comprehensive income (loss) before tax(a)
Income tax
accumulated other
(5,393)
(7,068)
6,963
(5,498)
(1,378)
333
2,821
(682)
—
—
1,443
(349)
Net current-period other comprehensive income (loss)
(6,438)
(4,929)
6,963
(4,404)
Balance, December 31, 2020
$
(5,945) $
(36,620) $
(21,116) $
(63,681)
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified fromff
comprehensive income (loss) before tax(a)
Income tax
accumulated other
6,560
4,426
(7,072)
4,010
(969)
3,327
(804)
—
—
3,914
7,337
(1,773)
Net current-period other comprehensive income (loss)
9,601
6,949
(7,072)
9,478
Balance, December 31, 2021
$
3,656
$
(29,671) $
(28,188) $
(54,203)
(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income components are included in sales or cost of sales and as a
component of net periodic pension cost, respectively. Refer to Note 16 and Note 12, respectively, for further details.
52
Note 2 – Business Acquisitions
rr
On February
11, 2019 we acquired Buffalff o Filter, LLC and all of the issued and outstanding common stock of
Palmerton Holdings, Inc. from Filtration Group FGC LLC (the "Buffalo Filter Acquisition") forff
approximately $365 million in
cash. Buffalo Filter develops, manufactures and markets smoke evacuation technologies that are complementary to our general
surgery offering. The business combination was funded through a combination of cash on hand and long-term borrowings as
further described in Note 7.
The unaudited pro forma information for the year ended December 31, 2019, assuming the Buffalo Filter Acquisition
occurred as of January 1, 2018 is presented below. This information has been prepared for comparative purposes only and does
not purport to be indicative of the results of operations which actually would have resulted had the Buffalo Filter acquisition
occurred on the dates indicated, or which may result in the futff ure.
t
Net sales
Net income
$
2019
960,115
44,361
These pro forma results include certain adjustments, primarily due to increases in amortization expense due to fair
value adjustments of intangible assets, increases in interest expense due to additional borrowings incurred to finance the
acquisition, and acquisition related costs including transaction costs such as legal, accounting, valuation and other professional
services as well as integration costs such as severance and retention.
Net sales associated with Buffalo Filter of $49.6 million have been recorded in the consolidated statement of
It is impracticabla e to determine the earnings recorded in the
the year ended December 31, 2019 as these amounts are not separately
the year ended December 31, 2019.
comprehensive income forff
consolidated statement of comprehensive income forff
measured.
Note 3 — Inventories
Inventories consist of the following at December 31:
Raw materials
Work in process
Finished goods
Note 4 — Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
Land
Building and improvements
Machinery and equipment
Construction in progress
Less: Accumulated depreciation
2021
83,386
17,449
130,809
231,644
2021
4,027
95,518
256,478
16,601
372,624
(263,761)
108,863
2020
71,807
15,864
107,197
194,868
2020
4,027
93,886
243,810
15,680
357,403
(245,996)
111,407
$
$
$
$
$
$
$
$
Internal-use software, included in gross machinery and equipment at December 31, 2021 and 2020 was $49.1 million
and $50.3 million, respectively, with related accumulated depreciation of $45.3 million and $42.9 million, respectively.
Internal use software depreciation expense was $3.3 million, $4.7 million and $4.8 million for the years ended December 31,
2021, 2020 and 2019, respectively. Also, during 2020, we sold a vacant facility forff
$3.2 million.
53
Note 5 – Leases
Lease costs for the year ended December 31, consist of the following:
Operating lease cost:
Straight-line lease cost
Right-of-use asset impairment cost
Total operating lease cost
Finance lease cost:
Depreciation
Interest on lease liabilities
Total finance lease cost
Total lease cost
2021
2020
2019
$
7,720
$
7,255
$
—
7,720
389
30
419
—
7,255
355
33
388
7,780
312
8,092
238
27
265
$
8,139
$
7,643
$
8,357
Supplemental balance sheet information related to leases as of December 31, is as follows:
2021
2020
Operating leases
Other assets
Other current liabilities
Other long-term liabilities
Total operating lease liabila
ities
Finance leases
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
Current portion of long-term debt
Long-term debt
Total finance lease liabila
ities
$
$
$
$
$
$
$
19,425
7,162
12,726
19,888
1,984
(1,145)
839
324
240
564
$
$
$
$
$
$
$
21,659
7,469
14,756
22,225
1,762
(825)
937
197
390
587
Weighted average remaining lease term (in years)
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
3.90 years
3.05 years
3.76 years
3.22 years
5.02 %
4.47 %
5.00 %
4.93 %
54
Supplemental cash flowff
information related to leases forff
the year ended December 31, was as foll
ff
ows:
2021
2020
2019
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows from operating leases
$
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Maturities of lease liabila
ities as of December 31, 2021 are as folff
lows:
7,791
$
287
7,535
$
373
4,704
305
4,242
76
8,459
380
12,800
563
Finance Lease
Operating Lease
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less imputed interest
Total lease liabila
ities
$
$
$
324
188
62
8
5
1
588
(24)
7,162
5,830
4,555
1,637
795
2,174
22,153
(2,265)
564
$
19,888
As of December 31, 2021, we have entered into approximately $0.1 million of operating leases that have not yet
commenced. As of December 31, 2021 we have not entered into any finaff
nce leases that have not yet commenced.
Note 6 – Goodwill and Other Intangible Assets
The changes in the net carrying amount of goodwill forff
the years ended December 31, are as follows:
Balance as of January 1,
Goodwill adjustment resulting from business combinations
Foreign currency translation
Balance as of December 31,
2021
618,440
$
2020
618,042
$
—
(1,009)
(912)
1,407
$
617,528
$
618,440
Total accumulated goodwill
losses aggregated $107.0 million at December 31, 2021 and 2020,
respectively. During 2019, the Company acquired a distributor and in 2020 recorded a measurement period adjustment related
to the acquired distributor.
impairment
55
Other intangible assets consist of the following:
Intangible assets with definite lives:
Customer and distributor relationships
Sales representation, marketing and promotional
rights
Patents and other intangible assets
Developed technology
Intangible assets with indefinite lives:
December 31, 2021
December 31, 2020
Weighted
Average
Amortization
Period
(Years)
22
24
5
2
16
16
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$ 342,452
$
(152,934) $ 342,639
$
(134,555)
1
49,376
(60,000)
149,376
(54,000)
76,392
(50,890)
73,516
(48,882)
106,604
(26,495)
106,604
(19,705)
s
Trademarks and tradename
6,544
8
—
86,544
—
$ 761,368
$
(290,319) $ 758,679
$
(257,142)
Amortization expense related to intangible assets which are subject to amortization totaled $33.3 million, $34.2 million
and $32.3 million for the years ending December 31, 2021, 2020 and 2019, respectively, and is included as a reductd
ion of
revenue (for amortization related to our sales representation, marketing and promotional rights) and in selling and
administrative expense (for all other intangible assets) in the consolidated statements of comprehe
nsive income.
m
The estimated amortization expense related to intangible assets at December 31, 2021 and for each of the five
succeeding years is as follows:
2022
2023
2024
2025
2026
Amortization
included in
expense
Amortization
recorded as a
reduction of
revenue
$
$
26,397
25,665
24,947
25,140
24,651
$
6,000
6,000
6,000
6,000
6,000
Total
32,397
31,665
30,947
31,140
30,651
Note 7 — Long Term Debt
Long-term debt consists of the following at December 31:
Revolving line of credit
Term loan, net of deferre
respectively
ff
d debt issuance costs of $1,373 and $1,668 in 2021 and 2020,
2.625% convertible notes, net of deferred debt issuance costs of $3,700 and $5,475 in
2021 and 2020, respectively, and unamortized discount of $23,404 and $33,620 in 2021
and 2020, respectively
Financing leases
Total debt
Less: Current portion
Total long-term debt
2021
2020
$
140,000
$
207,000
226,196
240,145
317,896
564
684,656
12,249
672,407
$
305,904
587
753,636
18,415
735,221
$
On July 16, 2021, we entered into a seventh amended and restated senior credit agreement consisting of: (a) a $233.5
ility and (b) a $585.0 million revolving credit facility. The revolving credit facility will terminate and the
million term loan facff
in quarterly installments
will expire on July 16, 2026. The term loan is payablea
ff
loans outstanding under the term loan facility
and borrowings under the revolving credit facility
increasing over the term of the facility. Proceeds from the term loan facility
were used to repay the then existing senior credit agreement.
Interest rates are at LIBOR (subject to 0.125% floor) plus an
interest rate margin of 1.50% (1.625% at December 31, 2021). For borrowings where we elect to use the alternate base rate, the
initial base rate is the greatest of (i) the Prime Rate, (ii) the Federal Funds Rate plus 0.50% or (iii) the one-month Adjusted
LIBOR plus 1.00%, plus, in each case, an interest rate margin.
ff
There were $227.6 million in borrowings outstanding on the term loan facility
as of December 31, 2021. There were
$140.0 million in borrowings outstanding under the revolving credit facility as of December 31, 2021. Our available
borrowings on the revolving credit facility at December 31, 2021 were $442.5 million with approximately $2.5 million of the
facility set aside for outstanding letters of credit. The carrying amounts of the term loan and revolving credit facility
approximate faiff
r value.
ff
The seventh amended and restated senior credit agreement is collateralized by substantially all of our personal property
and assets. 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, 2021. We are also required, under certain circumstances, to make mandatory prepayments from
net cash proceeds from any issuance of equity and asset sales.
On January 29, 2019, we issued $345.0 million in 2.625% convertible notes dued
Interest is
semi-annually in arrears on February 1 and August 1 of each year, commencing August 1, 2019. The Notes will
payablea
ted unsecured obligations
mature on February 1, 2024, unless earlier repurchased or converted. The Notes represent subordina
and are convertible under certain circumstances, as defined in the indenture,
into a combination of cash and CONMED common
stock. The Notes may be converted at an initial conversion rate of 11.2608 shares of our common stock per $1,000 principal
mately $88.80 per share of common stock). Holders of the
amount of Notes (equivalent to an initial conversion price of approxi
Notes may convert the Notes at their option at any time on or after November 1, 2023 through the second scheduled trading day
preceding the maturity date. Holders of the Notes will also have the right to convert the Notes prior to November 1, 2023, but
only upon the occurrence of specified events. The conversion rate is subject to anti-dilution adjustments if certain events occur.
A portion of the net proceeds from the offering of the Notes were used as part of the financing for the Buffalo Filter acquisition
and $21.0 million were used to pay the cost of certain convertible notes hedge transactions as further described below.
in 2024 (the "Notes").
u
a
t
Our effective borrowing rate forff
nonconvertible debt at the time of issuance of the Notes was estimated to be 6.14%,
which resulted in $51.6 million of the $345.0 million aggregate principal amount of Notes issued, or $39.1 million after taxes,
being attributablea
to equity. For the years ended December 31, 2021, 2020 and 2019, we have recorded interest expense related
to the amortization of debt discount on the Notes of $10.2 million, $9.7 million and $8.3 million respectively, at the effective
interest rate of 6.14%. The debt discount on the Notes is being amortized through February 2024. For the years ended
December 31, 2021, 2020 and 2019, we have recorded interest expense on the Notes of $9.1 million, $9.1 million and $8.4
million, respectively, at the contractual
coupon rate of 2.625%.
t
57
The estimated fair value of the Notes was approximately $576.0 million as of December 31, 2021 based on a market
r value was determined based on
l bids and offers of the Notes in an over-the-counter market transaction on the last business day of the
approach which represents a Level 2 valuation in the fair value hierarchy. The estimated faiff
the estimated or actuat
period.
t
In connection with the offering of the Notes, we entered into convertible note hedge transactions with a number of
ons (each, an “option counterparty”). The convertible note hedge transactions cover, subject to anti-dilution
financial instituti
adjustments substantially similar to those applicable to the Notes, the number of shares of our common stock underlying the
Notes. Concurrently with entering into the convertible note hedge transactions, we also entered into separate warrant
transactions with each option counterparty whereby we sold to such option counterparty warrants to purchase, subject to
customary anti-dilution adjustments, the same number of shares of our common stock.
The convertible note hedge transactions are expected generally to reduce the potential dilution upon conversion of the
Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the
case may be, in the event that the market price per share of our common stock, as measured under the terms of the convertible
note hedge transactions, is greater than the strike price of the convertible note hedge transactions, which initially corresponds to
the conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the
conversion rate of the Notes. If, however, the market price per share of our common stock, as measured under the terms of the
warrant transactions, exceeds the strike price ($114.92) of the warrants, there would nevertheless be dilution to the extent that
such market price exceeds the strike price of the warrants, unless we elect to settle the warrants in cash.
See additional discussion regarding a new accounting standard and related impact on our Notes in Note 17.
The scheduled maturities of long-term debt outstanding at December 31, 2021 are as follows:
2022
2023
2024
2025
2026
$
11,925
14,906
365,869
23,850
296,019
The above amounts exclude debt discount,deferred debt issuance costs and financing leases.
Note 8 — Income Taxes
The provision (benefit) forff
income taxes forff
the years ended December 31, 2021, 2020 and 2019 consists of the
following:
Current tax expense (benefit):
Federal
State
Foreign
Deferred income tax expense (benefit):
Federal
State
Foreign
2021
2020
2019
$
(97) $
609
7,046
7,558
3,466
1,449
(1,910)
3,005
(729) $
86
6,963
6,320
(12,253)
(1,173)
(808)
(14,234)
96
444
8,375
8,915
(3,970)
(938)
(1,402)
(6,310)
Provision (benefit) for income taxes
$
10,563
$
(7,914) $
2,605
58
A reconciliation between income taxes computed at the statutory federal rate and the provision (benefit) forff
income
taxes for the years ended December 31, 2021, 2020 and 2019 follows:
Tax provision at statutory
t
rate based on income beforeff
income taxes
21.0 %
21.0 %
21.0 %
2021
2020
2019
Stock-based compensation
Federal research credit
Valuation allowance
US tax on worldwide earnings at different rates
Settlement of taxing authority examinations
Tax treaty protocols
Non deductible/non-taxable items
Foreign income taxes
State income taxes, net of federal tax benefit
Other, net
(9.4)
(2.3)
(2.2)
(0.4)
—
—
0.8
3.1
3.7
0.1
(267.7)
(15.4)
(124.2)
(4.0)
49.7
(123.7)
(122.9)
—
28.6
79.9
(24.5)
(10.1)
1.9
7.9
(7.7)
(2.9)
2.8
4.5
0.3
(0.1)
14.4 %
(493.9)%
8.3 %
The Company has elected to account for Global Intangible Low Tax Income ("GILTI") using the period cost method.
The net impact of GILTI including the allowable GILTI deduction is presented in the rate reconciliation as a component of “US
ion (“FDII”).
tax on worldwide earnings at different rates” and is offseff
t in part by the Foreign Derived Intangible Income deductd
59
The tax effeff cts of the significant temporary differences which comprise the deferred income tax assets and liabilities at
December 31, 2021 and 2020 are as follow
ff
s:
Assets:
alized research and development
Inventory
Net operating losses
Capita
Deferred compensation
Accounts receivable
Compensation and benefits
Accrued pension
Research and development credit
Convertible notes hedge
Lease liabilities
Other
Less: valuation allowances
Liabilities:
Goodwill and intangible assets
Depreciation
State taxes
Unremitted forei
Convertible notes debt discount
Lease right-of-use assets
gn earnings
ff
$
2021
2020
$
4,694
18,383
4,173
2,563
3,147
6,583
3,930
15,542
4,869
3,573
5,741
(786)
72,412
106,065
2,546
11,833
2,449
4,915
3,484
131,292
4,649
22,197
5,187
2,240
2,784
7,540
5,348
13,540
6,999
4,452
6,793
(2,721)
79,008
104,119
2,512
9,614
2,423
7,060
4,313
130,041
Net liability
$
(58,880) $
(51,033)
Income beforeff
income taxes consists of the folff
lowing U.S. and foreign income:
U.S. income
Foreign income
Total income
2021
2020
2019
$
$
45,260
27,845
73,105
$
$
(16,026) $
17,629
1,603
$
5,332
25,893
31,225
As of December 31, 2021, the amount of federal net operating loss carryfrr orwa
rd was $15.7 million and begins to
the amount of federal research credit carryforward available was $15.5
ff
expire in 2027. As of December 31, 2021,
million. These credits begin to expire in 2027.
We have accrued tax liabia lities related to the amount of unremitted earnings at December 31, 2017 and certain
subsequent unremitted earnings as these are not considered permanently reinvested. Deferred taxes have not been accrued on
unremitted earnings subsequent to December 31, 2017 that are considered permanently reinvested. The amount of such
untaxed foreign earnings for the periods occurring after December 2017 totaled $20.3 million. If we were to repatriate these
funds, we would be required to accrue and pay taxes on such amounts. The Company has estimated foreign withholding taxes
of $0.9 million would be due if these earnings were repatriated.
60
The Company is subject to taxation in the United States and various states and foreign jurisdictions. Taxing authority
examinations can involve complex issues and may require an extended period of time to resolve. Our federal income tax
t
returns
have been examined by the Internal Revenue Service (“IRS”) for calendar years ending through 2019.
We recognize tax liabilities in accordance with the provisions for accounting for uncertainty in income taxes. Such
guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return.
t
The following tablea
summarizes the activity related to our unrecognized tax benefits forff
the years ending December
31,:
Balance as of January 1,
2021
2020
2019
$
200
$
2,170
$
3,073
Increases for positions taken in current periods
Decreases in unrecorded tax positions related to settlement with the
taxing authorities
Decreases in unrecorded tax positions related to lapsea
limitations
of statute of
—
—
—
—
1,650
(1,970)
(2,404)
—
(149)
Balance as of December 31,
$
200
$
200
$
2,170
If the total unrecognized tax benefits of $0.2 million at December 31, 2021 were recognized, it would reduce our
annual effective tax rate. The amount of interest accrued in 2019, 2020 and 2021 related to these unrecognized tax benefits was
income taxes in the consolidated statements of comprehensive
not material and is included in the provision (benefit) forff
income.
Note 9 – Shareholders’ Equity
On February 29, 2012, the Board of Directors adopted a cash dividend policy and declared an initial quarterly dividend
of $0.15 per share. On October 28, 2013, the Board of Directors increased the quarterly dividend to $0.20 per share. The total
dividend per share was $0.80 for each of 2021, 2020 and 2019. The fourth quarter dividend for 2021 was paid on January 5,
was $5.9 million and $5.8 million at
2022 to shareholders of record as of December 15, 2021. The total dividend payablea
December 31, 2021 and 2020, respectively, and is included in other current liabilities in the consolidated balance sheet.
Our shareholders have authorized 500,000 shares of preferred stock, par value $.01 per share, which may be issued in
one or more series by the Board of Directors without further action by the shareholders. As of December 31, 2021 and 2020, no
preferred stock had been issued.
Our Board of Directors has authorized a $200.0 million share repurchase program. Through December 31, 2021, 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 forff
shares to be purchased in the open
market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any
time. During 2021, 2020, and 2019 we did not repurchase any shares.
share repurchases. The repurchase program calls forff
We have reserved 6.7 million shares of common stock for issuance to employees and directors under two shareholder
approved share-based compensation plans (the "Plans") of which approximately 3.4 million shares remain availablea
for grant at
December 31, 2021. The exercise price on all outstanding stock options and stock appreciation rights (“SARs”) is equal to the
quoted faiff
r market value of the stock at the date of grant. Restricted stock units (“RSUs”) and performance stock units
(“PSUs”) are valued at the market value of the underlying stock on the date of grant. Stock options, SARs, RSUs and PSUs are
generally non-transferable other than on death and generally become exercisable over a 4 to 5 year period from date of
grant. Stock options and SARs expire 10 years from date of grant. SARs are only settled in shares of the Company’s
stock. The issuance of shares pursuant to the exercise of stock options and SARs and vesting of RSUs and PSUs are from the
Company’s treasury stock.
61
Total pre-tax stock-based compensation expense recognized in the consolidated statements of comprehensive income
was $16.3 million, $13.1 million and $11.8 million forff
the years ended December 31, 2021, 2020 and 2019, respectively. These
amounts are included in selling and administrative expense. Tax related benefits of $3.9 million, $3.2 million and $2.8 million
the exercise of
were also recognized for the years ended December 31, 2021, 2020 and 2019, respectively. Cash received fromff
stock options was $19.6 million, $13.7 million and $7.7 million for the years ended December 31, 2021, 2020 and 2019,
respectively, and is reflected in cash flows from financing activities in the consolidated statements of cash flows.
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options and SARs at the
date of grant. Use of a valuation model requires management to make certain assumptions with respect to select model inputs.
Expected volatilities are based upon historical volatility of the Company’s stock over a period equal to the expected life off
f each
stock option and SAR grant. The risk free interest rate is based on the stock option and SAR grant date forff
a traded U.S.
The expected annual dividend yield is based on the Company's
Treasury bond with a maturi
anticipated cash dividend payouts. The expected life represents the period of time that the stock options and SARs are expected
to be outstanding based on a study of historical data of option holder exercise and termination behavior. Forfeitures are
recognized as incurred.
ty date closest to the expected life.ff
t
The following tablea
illustrates the assumptim ons used in estimating fair value in the years ended December 31, 2021,
2020 and 2019:
Grant date fair value of stock options and SARs
Expected stock price volatility
Risk-free interest rate
Expected annual dividend yield
Expected life of options & SARs (years)
$
2020
2019
$
42.47
39.27
0.81
0.64
%
%
%
5.5
$
22.62
6.89 %
2
0
.89 %
.82 %
0
5.5
20.59
26.59 %
2.58 %
1.08 %
5.6
following tabla e illustrates the stock option and SAR activity for the year ended December 31, 2021:
Outstanding at December 31, 2020
Granted
Forfeited
Exercised
Outstanding at December 31, 2021
Exercisable at December 31, 2021
Stock options & SARs expected to vest
Number
of
Shares
(in 000’s)
Weighted-
Average
Exercise
Price
3,336
$
66.76
701
$
(177) $
(596) $
3,264
1,284
1,980
$
$
$
123.21
82.35
51.59
80.79
59.40
94.67
The weighted average remaining contractual term forff
at
December 31, 2021 was 7.0 years and 5.5 years, respectively. The aggregate intrinsic value of SARs and stock options
outstanding and exercisable at December 31, 2021 was $199.0 million and $105.8 million, respectively. The aggregate intrinsic
value of stock options and SARs exercised during the years ended December 31, 2021, 2020 and 2019 was $49.2 million, $26.6
million and $17.0 million, respectively.
SARs and stock options outstanding and exercisablea
62
The folff
lowing table illustrates the RSU activity for the year ended December 31, 2021:
Outstanding at December 31, 2020
Granted
Vested
Forfeited
Outstanding at December 31, 2021
Number
of
Shares
(in 000’s)
Weighted-
Average
Grant-Date
Fair Value
61
$
77.03
21
$
(30) $
(1) $
129.94
73.11
55.96
51
$
101.55
The weighted average fair value of RSU awards granted in the years ended December 31, 2021, 2020 and 2019 was
$129.94, $85.45 and $78.64, respectively.
The total faiff
r value of RSUs and PSUs vested was $2.2 million, $6.2 million and $2.8 million for the years ended
December 31, 2021, 2020 and 2019, respectively.
As of December 31, 2021, there was $45.4 million of total unrecognized compensation cost related to nonvested stock
options, SARs and RSUs granted under the Plans which is expected to be recognized over a weighted average period of 3.5
years.
We offer to our employees a shareholder-approved Employee Stock Purchase Plan (the “Employee Plan”), under
which we reserved 1.0 million shares of common stock for issuance to our employees. The Employee Plan provides employees
with the opportunity to invest from 1% to 10% of their annual salary to purchase shares of CONMED common stock at a
purchase price equal to 95% of the fair market value of the common stock on the exercise date. During 2021, we issued
approximately 13,024 shares of common stock under the Employee Plan. No stock-based compensation expense has been
recognized in the accompanying consolidated financial statements as a result of common stock issuances under the Employee
Plan.
Note 10 — Revenues
The following tablea
s present revenue disaggregated by product line and timing of revenue recognition for the years
ended December 31, 2021, 2020 and 2019:
Orthopedic Surgery
General Surgery
Total
2021
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferredr
over time
Total sales from contracts with customers
$
$
398,963
39,461
438,424
$
$
567,244
4,967
572,211
Orthopedic Surgery
General Surgery
2020
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferredr
over time
Total sales from contracts with customers
$
$
340,318
34,387
374,705
$
$
484,147
3,607
487,754
$
$
$
$
966,207
44,428
1,010,635
Total
824,465
37,994
862,459
63
Orthopedic Surgery
General Surgery
Total
2019
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferredr
over time
Total sales from contracts with customers
$
$
426,893
36,429
463,322
$
$
489,313
2,462
491,775
$
$
916,206
38,891
955,097
Revenue disaggregated by primary geographic market where the products are sold is included in Note 11.
Contract liabila
ity balances related to the sale of extended warranties to customers are as follows:
December 31, 2021 December 31, 2020
Contract Liabila
ity
$
16,760
$
13,666
Revenue recognized during years ended December 31, 2021, 2020 and 2019 from amounts included in contract
liabilities at the beginning of the period were $10.3 million, $9.3 million and $6.8 million, respectively. There were no material
contract assets as of December 31, 2021 and December 31, 2020.
Note 11 — Business Segments and Geographic Areas
We are accounting and reporting for our business as a single operating segment entity engaged in the development,
manufacturing and sale on a global basis of surgical devices and related equipment. Our chief operating decision maker (the
CEO) evaluates the various global product portfolios on a net sales basis and evaluates profitability, investment, cash flow
metrics and allocates resources on a consolidated worldwide basis due to shared infrastructuret
and resources. Our product lines
consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine instrumentation and small
bone, large bone and specialty powered surgical instruments as well as imaging systems forff
use in minimally invasive surgical
procedures and fees related to sales representation, promotion and marketing of sports medicine allograft tissue. General
surgery crr
c and gastrointestinal
procedures, smoke evacuation devices, a line of cardiac monitoring products as well as electrosurgical generators and related
instruments. These product lines' net sales and primary geographic
market where the products are sold, are as follows for the
a
years ended December 31, 2021, 2020 and 2019:
onsists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopi
a
Orthopedic Surgery
General Surgery
Total
2021
Primary Geographic Markets
United States
Europe, Middle East & Africa
Asia Pacificff
Americas (excluding the United States)
Total sales from contracts with customers
$
$
$
158,553
108,457
107,590
63,824
$
393,980
81,238
63,628
33,365
552,533
189,695
171,218
97,189
438,424
$
572,211
$
1,010,635
Orthopedic Surgery
General Surgery
Total
2020
Primary Geographic Markets
United States
Europe, Middle East & Africa
Asia Pacificff
Americas (excluding the United States)
Total sales from contracts with customers
$
$
139,715
$
342,349
$
90,998
93,636
50,356
70,086
46,961
28,358
374,705
$
487,754
$
482,064
161,084
140,597
78,714
862,459
64
Orthopedic Surgery
General Surgery
Total
2019
Primary Geographic Markets
United States
Europe, Middle East & Africa
Asia Pacificff
Americas (excluding the United States)
Total sales from contracts with customers
$
$
179,419
$
337,246
$
118,301
101,333
64,269
64,248
59,277
31,004
463,322
$
491,775
$
516,665
182,549
160,610
95,273
955,097
Sales are attributed to countries based on the location of the customer. There were no significant investments in long-
lived assets located outside the United States at December 31, 2021 and 2020. No single customer represented over 10% of our
consolidated net sales for the years ended December 31, 2021, 2020 and 2019.
Note 12 — Employee Benefit Plans
We sponsor an employee savings plan (“401(k) plan”) covering substantially all of our United States based employees.
We also sponsor a defined benefit pension plan (the “pension plan”) that was frozen in 2009. It covered substantially all our
United States based employees at the time it was frozen.
ff
Total employer contributions to the 401(k) plan were $9.2 million, $8.9 million and $9.1 million during the years
ended December 31, 2021, 2020 and 2019, respectively.
We use a December 31, measurement date forff
our pension plan. Cumulative gains and losses in excess of 10% of the
greater of the benefit obligation or the market-related value of assets are amortized on a straight-line basis over the lesser of the
expected average remaining life expectancy of the plan's participants or 12 years. The limit of 12 years is adjusted to reflect the
percentage change in the average remaining service period for the plan's active membership.
The following tablea
pension plan at December 31:
provides a reconciliation of the projected benefit obligation, plan assets and funded statust
of the
Accumulated benefit obligation
Change in benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Settlements
Projected benefit obligation at end of year
gain on plan assets
Change in plan assets
Fair value of plan assets at beginning of year
Actual
t
Benefits paid
Settlements
Fair value of plan assets at end of year
Funded status
65
2020
95,508
$
101,242
101,242
991
1,803
(3,427)
(2,703)
(2,398)
95,508
76,940
7,565
(2,703)
(2,398)
79,404
$
$
$
$
92,052
717
2,555
10,963
(1,933)
(3,112)
101,242
75,321
6,664
(1,933)
(3,112)
76,940
(16,104) $
(24,302)
$
$
$
$
$
$
The projected benefit obligation decreased $5.7 million as of December 31, 2021 mainly dued
to the increase in the
discount rate from 2.44% at December 31, 2020 to 2.81% at December 31, 2021.
Amounts recognized in the consolidated balance sheets consist of the following at December 31,:
Other long-term liabilities
Accumulated other comprehensive loss
2021
2020
$
(16,104) $
(39,122)
(24,302)
(48,285)
Accumulated other comprehensive loss for the years ended December 31, 2021 and 2020 consists of net actuarial
losses not yet recognized in net periodic pension cost (before income taxes).
The following actuarial assumptions were used to determine our accumulated and projected benefit obligations as of
December 31,:
Discount rate
2021
2020
2.81 %
2.44 %
Other changes in plan assets and benefit obligations recognized in other comprehensive income in 2021 and 2020 are
as follows:
rial loss (gain)
Current year actuat
Amortization of actuarial loss
)
Total recognized in other comprehensive income (loss
2021
2020
$
$
5,836
3,327
9,163
$
$
(9,320)
2,821
(6,499)
Net periodic pension cost for the years ended December 31, consists of the folff
lowing:
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of loss
Net periodic pension cost
2021
2020
2019
$
$
991
1,803
(5,155)
3,327
966
$
$
717
2,555
(5,021)
2,821
1,072
$
$
1,010
3,130
(4,725)
2,881
2,296
Non-service cost of $0.4 million and $1.3 million is included in other expense in the consolidated statements of
the year
comprehensive income for the years ended 2020 and 2019, respectively. Non-service pension cost was immaterial forff
ended 2021.
The following actuarial assumptim ons were used to determine our net periodic pension benefit cost forff
the years ended
December 31,:
Discount rate on benefit obligation
Effective rate forff
Expected return on plan assets
interest on benefit obligation
2021
2020
2019
2.44 %
1.83 %
7.00 %
3.33 %
2.88 %
7.00 %
4.37 %
4.01 %
7.50 %
Company’s discount rate and mortality assumptions are the significant assumptions in determining the projected
benefit obligation of the Company’s pension plan.
The discount rate represents the interest rate used in estimating the present value of projected cash flows to settle the
Company’s pension obligations. The discount rate assumption is determined by management using a full
ch,
which involves applying the specific spot rates along the yield curve used in the determination of the benefit obligation that
correlates to the relevant projected cash flows.
yield curve approa
a
ff
66
Mortality assumptions are based on published mortality studies developed primarily based on past experience of the
projected longevity trends. The mortality assumptim ons used for 2021 and 2020 are based on
broad population and modified forff
the Pri-2012 Mortality Tables using the MP-2021 and MP-2020, respectively, mortality improvement scales.
In determining the expected returnt
on pension plan assets, we consider the relative weighting of plan assets, the
historical performance of total plan assets and individual asset classes and economic and other indicators of future
In addition, we consult with financial and investment management professionals in developing appropriate
performance.
targeted rates of return.
Asset management objectives include maintaining an adequate level of diversification to reduce interest rate and
market risk and providing adequate liquidity to meet immediate and futuret
benefit payment requirements.
The allocation of plan assets by category is as follows at December 31,:
Equity securities
Debt securities
Total
Percentage of Pension
Plan Assets
2021
2020
Target
Allocation
2022
73 %
27 %
100 %
76 %
24 %
100 %
75 %
25 %
100 %
As of December 31, 2021, the pension plan held 27,562 shares of our common stock, which had a faiff
r value of $3.9
million. We believe that our long-term asset allocation on average will approximate the targeted allocation. We regularly
review our actual asset allocation and periodically rebalance the pension plan’s investments to our targeted allocation when
a
deemed appropri
ate.
FASB guidance defines fair value and establia
ework for measuring fair value and related disclosure
shes a framff
requirements as described in Note 16. Following is a description of the valuation methodologies used for our pension assets.
There have been no changes in the methodologies used at December 31, 2021 and 2020:
Common
Stock:
Common stock is valued at the closing price reported on the common stock’s respective stock
exchange and is classified within level 1 of the valuation hierarchy.
Fixed Income
Securities:
Valued at the closing price reported on the active market on which the individual securities are traded
and are classified within level 1 of the valuation hierarchy.
Money
Market Fund: These investments are public investment vehicles valued using the Net Asset Value (NAV).
Mutual
Funds:
These investments are public investment vehicles valued using the Net Asset Value (NAV) provided
by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the
fund, minus its liabilities, and then divided by the number of shares outstanding.
The methods described above may produce a fair
value calculation that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, while the pension plan believes its valuation methods are appropriate and
consistent with other market participants, the use of different methodologies or assumptim ons to determine the fair value of
certain financial instruments could result in a different fair value measurement at the reporting date.
ff
67
The folff
lowing table sets forth the value of the pension plan's assets as of December 31, 2021 and December 31, 2020:
Investments measured at fair value:
Level 1
Common Stock
Fixed Income Securities
Total Investments measured at fair value
Investments measured at NAV:
Money Market Fund
Mutual Funds
Total Investments measured at NAV
2021
2020
$
$
9,767
20,272
30,039
1,098
48,267
49,365
9,185
17,848
27,033
915
48,992
49,907
Total Investments
$
79,404
$
76,940
We do not expect to make any contributions to our pension plan for 2022.
summarizes the benefits and settlements expected to be paid by our pension plan in each of the
The following tablea
next five years and in aggregate forff
the following five years. The expected payments are estimated based on the same
assumptions used to measure the Company’s projected benefit obligation at December 31, 2021 and reflect the impact of
expected futuret
employee service.
2022
2023
2024
2025
2026
2027-2031
Note 13 — Legal Matters and Contingencies
$6,427
5,801
5,627
5,890
6,026
26,543
From time to time, the Company may receive an information request, subpoena or warrant from a government agency
such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, the
Occupational Safety and Health Administration, the United States Food and Drug Administration, the Department of Labor,
the
Treasury Department or other fede
ral and state agencies or foreign governments or government agencies. These information
requests, subpoenas or warrants may or may not be routine inquiries, or may begin as routine inquiries and over time develop
into enforcement actions of various types. Likewise, if we receive reports of alleged misconduct from employees and third
parties, we investigate as appropriate.
a
ff
Manufacturers of medical devices have been the subject of various enforcement actions relating to interactions with
health care providers domestically or internationally whereby companies are claimed to have provided health care providers
with inappropria
te incentives to purchase their products. Similarly, the Foreign Corrupt Practices Act ("FCPA") imposes
a
obligations on manufacturers with respect to interactions with health care providers who may be considered government
officials based on their affiliation with public hospitals. The FCPA also requires publicly listed manufacturers to maintain
accurate books and records, and maintain internal accounting controls sufficient to provide assurance that transactions are
accurately recorded, lawful and in accordance with management's authorization. The FCPA poses unique challenges both
because manufacturers operate in foreign cultures in which conduct illegal under the FCPA may not be illegal in local
jurisdictions, and because, in some cases, a United States manufacturer may face risks under the FCPA based on the conduct of
third parties over whom the manufacturer may not have complete control. While CONMED has not experienced any material
enforcement action to date, there can be no assurance that the Company will not be subject to a material enforcement action in
the future
lawyers and other consultants, that are
ff
material to the Company’s results of operations in the course of responding to a future
, or that the Company will not incur costs including, in the form of fees forff
inquiry or investigation.
ff
68
Manufacturers of medical products may face exposure to significant product liabila
as well as patent
infringement and other claims incurred in the ordinary course of business. To date, we have not experienced any claims that
have been material to our financial statements or financial condition, but any such claims arising in the future could have a
ity
material adverse effect on our business, results of operations or cash flows. We currentl
insurance of $35 million per incident and $35 million in the aggregate annually, which we believe is adequate. This coverage is
on a claims-made basis. There can be no assurance that claims will not exceed insurance coverage, that the carriers will be
solvent or that such insurance will be availablea
y maintain commercial product liabila
at a reasonable cost.
to us in the futuret
ity claims,
r
Our operations are subject, and in the past have been subject, to a number of environmental laws and regulations
governing, among other things, air emissions; wastewater discharges; the use, handling and disposal of hazardous substances
and wastes; soil and groundwater remediation and employee health and safety.t
Likewise, the operations of our suppliers and
sterilizers are subject to similar environmental laws and regulations. In some jurisdictions, environmental requirements may be
expected to become more stringent in the future. In the United States, certain environmental laws can impose liability forff
the
entire cost of site restoration upon each of the parties that may have contributed to conditions at the site regardless of fault or
the lawfulne
ss of the party’s activities. While we do not believe that the present costs of environmental compliance and
remediation are material, there can be no assurance that future compliance or remedial obligations would not have a material
adverse effecff
t on our financial condition, results of operations or cash flows.
ff
In 2014, the Company acquired EndoDynamix, Inc. The agreement governing the terms of the acquisition provides
that, if various conditions are met, certain contingent payments relating to the first commercial sale of the products (the
milestone payment), as well as royalties based on sales (the revenue based payments), are due to the seller. In 2016, we notified
the seller that there was a need to redesign the product, and that, as a consequence, the first commercial sale had been delayed.
Consequently, the payment of contingent milestone and revenue-based payments were delayed. On January 18, 2017, the seller
provided notice (the "Notice") seeking $12.7 million under a liquidated damages clause, which essentially represents the seller's
view as to the sum of the projected contingent milestone and revenue-based payments on an accelerated basis. CONMED
responded to the Notice denying that there was any basis for acceleration of the payments due under the acquisition agreement.
On February 22, 2017, the representative of the former shareholders of EndoDynamix filed a complaint in Delaware Chancery
Court claiming breach of contract with respect to the duty to commercialize the product and seeking the contingent payments on
the Company's decision to redesign
basis to support
an accelerated basis. We believe that there was a substantive contractual
the product, such that there was no legitimate basis for seeking the liquidated damages.
In the third quarter of 2018, the
Company decided to halt the development of the EndoDynamix clip applier and recorded a charge to write off assets and
released a previously accrued contingent consideration liability. In court filings the Plaintiffsff
claim to seek liquidated damages,
as well as additional damages up to $24.8 million. A non-jury trial in the Delaware Chancery Court commenced on March 18,
2021, and testimony concluded on April 7, 2021. The parties have submitted post-trial briefs, the Court heard oral arguments at
a hearing on September 16, 2021 and requested additional briefs which are expected to be filed at the end of February 2022.
The Court will thereafter issue a ruling. The Company has not recorded any expense related to potential damages in connection
with this matter because the Company does not believe any potential loss is probable. We expect to defend the claims asserted
by the sellers of EndoDynamix, although there can be no assurance that we will prevail in the trial and/or any resulting appeals.
u
t
CONMED is defending two Georgia State Court actions. The first in Cobb County was filed by various employees,
former employees, contract workers and others against CONMED, and against a contract sterilizer. The second action in
Douglas County is against CONMED’s landlord and other allegedly related entities. Plaintiffsff
in the lawsuits allege personal
injury and related claims purportedly arising from or relating to exposure to Ethylene Oxide, a chemical used to sterilize certain
products. CONMED is defending the claims asserted directly against it and is providing indemnification for certain other
defendants based on contractual provisions. CONMED has submitted all of the claims for insurance coverage. One insurer is
providing coverage for certain of the claims asserted directly against the Company. CONMED is currently in litigation with
one of the other insurers regarding coverage for certain of the indemnification claims. Both actions are in their early stages and
discovery has not yet started. The Company’s motion to dismiss in the Cobb County action was heard on January 10, 2022.
CONMED believes it has strong defenses to the claims and will vigorously defend itself and all parties it is indemnifying. As
with any litigation, there are risks, including the risk that CONMED may not prevail with respect to the defense of the
underlying claims, or with respect to securing adequate insurance coverage for the indemnification claims. The Company is
unable to estimate any range of possible loss at this time, and has not recorded any expense related to potential damages in
connection with this matter because the Company does not believe any potential loss is probable.
From time to time, we are also subject to negligence and other claims arising out of the ordinary conduct of our
business, including, for example, accidents our employees may experience within the course of their employment or otherwise.
We are currently defending one such claim, which we expect to be fully covered by insurance, involving potentially significant
personal injuries. The Company is unable to estimate any range of possible loss at this time, and therefore has not recorded any
liability related to potential damages in connection with this matter.
69
ff
We record reserves sufficien
t to cover probable and estimablea
losses associated with any such pending claims. We do
not expect that the resolution of any pending claims, investigations or reports of alleged misconduct will have a material
adverse effect on our financial condition, results of operations or cash flows. There can be no assurance, however, that future
claims or investigations, or the costs associated with responding to such claims, investigations or reports of misconduct,
especially claims and investigations not covered by insurance, will not have a material adverse effect on our financial condition,
results of operations or cash flows.
ff
Note 14 — Acquisition and Other Expense
Acquisition and other expense for the year ended December 31, consists of the following:
2021
2020
2019
Plant underutilization costs
Manufacturing consolidation costs
Acquisition and integration costs
Product rationalization costs - inventory
t
Restruct
uring
r
costs
Acquisition and other expense included in cost of sales
Restructuring and related costs
Product rationalization costs - fieff
ld inventory
Acquisition and integration costs
Acquisition and other expense included in selling and administrative
expense
Debt refinancing costs included in other expense
$
$
$
$
$
— $
6,586
$
—
—
—
—
3,993
2,820
2,169
1,087
— $
16,655
$
$
4,782
2,095
1,192
414
$
—
—
414
1,127
$
$
—
2,858
1,335
—
—
4,193
—
—
13,066
8,069
$
13,066
— $
3,904
During 2020, we recorded a $6.6 million charge to cost of sales related to plant underutilization due to abnormally low
production as a result of decreased sales caused by the COVID-19 pandemic.
During 2020, we incurred $4.0 million in costs related to the consolidation of manufacturing operations which were
charged to cost of sales. These costs included winding down operations at certain locations and moving production lines to
ilities. During 2019, we incurred $2.9 million in severance and other costs related to the consolidation of certain
other facff
manufacturing operations which were charged to cost of sales.
During 2020, we recognized costs forff
inventory step-up adjustments and other costs related to a previous acquisition of
$2.8 million. During 2019, we incurred $1.3 million in costs for inventory adjustments and other costs associated with the
acquisition of Buffalo Filter as further described in Note 2. These costs were charged to cost of sales.
ff
During 2020, we performed
an analysis of our product lines and determined certain catalog numbers, principally
al equipment, would be discontinued and consolidated into existing product offerings. We consequently recorded
related to capita
a $2.2 million charge to cost of sales to write-off inventory of the discontinued products. In addition, we incurred $2.1 million
in costs related to the write-off of field inventory used for customer demonstration and evaluation of the discontinued products
which we charged to selling and administrative expense.
During 2020, we incurred $1.1 million in restructuring costs related to a voluntary separation arrangement with
employees as a result of the COVID-19 pandemic which were charged to cost of sales based on the job function of the affected
employees. Substantially all of the costs associated with the voluntary separation arrangement were paid during 2020.
During 2021 and 2020, we recorded charges of $0.4 million and $3.8 million, respectively, related to the restructuring
of our sales force
which consisted primarily of termination payments to Orthopedic distributors made in exchange for ongoing
assistance to transition to employee-based sales representatives and severance that was charged to selling and administrative
expense.
ff
t
70
During 2020, we recorded $0.9 million in restructuring charges principally related to a voluntary separation
arrangement with employees as a result of the COVID-19 pandemic which were charged to selling and administrative expense
based on the naturet
of the costs and function of the affected employees. Substantially all of the costs associated with the
voluntary separation arrangement were paid during
2020.
d
During 2020 and 2019, we incurred $1.2 million and $13.1 million, respectively, in costs associated with the
February 11, 2019 acquisition of Buffalo Filter as further described in Note 2 that were included in selling and administrative
expense. These costs include investment banking fees, consulting fees, legal fees, severance and integration related costs.
During 2021, we recorded $1.1 million related to a loss on early extinguishment and third party feeff
s associated with
the seventh amended and restated senior credit agreement as further described in Note 7. These costs were included in other
expense. During 2019, we incurred a $3.6 million charge related to commitment fees paid to certain of our lenders, which
provided a finaff
ncing commitment for the Buffalo Filter acquisition and recorded a loss on the early extinguishment of debt of
$0.3 million in conjunction with the sixth amended and restated senior credit agreement.
Note 15 — Guarantees
We provide warranties on certain of our products at the time of sale and sell extended warranties. The standard
al equipment is generally one year and our extended warranties typically vary from one to three
olicies is based upon a review of historical warranty and service claim
warranty pt
years. Liability under service and warranty p
t
experience. Adjustments are made to accruals as claim data and historical experience warrant.
eriod for our capita
Changes in the carrying amount of standard warranties forff
the year ended December 31, are as follow
ff
s:
Balance as of January 1,
Provision for warranties
Claims made
Balance as of December 31,
2021
2020
2019
1,826
$
2,186
$
1,585
1,458
(940)
783
(1,143)
1,699
(1,098)
2,344
$
1,826
$
2,186
$
$
Costs associated with extended warranty repairs are recorded as incurred and amounted to $6.8 million, $6.1
million and $5.3 million for the years ended December 31, 2021, 2020 and 2019 respectively.
Note 16 – Fair Value Measurement
We enter into derivative instruments forff
risk management purposes only. We operate internationally and, in the
normal course of business, are exposed to flucff
tuations in interest rates, foreign exchange rates and commodity prices. These
fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of
derivative instrument, to manage certain forei
gn currency exposures.
ff
t
By nature,
rd contracts with major
investment grade financial institutions and have policies to monitor the credit risk of those counterparties. While there can be
no assurance, we do not anticipate any material non-performance by any of these counterparties.
ncial instruments involve market and credit risks. We enter into forwa
all finaff
ff
Foreign Currency Forward Contracts. We hedge forecasted intercompany sales denominated in forei
gn currencies
through the use of forward contracts. We account for these forward contracts as cash flow hedges. To the extent these forward
contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in
accumulated other comprehensive loss. These changes in fair value will be recognized into earnings as a component of sales or
cost of sales when the forecasted transaction occurs.
ff
We also enter into forward
contracts to exchange foreign currencies for United States dollars in order to hedge our
currency transaction exposures. These forward contracts settle each month at month-end, at which time we enter into new
forward contracts. We have not designated these forward contracts as hedges and have not applied hedge accounting to them.
ff
71
The folff
lowing table presents the notional contract amounts forff
forward contracts outstanding:
Forward exchange contracts
Forward exchange contracts
As of
FASB ASC Topic 815
Designation
Cash flow hedge
$
Non-designated
December 31, 2021
December 31, 2020
172,894
$
38,897
154,504
42,380
The remaining time to maturity as of December 31, 2021 is within two years for hedge designated foreign exchange
contracts and approxi
a
mately one month forff
non-hedge designated forwa
ff
rd exchange contracts.
Statement of comprehensive income presentation
p
p
i
Derivatives desidd
gnat
ed as cash floff w hedgesd
Foreign exchange contracts designated as cash flow hedges had the following effects on accumulated other
comprehensive income (loss) ("AOCI") and net earnings on our consolidated statements of comprehensive income and our
consolidated balance sheets:
Amount of Gain (Loss)
Recognized in AOCI
Consolidated Statements of Comprehensive
Income
Amount of Gain (Loss)
Reclassified from AOCI
Years Ended
Total Amount of Line Item
Presented
Years Ended
Derivative Instrument
2021
2020
2019
Location of
amount
reclassified
2021
2020
2019
2021
2020
2019
Foreign exchange contracts
$ 8,650 $ (7,111) $ 3,871 Net Sales
$1,010,635 $862,459 $955,097
$ (5,421) $ 1,997 $ 7,969
Cost of Sales
442,599
402,159
430,382
1,411
(619)
638
Pre-tax gain (loss)
$ 8,650 $ (7,111) $ 3,871
Tax expense (benefit)
2,090
(1,718)
935
Net gain (loss)
$ 6,560 $ (5,393) $ 2,936
$ (4,010) $ 1,378 $ 8,607
(969)
333
2,079
$ (3,041) $ 1,045 $ 6,528
At December 31, 2021, $3.7 million of net unrealized gains on forward contracts accounted for as cash flow hedges,
and included in accumulated other comprehensive loss, are expected to be recognized in earnings in the next twelve months.
Derivatives not designated as cash flow hedges
Net gains and losses from derivative instruments not accounted for as hedges offset by gains and losses on our
intercompany receivables on our consolidated statements of comprehensive income were:
Derivative Instrument
Location on Consolidated Statements
of Comprehensive Income
2021
2020
2019
Years Ended
rd contracts
Net loss on currency forwa
Net gain (loss) on currency transaction
exposures
ff
Selling and administrative expense
$
(451) $ (2,269) $
(573)
Selling and administrative expense
$ (1,832) $
646
$
(653)
72
Balance sheet presentation
p
We record these forwa
ff
rd foreign exchange contracts at fair
ff
value. The following tablea
s summarize the fair value for
forward foreign exchange contracts outstanding at December 31, 2021 and 2020:
December 31, 2021
Derivatives designated as hedging instruments:
Location on Consolidated Balance
Sheet
Asset
Fair
Value
Liabilities
Fair
Value
Net
Fair
Value
Foreign exchange contracts
Foreign exchange contracts
Prepaid expenses and other current
assets
Other long-term liabilities
$
$
5,331
82
5,413
$
$
(430) $
4,901
(161)
(591) $
(79)
4,822
Derivatives not designated as hedging
instruments:
Foreign exchange contracts
Other current liabilities
38
(180)
(142)
Total derivatives
$
5,451
$
(771) $
4,680
December 31, 2020
Derivatives designated as hedging instruments:
Location on Consolidated Balance
Sheet
Asset
Fair
Value
Liabilities
Fair
Value
Net
Fair
Value
Foreign exchange contracts
Foreign exchange contracts
Other current liabilities
Other long-term liabilities
$
$
1,500
23
1,523
$
$
(8,826) $
(7,326)
(535)
(512)
(9,361) $
(7,838)
Derivatives not designated as hedging
instruments:
Foreign exchange contracts
Other current liabilities
25
(150)
(125)
Total derivatives
$
1,548
$
(9,511) $
(7,963)
Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the
consolidated balance sheets.
Fair Value Disclosure. FASB guidance defines fair
ework for measuring fair value and
related disclosure requirements. This guidance applies when fair value measurements are required or permitted. The guidance
indicates, among other things, that a faiff
r value measurement assumes that the transaction to sell an asset or transfer a liabia lity
occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market
for the asset or liabila
ity. Fair value is defined based upon an exit price model.
value and establia
shes a framff
ff
Valuation Hierarchy. A valuation hierarchy was establia
shed for disclosure of the inputs to the valuations used to
measure fair value. This hierarchy prioritizes the inputs into three broad levels as foll
ows. Level 1 inputs are quoted prices
identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities
(unadjusted) in active markets forff
in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that
the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived
are observable forff
principally fromff
or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based
on our own assumptim ons used to measure assets and liabilities at fair value. A finff ancial asset or liability’s classification within
the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. There have been
no significant changes in the assumptim ons.
ff
Valuation Techniques. Assets and liabilities carried at fair
ff
December 31, 2021 consist of forward
ff
foreign exchange contracts. The Company values its forff warr
value and measured on a recurring basis as of
rd foreign exchange contracts
73
using quoted prices for similar assets. The most significant assumption is quoted currency rates. The value of the forward
foreign exchange contract assets and liabilities were valued using Level 2 inputs and are listed in the tabla e above.
rr
The carrying
and variablea
payablea
long-term debt approximate fair value.
amounts reported in our balance sheets for cash and cash equivalents, accounts receivable, accounts
Note 17 - New Accounting Pronouncements
Recently Issued Accounting Standards, Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reformff
(Topic 848): Facilitation of the Effects of
on Financial Reporting, which provides optional guidance if certain criteria are met for entities that
Reference Rate Reformff
have contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be
discontinued as a result of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The
Company has not adopted the ASU as of December 31, 2021. Our seventh amended and restated senior credit agreement
includes language to address the change from LIBOR to an alternative base rate, therefore we do not believe reference rate
reform will have a significant impact on our consolidated financial statements, however we will continue to monitor our
transition away from LIBOR and the potential to elect to apply this guidance in our consolidated financial statements in the
event that we are impacted by reference rate reform.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing certain
separation models requiring separate accounting for embedded conversion features which will result in more convertible debt
nts accounted for as a single liabia lity. The ASU eliminates certain settlement conditions that are required for equity
r
instrume
classification to qualify for the derivative scope exception. The ASU addresses how convertible instruments are accounted for
in the calculation of diluted earnings per share by using the if-converted method. The ASU is effective for fiscal years
beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15,
2020. The Company will adopt this standard on January 1, 2022 using the modified retrospective method. The adoption of this
new guidance is estimated to result in an increase of approximately $22.6 million to long-term debt in the consolidated balance
the full principal amount of the convertible notes outstanding net of issuance costs, a reduction of
sheets,
approximately $37.9 million to additional paid-in capita
al, net of estimated income tax effects, to remove the equity component
separately recorded for the conversion features associated with the convertible notes, a decrease to deferred tax liabilities, net of
approximately $5.5 million, and a cumulative-effect adjustment of approximately $20.8 million, net of estimated income tax
effect
s, to the beginning balance of retained earnings as of January 1, 2022. The adoption of this new guidance is anticipated to
ff
reduce interest expense by approximately $10.4 million during the year ended December 31, 2022. Additionally, the modified
retrospective approach will result in an increase in the dilutive share count as a result of calculating the impact of dilution from
the Company's convertible notes using the if-converted method.
to reflect
74
SCHEDULE II—Valuation and Qualifying Accounts
(In thousands)
Description
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Deductions
Balance at End
of Period
2021
Allowance for bad debts
t
Sales returns
allowance
Deferred tax asset
and
valuation allowance
2020
Allowance for bad debts
t
Sales returns
allowance
Deferred tax asset
and
valuation allowance
2019
Allowance for bad debts
t
Sales returns
allowance
Deferred tax asset
and
valuation allowance
Item 16. Form 10-K Summary
$
3,876
$
2,305
$
(1,653) $
3,684
2,721
1,261
(504)
621
(2,556)
$
2,786
$
1,611
$
(521) $
3,667
1,732
384
989
(367)
—
$
2,660
$
852
$
(726) $
3,246
1,159
518
573
(97)
—
4,528
4,441
786
3,876
3,684
2,721
2,786
3,667
1,732
Registrants may voluntarily provide a summary of information required by Form 10-K under this Item 16. The
Company has elected not to include such summary information.
75
Description of Common Stock
Exhibit 4.1
The following is a description of the general terms, provisions and rights of the common stock, par value $0.01
("Common Stock"), of CONMED Corporation, a Delaware corporation (the "Company," "we," "us," and "our"), related
”) and
provisions of the Company’s certificate of incorporation (the “Certificate
applicable Delaware law. This description is qualified in its entirety by, and should be read in conjunction with, the Certificate
ff
of Incorporation and Bylaws, which have been publicly filed with the Securities and Exchange Commission, and applicable
Delaware law.
”) and bylaws (the “Bylaws
p
of Incorporation
y
ff
Authorized Shares
We have the authority to issue an aggregate of 100,000,000 shares of Common Stock. As of February 16, 2022, there
were 31,299,194 shares of our Common Stock issued and 29,411,246 shares of our Common Stock outstanding.
Dividend Rights
Subject to the preferences, limitations and relative rights of holders of our preferred stock, the holders of Common
Stock are entitled to share ratably in dividends if, when and as declared by our board of directors out of funds legally available
therefor.
Voting Rights
Subject to the preferences, limitations and relative rights of holders of our preferred stock, the holders of Common
Stock are entitled to one vote for each share held of record on all matters at all meetings of stockholders.
Liquidation Rights
Subject to the preferences, limitations and relative rights of holders of our preferred stock, the holders of Common
Stock are entitled, in the event of our liquidation, dissolution or winding-up, to share ratably in the distribution of assets
remaining afteff
r payment of debts and expenses.
Absence of Other Rights
Our Common Stock has no sinking fund or redemption provisions or preemptive, conversion or exchange rights.
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation and Bylaws contain provisions that may delay, defer or discourage another party from
acquiring control of us. We expect that these provisions, some of which are summarized below, will discourage coercive
takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire
control of us to first negotiate with the board of directors, which we believe may result in an improvement of the terms of any
such acquisition in favor of our stockholders. However, they also give the board of directors the power to discourage
acquisitions that some stockholders may favor.
srr
Special Meetings of Stockholder
ll
Our Bylaws provide that special meetings of stockholders may be called by the board of directors, the chair of the
board of directors, if any, the lead independent director of the board of directors, if any, or the president, or upon the request of
stockholders holding at least 25% of the Company's outstanding stock entitled to vote, subject to certain procedural and
informational requirements for calling special meetings of stockholders set forth in the Bylaws.
Stockholder
l
Action by Written Consent
Our Certificate of Incorporation provides that stockholders can take action by written consent if stockholders holding
not less than the minimum number of votes required to authorize or take such action consent, subject to certain procedural
safeguards set forth in the Certificate of Incorporation, including a requirement that the holders of at least 25% of the
Company’s outstanding Common Stock (provided that such shares are determined to be Net Long Shares (as defined in the
Bylaws) that have been held continuously for at least one year) request that the Board set a record date to determine the
stockholders entitled to act by written consent.
Advance Notice Requirementstt
kk
for Stockholde
r Proposalsll and Director Nominations
Our Bylaws require compliance with advance notice procedures for stockholder proposals and director nominations to
be brought before an annual meeting of the stockholders.
Exclusive Forum
Our Bylaws provide that unless the Company consents in writing to the selection of an alternate forum, (a) the Court of
Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on
our behalf; (ii) any action asserting a breach of fiduciary duty owed by any of our directors, officers, employees, or
stockholders to the Company or our stockholders; (iii) any action asserting a claim arising pursuant to the Delaware General
ion Law (the “DGCL”), our Certificate of Incorporation or our Bylaws; (iv) any action to interpret, apply, enforce or
r
Corporat
determine the validity of our Certificate of Incorporation or our Bylaws; or (v) any action asserting a claim against us that is
governed by the internal affairs doctrine (or, if the Court of Chancery does not have jurisdiction, then the Superior Court of the
State of Delaware, or if no state court in Delaware has jurisdiction, the federal district court for the District of Delaware); and
(b) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a
cause of action arising under the Securities Act of 1933, as amended.
Amendment to Certifii cate of Incorporation and Bylaws
Delaware law provides generally that a majori
ty vote of all the outstanding shares entitled to vote thereon at a meeting
of stockholders is required to approve amendments to a corporation’s certificate of incorporation, unless a corporation’s
certificate of incorporation requires a greater percentage.
a
Delaware law provides generally that by-laws may be amended, adopted or repealed by the vote of a majori
ty of the
of incorporation or by-laws provide otherwise.
shares cast at a meeting of the Company’s stockholders, unless the certificate
Our Bylaws provide that they may be amended, altered or repealed by a majori
ty vote of the outstanding shares of the Company
entitled to vote thereon. Additionally, if permitted under the corporation’s certificate of incorporation, under Delaware law the
board of directors may also amend, adopt or repeal the Company’s by-laws. Our Certificate of Incorporation provides that the
Bylaws may be amended, altered, or repealed by our board of directors without stockholder approval; provided, however, that
any by-law adopted by the board of directors may be amended or repealed by our stockholders.
ff
a
a
Delaware Anti-Takeover Statute
We are subjeu
ct to Section 203 of the DGCL. Accordingly, we may not engage in a business combination, such as a
merger, consolidation, recapitalization, asset sale or disposition of stock, with any “interested stockholder” for a period of three
years from the date that the interested stockholder first became an interested stockholder unless certain conditions are met.
Indemnification and Limitations on Liability of Officff
ers and Directors
Our Certificate of Incorporation and Bylaws require the indemnification of directors and officers by the Company to
the fullest extent permitted by law, but our Bylaws provide that no indemnification is required with respect to any settlement or
disposition of a proceeding unless the Company has given its prior consent to such settlement/disposition. Our Bylaws also
permit us to indemnify employees and to advance expenses to any person entitled to indemnification upon request.
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the
corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability for (i) any breach of the director’s duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payments of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) any transaction from which the director derived an
improper personal benefit.ff Our Certificate of Incorporation contains a provision eliminating the personal liability of directors
for monetary damages to the fullest extent permitted by law.
Listing
The Company's Common Stock is listed on the New York Stock Exchange under the trading symbol "CNMD."
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is Computershare Investor Services.
CONMED Corporation
Subsidiaries of the Registrant
Name
y
State or Country of Incorporation
p
EXHIBIT 21
ories, Inc.
a
Aspen Laborat
Buffalff o Filter LLC
CONMED Andover Medical, Inc.
CONMED Austria GmbH
CONMED Denmark ApS
CONMED Deutschland GmbH
CONMED Endoscopic Technologies, Inc.
CONMED Finland Oy
CONMED France SAS
CONMED Iberia SL
CONMED Italia SrL
CONMED Japana
K. K.
CONMED Linvatec Australia PTY Ltd
CONMED Linvatec (Beijii ng) Medical Appliances Co., Ltd
CONMED Linvatec Biomaterials Oy
CONMED Switzerland GmbH
CONMED U.K. Ltd.
Consolidated Medical Equipment Company S. de R.L. de C.V.
EndoDynamix, Inc.
GWH Limited Partnership
Conmed do Brasil Comércio Importação e Exportação de Produtos Médicos
Hospitalares Ltda.
Largo Lakes I Limited Partnership
Linvatec Corporation
Linvatec Belgium NV
Linvatec Canada ULC
CONMED Europe BV
CONMED Korea Ltd.
Linvatec Nederland B.V.
Linvatec Polska Sp. z.o.o
Linvatec Conmed Sweden AB
Palmerton Holdings, Inc.
SurgiQuest, Inc.
Viking Systems, Inc.
Linvatec India Private Limited
Colorado
Delaware
New York
Austria
Denmark
Germany
Massachusetts
Finland
France
Spain
Italy
Japana
Australia
China
Finland
Switzerland
United Kingdom
Mexico
Delaware
Florida
Brazil
Delaware
Florida
Belgium
Canada
Belgium
Korea
Netherlands
Poland
Sweden
New York
Delaware
Delaware
India
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-78987, 333-90444,
333-124202, 333-136453, 333-145150, 333-162834, 333-168493, 333-182878, 333-207582, 333-214299, 333-223258 and
333-228171) of CONMED Corporation of our report dated February 22, 2022 relating to the consolidated financial statements,
tiveness of internal control over financial reporting, which appears in this Form 10-K.
financial statement schedule and the effecff
EXHIBIT 23
/s/ PricewaterhouseCoopers LLP
Rochester, New York
February 22, 2022
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Curt R. Hartman, certify that:
1.
I have reviewed this annual report on Form 10-K of CONMED Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establia
shing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements forff
external purposes in accordance with
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
ted, or is reasonably likely to materially affect, the registrant's internal control
report) that has materially affecff
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
February 22, 2022
/s/ Curt R. Hartman
Curt R. Hartman
Chair of the Board, President and
Chief Executive Offiff cer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Todd W. Garner, certify that:
1.
I have reviewed this annual report on Form 10-K of CONMED Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establia
shing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
external purposes in accordance with
financial reporting and the preparation of financial statements forff
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affecff
ted, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
February 22, 2022
/s/ Todd W. Garner
Todd W. Garner
Executive Vice President and
Chief Financial Officer
Exhibit 32.1
CERTIFICATIONS
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)
r 63 of title
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chaptea
18, United States Code), each of the undersigned officers of CONMED Corporation, a Delaware corporation (the
“Corporation”), does hereby certify that:
The Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”) of the Corporation fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in
the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Date: Februaryrr 22, 2022
Date: Februaryrr 22, 2022
/s/ Curt R. Hartman
Curt R. Hartman
Chair of the Board, President and
Chief Executive Officer
/s/ Todd W. Garner
Todd W. Garner
Executive Vice President and
Chief Financial Officer
11311 Concept Blvd.
Largo, Florida 33773
Toll Free: 1-866-4CONMED
International: 727-214-3000
www.CONMED.com
customerexperience@CONMED.com
internationalorders@CONMED.com