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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-22 · 367 added, 367 removed, 211 unchanged (78% of the section changed)

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• Critical Accounting Policies

The following MD&A should be read together with Part I, Item 1A.

MD&A should be read together with Part I, Item 1A.

“Risk Factors” and the accompanying Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8.

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For a discussion of important factors that could cause actual results to differ materially from the results referred to in these forward-looking statements, see “Special Note Regarding Forward-Looking Statements.”

Enovis is a medical technology company focused on developing clinically differentiated solutions that generate measurably better patient outcomes and transform workflows by manufacturing and distributing high-quality medical devices with a broad range of products used for reconstructive surgery, rehabilitation, pain management and physical therapy.

Our products address the continuum of patient care from injury prevention to rehabilitation after surgery or injury or from degenerative disease, enabling people to regain or maintain their natural motion.

Please see Part I, Item 1.

“Business” for a discussion of Colfax’s objectives and methodologies for delivering shareholder value.

Colfax conducts its operations through two operating segments:

Fabrication Technology and Medical Technology.

• Fabrication Technology - a leading global supplier of consumable products and equipment for use in cutting, joining and automated welding, as well as gas control equipment, providing a wide range of products with innovative technologies to solve challenges in a wide range of industries.

• Medical Technology - a leader in orthopedic solutions, providing devices, software and services spanning the full continuum of patient care, from injury prevention to joint replacement to rehabilitation.

Certain amounts not allocated to the two reportable segments and intersegment eliminations are reported under the heading “Corporate and other.”

We have a global footprint, with production facilities in Europe, North America, South America, Asia, Australia and Africa.

“Business” for a discussion of Enovis’s objectives and methodologies for delivering shareholder value.

Post-Separation, Enovis conducts its operations through two operating segments:

Prevention & Recovery (“P&R”) and Reconstructive (“Recon”).

• Prevention & Recovery - a leader in orthopedic solutions, providing devices, software and services across the patient care continuum from injury prevention to rehabilitation after surgery, injury, or from degenerative disease.

• Reconstructive - innovation market-leader positioned in the fast-growing surgical implant business, offering a comprehensive suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger and surgical productivity tools.

We have a global footprint, with production facilities in North America, Europe, Africa, and Asia.

We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels.

Our customer base is highly diversified in the medical and industrial end markets.

Integral to our operations is CBS, our business management system.

CBS is our culture and includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders and associates.

We believe that our management team’s access to, and experience in, the application of the CBS methodology is one of our primary competitive strengths.

We believe that we are well positioned to grow our businesses organically over the long term by enhancing our product offerings and expanding our customer base.

Our Medical Technology segment orthopedic business enjoys sustainable secular drivers such as aging populations that require increasing levels of medical care that should contribute to reduced cyclicality of our Company.

In addition, we expect to see benefits from the shift to greater levels of outpatient care, including surgeries at ambulatory surgical centers (ASCs), through increased selling opportunities across our product lines.

Our Fabrication Technology business mix is well balanced between sales in emerging markets and developed nations, and equipment and consumables.

We intend to continue to utilize our strong global presence and worldwide network of salespeople and distributors to capitalize on growth opportunities by selling regionally-developed and/or marketed products and solutions throughout our served markets.

Our geographic and end market diversity helps mitigate the effects from cyclical industrial market exposures.

Given this balance, management does not use indices other than general economic trends and business initiatives to predict the overall outlook for the Company.

Instead, our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and outlook for the future.

On March 4, 2021, we announced our plan to separate our fabrication technology and specialty medical technology businesses into two differentiated, independent, and publicly-traded companies.

The separation is intended to be structured in a tax-free manner and is targeted to be completed near the end of the first quarter of 2022.

Completion of the separation is subject to, among other things, completion of financing and other transactions on satisfactory terms, other steps necessary to qualify the separation as a tax-free transaction, receipt of other regulatory approvals and final approval from the Colfax Board of Directors.

There can be no assurance regarding the form and timing of the separation or its completion.

The announcement did not have any classification impact to our Consolidated Financial Statements or segment reporting.

We will report the fabrication technology business as discontinued operations upon the completion of the separation.

On a continuing basis, we face a number of challenges and opportunities, including the successful integration of acquired businesses, application and expansion of our CBS tools to improve business performance, and rationalization of assets and costs.

We expect strategic acquisitions to contribute to our growth.

We believe that the extensive experience of our leadership team in acquiring and effectively integrating acquisition targets should enable us to capitalize on future opportunities.

The discussion that follows includes a comparison of our results of operations, liquidity and capital resources for the fiscal years ended December 31, 2021 and 2020.

For a comparison of the Company’s results of operations, liquidity and capital resources for the fiscal years ended December 31, 2020 and 2019, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Our customer base is highly diversified in the medical markets.

Integral to our operations is our business management system, EGX.

EGX is our culture and includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders and associates.

We believe that our management team’s access to, and experience in, the application of the EGX methodology is one of our primary competitive strengths.

Results of Operations

The following discussion of Results of Operations addresses the comparison of the periods presented.

Our management evaluates the operating results of each of its reportable segments based upon Net sales, Segment operating income, which represents Operating income before Pension settlement gains and losses, Restructuring and other related charges and European Union Medical Devices Regulation (“MDR”) and related costs, and strategic transaction costs, and Adjusted EBITA as defined in the “Non-GAAP Measures” section.

Our management evaluates the operating results of each of its reportable segments based upon Net sales and Adjusted EBITDA as defined in the “Non-GAAP Measures” section.

Items Affecting Comparability of Reported Results

The comparability of our operating results for the year ended December 31, 2021 to the comparable 2020 period is affected by the following additional significant items:

Our financial performance and growth are driven by many factors, principally our ability to serve customers with market-leading delivery and innovation;

the mix of products sold in any period;

the impact of competitive forces, economic and market conditions;

reimbursement levels for products in certain medical sales channels;

availability of capital and attractive acquisition opportunities;

our ability to continuously improve our cost structure;

fluctuations in the relationship of foreign currencies to the U.S.

and our ability to pass cost increases on to customers through pricing.

These key factors have impacted our results

of operations in the past and are likely to affect them in the future.

The comparability of our operating results for the year ended December 31, 2022 to the comparable periods is affected by the following additional significant items:

The Separation

We currently report our operations through our Fabrication Technology and Medical Technology segments.

These businesses operate in distinct markets, with unique business opportunities and investment requirements.

As discussed above, on March 4, 2021, we announced the intention to separate these businesses into two differentiated, independent publicly traded companies.

The Chairman of our board of directors and co-founder of Colfax, Mitchell P.

Rales, is expected to serve on the boards of directors of both companies.

The costs incurred in conjunction with the Separation have increased our strategic

transaction costs in 2021, which is recorded withing Selling, general and administrative expense on the Consolidated Statements of Operations.

We expect that the Separation will allow each company to:

On April 4, 2022, we completed the Separation through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB to our stockholders.

We initially retained 10% of the shares of ESAB common stock immediately following the Separation.

On November 18, 2022, we completed an exchange with a lender under our Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of our retained shares, for $230.5 million in term loan outstanding under our Enovis Credit Agreement.

We recorded a gain of $102.7 million on the exchange of the shares representing the excess of fair value, less cost to sell, over our cost basis in the investment.

Once the Separation was completed in the second quarter of 2022, we began classifying the results from the fabrication technology business for the comparable periods presented as a discontinued operation in our financial statements.

Accordingly, the results of our fabrication technology businesses are excluded from continuing operations in the accompanying financials for the years ended December 31, 2022, 2021, and 2020.

We expect that the Separation allows each company to:

(1) optimize capital allocation for internal investment, mergers and acquisitions, and return of capital to shareholders;

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and (4) improve both investor alignment with its clear value proposition and the ability for investors to value it based on its distinct strategic, operational and financial characteristics.

The Separation would also provide each company with an appropriately valued acquisition currency that could be used for larger, transformational transactions.

The Separation also provides each company with an appropriately valued acquisition currency that can be used for larger, transformational transactions.

Please see Part I.

“Risk Factors” in this Form 10-K for further discussion of the Company’s risks relating to the Separation.

Impact of COVID-19

In December 2019, a novel coronavirus disease (“COVID-19”) was first reported in China.

On March 11, 2020, due to worldwide spread of the virus, the World Health Organization characterized COVID-19 as a pandemic.

The COVID-19 global pandemic has resulted in a widespread health crisis, and the resulting impact on governments, businesses and individuals and actions taken by them in response to the situation have resulted in widespread economic disruptions, significantly affecting broader economies, financial markets, and overall demand for our products.

In an effort to protect the health and safety of our employees, we have taken actions to adopt social distancing policies at our locations around the world, including working from home, reducing the number of people in our sites at any one time, and suspending or restricting employee travel.

Our precautions were initially reduced in 2021 as restrictions were eased, however we have increased these efforts as variants have become more prevalent and in response to local directives.

In an effort to contain COVID-19 or slow its spread, governments around the world have enacted measures throughout 2020 and 2021, including temporarily closing businesses not deemed “essential,” isolating residents to their homes, limiting access to healthcare, curtailing activities including sporting events, and practicing social distancing.

Increased access to vaccinations has contributed to slowing the spread of COVID-19 in certain jurisdictions, resulting in some or all restrictions being lifted in a number of jurisdictions around the world, allowing a return to more normal activity and operational levels during the first half of 2021.

However, the emergence and subsequent spread of COVID-19 variants has led to the reinstatement of certain restrictions, which slowed the pace of recovery during the second half of 2021 and the beginning of the first quarter of fiscal 2022.

During 2020, we implemented a broad range of temporary actions to mitigate the effects of lower sales levels including temporarily reducing salaries, furloughing and laying-off employees, significantly curtailing discretionary expenses, re-phasing of capital expenditures, reducing supplier purchase levels and / or prices, adjusting working capital practices and other measures.

As sales volumes improved in the second half of 2020, these measures were removed.

As reflected in the discussions that follow, the pandemic and actions taken in response to it have had a variety of impacts on our results of operations during 2020 and 2021.

In 2020, the pandemic began to impact our financial results in March, with the most severe financial impact occurring in the second quarter.

Subsequently, we observed a partial recovery in the second half of 2020.

The surge in COVID-19 cases in the fourth quarter of 2020 contributed to certain jurisdictions putting further restrictions into place, which slowed recovery in the fourth quarter of 2020, and the impact continued into the beginning of the first quarter of 2021, after which sales volumes began to normalize through the second quarter of 2021.

Recovery of sales volumes again slowed in the second half of 2021 due to increased restrictions in certain jurisdictions as a result of the growing spread of COVID-19 variants.

The most severe headwind we faced was within DJO Reconstructive product sales in the third quarter of 2021 due to delays in elective surgery procedures.

We continue to monitor the evolving situation and guidance from international and domestic authorities, including national and local public health authorities, and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control that require us to further adjust our operations.

Given the continued dynamic nature of this situation, including the rise, prevalence and severity of variants of the virus, we cannot reasonably estimate the full impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

COVID-19 and other market dynamics have caused widespread supply chain challenges due to labor, raw material, and component shortages.

As a result, we have experienced supply constraints in our businesses, which have led to cost inflation and logistics delays.

We are taking actions in an effort to mitigate impacts to our supply chain, such as increasing certain inventory stocks to prevent product input shortfalls, however, we expect these pressures to continue.

Please see Part I.

“Risk Factors” in this Form 10-K for further discussion of the Company’s risks relating to the COVID-19 pandemic.

Strategic Acquisitions

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Acquisitions can significantly affect our reported results, and we report the change in our Net sales between periods both from existing and acquired businesses.

The change in Net sales due to acquisitions for the year ended December 31, 2021 presented in this filing represents the incremental sales in comparison to the portion of the prior period during which we did not own the business.

During the year ended December 31, 2021, we completed one acquisition in our Fabrication Technology segment and five acquisitions in our Medical Technology segment for net cash consideration of $206.5 million and equity consideration of $285.7 million.

In the first quarter of 2021, our Medical Technology segment acquired Trilliant Surgical, a national provider of foot and ankle orthopedic implants.

In the second quarter of 2021, our Medical Technology segment acquired MedShape, Inc., a provider of innovative surgical solutions for foot and ankle surgeons using its patented superelastic nickel titanium (NiTiNOL) and shape memory polymer technologies.

The change in Net sales due to acquisitions for the years ended December 31, 2022 and 2021 presented in this filing represents the incremental sales in comparison to the portion of the prior period during which we did not own the business.

During the year ended December 31, 2022, the Company completed two business acquisitions for aggregate net cash consideration of $50.5 million.

In the second quarter of 2022, the Company acquired KICo Knee Innovation Company Pty Limited and subsidiaries, an Australian private company doing business as 360 Med Care, which is a medical device distributor that bundles certain computer-assisted surgery and patient experience enhancement programs to add value to the device supply arrangements with surgeons, hospitals, and insurers.

In the third quarter of 2022, the Company acquired a controlling interest in Insight Medical Systems, the flagship product of which is the ARVIS surgical navigation system.

During the year ended December 31, 2021, the Company completed five acquisitions for aggregate net cash consideration of $201.6 million and aggregate equity consideration of $285.7 million.

In the first quarter of 2021, the Company acquired Trilliant Surgical, a national provider of foot and ankle orthopedic implants.

In the second quarter of 2021, the Company acquired MedShape, Inc., a provider of innovative surgical solutions for foot and ankle surgeons using its patented superelastic nickel titanium (NiTiNOL) and shape memory polymer technologies.

These two acquisitions were completed for total consideration, net of cash received, of $204.1 million, subject to certain adjustments.

The Trilliant and MedShape acquisitions, along with the prior year acquisition of the Scandinavian Total Ankle Replacement (“STAR”) System and Finger Joint Arthroplasty Portfolio from Stryker, created a new growth product portfolio in the foot and ankle surgical market.

In the third quarter of 2021, our Medical Technology segment acquired Mathys AG Bettlach (“Mathys”), a Switzerland-based company that develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions and sports medicine, for total acquisition equity consideration of $285.7 million of Colfax Common stock.

The Mathys acquisition expands our reconstructive product portfolio with its complementary surgical solutions and broadens our Medical Technology segment reach outside the U.S.

During the year ended December 31, 2020, we completed five acquisitions in our Medical Technology segment for total consideration, net of cash received, of $67.5 million , subject to certain purchase price adjustments.

This includes the fourth quarter acquisition of LiteCure LLC, a U.S.

The Trilliant and MedShape acquisitions, along with the 2020 acquisition of the Scandinavian Total Ankle Replacement System and Finger Joint Arthroplasty Portfolio, created our growth product portfolio in the foot and ankle surgical market.

In the third quarter of 2021, the Company acquired Mathys AG Bettlach (“Mathys”), a Switzerland-based company that develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions and sports medicine, for total acquisition equity consideration of $285.7 million of Colfax Common stock.

The Mathys acquisition expanded our reconstructive product portfolio with its complementary surgical solutions and broadened our reach outside the U.S.

During the year ended December 31, 2020, the Company completed five acquisitions for total consideration, net of cash received, of $67.5 million , subject to certain purchase price adjustments.

This included the fourth quarter acquisition of LiteCure LLC, a U.S.

leader in high-powered laser rehab products for human and veterinary medical applications for net cash consideration after purchase price adjustments of $39.6 million .

Global Operations

Our products and services are available worldwide.

The manner in which our products and services are sold differs by region.

During 2021, approximately 60% of our sales were shipped to locations outside of the U.S., mostly from locations outside the U.S.

Accordingly, we are affected by market demand, economic and political factors in countries throughout the world.

Our ability to grow and our financial performance will be affected by our ability to address a variety of challenges and opportunities that are a consequence of our global operations, including efficiently utilizing our global sales, manufacturing and distribution capabilities, participating in the expansion of market opportunities in emerging markets, successfully completing global acquisitions and engineering innovative new product applications for end users in a variety of geographic markets.

However, we believe that our geographic, end market, customer and product diversification may limit the impact that any one country or economy could have on our consolidated results.

Foreign Currency Fluctuations

A significant portion of our Net sales, approximately 59% for 2021, are derived from operations outside the U.S., with the majority of those sales denominated in currencies other than the U.S.

Because much of our manufacturing and employee costs are outside the U.S., a significant portion of our costs are also denominated in currencies other than the U.S.

During 2022, approximately 32% of our sales are derived from operations outside the U.S., the majority of which is in Europe with the remaining portion mostly in the Asia-Pacific region.

Accordingly, we can be affected by market demand, economic and political factors in countries in Europe and the Asia-Pacific region, and significant movements in foreign exchange rates.

Our ability to grow and our financial performance will be affected by our ability to address challenges and opportunities that are a consequence of expanding our global operations through our recent acquisitions, including efficiently utilizing our international sales channels, manufacturing and distribution capabilities, participating in the expansion of market opportunities, successfully completing global acquisitions and engineering innovative new product applications to create better patient outcomes.

The majority of our Net sales derived from operations outside the U.S.

are denominated in currencies other than the U.S.

Similar portions of our manufacturing and employee costs are also outside the U.S.

and denominated in currencies other than the U.S.

Changes in foreign exchange rates can impact our results of operations and are quantified when significant.

For the year ended December 31, 2021 compared to 2020, fluctuations in foreign currencies increased Net sales, Gross profit, and Selling, general and administrative expenses each by approximately 1%.

Our European operations typically experience a slowdown during the July, August and December vacation seasons.

Sales in our Medical Technology segment typically peak in the fourth quarter.

However, the business impact caused by the COVID-19 pandemic, and more recently supply chain disruptions, have distorted and may continue to distort the effects of historical seasonality patterns.

For the year ended December 31, 2022 compared to 2021, fluctuations in foreign currencies decreased Net sales and Gross profit by approximately 2.5% and decreased operating expenses by approximately 2%.

Although sales in our Prevention & Recovery and Reconstructive segments typically peak in the fourth quarter, these historical seasonality trends were disrupted by the commercial impacts caused by the COVID-19 pandemic.

General economic conditions may, however, impact future seasonal variations.

Material Costs

Our Fabrication Technology segment results may be sensitive to cost changes in our raw materials.

Our largest material purchases are for components and raw materials including steel, iron, copper and aluminum.

Historically, we have been generally successful in passing raw material cost increases on to our customers.

In 2021, we have experienced increasing raw material costs due to inflation, which we have generally passed through to customers to maintain our profit but has resulted in some margin compression.

Our principal raw materials and components for our Medical Technology segment are foam ethylene vinyl acetate, copolymer for our bracing and vascular products and cobalt chromium alloy, stainless steel alloys, titanium alloy and ultra high molecular weight polyethylene for our surgical implant products.

Input cost inflation historically has not been a material factor to our gross margin, however inflation effects have increased during 2021 and are expected to continue to remain at elevated levels for at least the near term.

In response, we have recently started enacting tactical price increases to certain market segments in line with industry trends.

As a company we seek to proactively manage this risk;

future changes in component and raw material costs may adversely impact earnings or our margins.

Our principal raw materials and components are foam ethylene vinyl acetate, copolymer for our bracing and vascular products in our Prevention & Recovery segment and cobalt chromium alloy, stainless steel alloys, titanium alloy and ultra high molecular weight polyethylene in our Reconstructive segment.

Prices for raw materials, energy and commodities are subject to volatility and are influenced by worldwide economic conditions.

Input cost inflation historically has not been a material factor to our gross margin;

however, inflation effects have increased since 2021 and are expected to continue to remain elevated for at least the near term.

In response, we have been enacting tactical price increases to certain products, mainly in the Prevention & Recovery segment.

Although we seek to proactively manage inflation risk, future changes in component and raw material costs may adversely impact earnings or our margins.

Prices for raw materials, energy and commodities are also influenced by import duties and tariffs, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages, geopolitical tensions, government trade practices and regulations and other factors.

Sales and Cost Mix

The gross profit margins within our Fabrication Technology segment vary in relation to the relative mix of many factors, including the type of product, the location in which the product is manufactured, the end market application for which the product is designed.

The consumables product grouping generally has less production complexity and shorter production cycles than equipment products.

Gross profit margins within our Medical Technology segment vary primarily based on the type of product and distribution channel.

Reconstructive products tend to have higher margins than the prevention and recovery products.

Gross profit margins within our operating segments vary primarily based on the type of product and distribution channel.

Reconstructive products tend to have higher gross margins than the Prevention & Recovery products.

The mix of sales was as follows for the periods presented:

Year Ended December 31,

Fabrication Technology Segment:

Equipment 31 % 31 %

Consumables 69 % 69 %

Medical Technology Segment (1) :

2022 2021 2020

Prevention & Recovery 66 % 72 % 77 %

Reconstructive (1)

(1) The change in product mix from 2020 to 2021 within our Medical Technology segment is partially due to recent acquisitions of businesses that primarily sell reconstructive products.

34 % 28 % 23 %

(1) The changes from the year ended December 31, 2020 to 2022 reflects the impact from acquisitions and double-digit growth.

Non-GAAP Measures

Adjusted EBITA

Adjusted EBITA, a non-GAAP performance measure, is included in this report because it is a key metric used by our management to assess our operating performance.

Adjusted EBITA excludes from Net income from continuing operations the effect of restructuring and other related charges, MDR and related costs, acquisition-related intangible asset amortization and other non-cash charges, strategic transaction costs, income tax expense (benefit), pension settlement gains and losses, debt extinguishment charges, and interest expense, net.

We also present Adjusted EBITA margin, which is subject to the same adjustments as Adjusted EBITA.

Further, we present Adjusted EBITA (and Adjusted EBITA margin) on a segment basis, where we exclude the impact of restructuring and other related charges, MDR and related costs, acquisition-related intangible asset amortization and other non-cash charges, strategic transaction costs, and pension settlement gains and losses from segment operating income.

Adjusted EBITA assists Colfax management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements.

Colfax management also believes that presenting these measures allows investors to view its performance using the same measures that we use in evaluating our financial and business performance and trends.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with U.S.

Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable U.S.

GAAP financial measures.

The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable U.S.

GAAP financial measure, to Adjusted EBITA.

Adjusted EBITDA

Adjusted EBITDA and Adjusted EBITDA margin, two non-GAAP performance measures, are included in this report because they are key metrics used by our management to assess our operating performance.

Adjusted EBITDA excludes from Net income (loss) from continuing operations the effect of income tax expense (benefit), Other income, non-operating (gain) loss on investments, debt extinguishment charges, interest expense, net, restructuring and other charges, Medical Device Regulation (MDR) fees and other costs, strategic transaction costs, stock-based compensation, depreciation and other amortization, acquisition-related intangible asset amortization, insurance settlement (gain) loss, and fair value charges on acquired inventory.

We also present Adjusted EBITDA and Adjusted EBITDA margin by operating segment, which are subject to the same adjustments.

Operating income (loss), adjusted EBITDA and adjusted EBITDA margins at the operating segment level also include allocations of certain central function expenses not directly attributable to either operating segment.

Adjusted EBITDA assists our management in comparing operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements.

Our management also believes that presenting these measures allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP.

Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

The following tables set forth a reconciliation of net loss from continuing operations, the most directly comparable financial statement measure, to Adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020.

Year Ended December 31, 2022

Prevention & Recovery Reconstructive Total

(Dollars in millions)

Net income from continuing operations (GAAP) $ 98.7 $ 64.1

Income tax expense (benefit) 66.7 (6.1)

Interest expense, net 72.6 104.3

Pension settlement gain (11.2) —

Net loss from continuing operations (GAAP) (1)

Income tax expense 36.1

Other income (2.1)

Gain on cost basis investment (8.8)

Gain on investment in ESAB Corporation (102.7)

Debt extinguishment charges 20.4

Restructuring and other related charges (1)

Interest expense, net 24.1

Operating loss (GAAP) $ (18.2) $ (52.9) (71.2)

Operating loss margin (1.8) % (9.9) % (4.6) %

Adjusted to add (deduct):

Restructuring and other charges (2)

MDR and other costs (3)

Strategic transaction costs (3)

Acquisition-related amortization and other non-cash charges (4)

Adjusted EBITA (non-GAAP) $ 505.1 $ 361.0

Net income margin from continuing operations (GAAP) 2.6 % 2.1 %

Adjusted EBITA margin (non-GAAP) 13.1 % 11.8 %

(1) Restructuring and other related charges includes $5.2 million and $6.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations for the years ended December 31, 2021 and 2020, respectively.

(2) Primarily related to costs specific to compliance with medical device reporting regulations and other requirements of the European Union MDR.

These costs are classified as Selling, general and administrative expense on our Consolidated Statements of Operations.

(3) For the year ended December 31, 2021, Strategic transaction costs includes costs related to the Separation and certain transaction and integration costs related to recent acquisitions.

For the year ended December 31, 2020, Strategic transaction costs includes costs incurred for the acquisition of DJO.

(4) Includes amortization of acquired intangibles and fair value charges on acquired inventory.

The following tables set forth a reconciliation of operating income (loss), the most directly comparable financial statement measure, to Adjusted EBITA by segment for the years ended December 31, 2021 and 2020.

39.9 21.2 61.0

Stock-based compensation (3)

20.2 11.3 31.5

Depreciation and other amortization 24.4 52.3 76.7

Amortization of acquired intangibles 80.1 46.2 126.3

Insurance settlement gain (3)

(24.4) (12.3) (36.7)

Inventory step-up — 12.8 12.8

Adjusted EBITDA (non-GAAP) $ 141.3 $ 94.7 $ 236.1

Adjusted EBITDA margin (non-GAAP) 13.8 % 17.7 % 15.1 %

(1) Non-operating components of Net loss from continuing operations are not allocated to the segments.

(2) Restructuring and other charges in the Prevention & Recovery segment includ es $1.7 million of ex pense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

(3) Certain amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment.

Year Ended December 31, 2021

Fabrication Technology Medical Technology Corporate and other Total

Prevention & Recovery Reconstructive Total

(Dollars in millions)

Operating income (loss) (GAAP) $ 337.4 $ 31.3 $ (112.0) $ 256.6

Restructuring and other related charges (1)

Net loss from continuing operations (GAAP) (1)

Income tax benefit (19.5)

Debt extinguishment charges 29.9

Interest expense, net 29.1

Operating loss (GAAP) $ (14.9) $ (47.9) (62.8)

Operating loss margin (1.5) % (12.0) % (4.4) %

Adjusted to add:

Restructuring and other charges (2)

11.5 2.4 13.9

MDR and other costs (3)

Segment operating income (loss) (non-GAAP) 356.3 53.1 (112.0) 297.5

Strategic transaction costs (3)

Acquisition-related amortization and other non-cash charges 35.9 127.7 — 163.6

Adjusted EBITA (non-GAAP) $ 395.1 $ 184.6 $ (74.7) $ 505.1

Segment operating income margin (non-GAAP) 14.7 % 3.7 % — % 7.7 %

Adjusted EBITA margin (non-GAAP) 16.3 % 12.9 % — % 13.1 %

(1) Restructuring and other related charges in the Medical Technology segment includes $5.2 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

14.8 8.6 23.4

Stock-based compensation (3)

17.8 7.9 25.7

Depreciation and other amortization 25.3 44.8 70.1

Amortization of acquired intangibles 72.6 44.3 116.9

Inventory step-up 0.7 10.1 10.8

Adjusted EBITDA (non-GAAP) $ 133.5 $ 72.5 $ 206.0

Adjusted EBITDA margin (non-GAAP) 13.0 % 18.1 % 14.4 %

(1) Non-operating components of Net loss from continuing operations are not allocated to the segments.

(2) Restructuring and other charges in the Prevention & Recovery segment includes $5.2 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

(3) Certain amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment.

Year Ended December 31, 2020

Fabrication Technology Medical Technology Corporate and other Total

Prevention & Recovery Reconstructive Total

(Dollars in millions)

Operating income (loss) (GAAP) $ 224.4 $ (1.2) $ (60.8) $ 162.3

Restructuring and other related charges (1)

Net loss from continuing operations (GAAP) (1)

Income tax benefit (44.6)

Interest expense, net 52.8

Operating loss (GAAP) $ (43.9) $ (22.3) (66.2)

Operating loss margin (5.1) % (8.6) % (5.9) %

Adjusted to add:

Restructuring and other charges (2)

19.6 3.8 23.3

MDR and other costs (3)

Segment operating income (loss) (non-GAAP) 246.0 29.1 (60.8) 214.3

Strategic transaction costs (3)

Acquisition-related amortization and other non-cash charges 36.3 107.6 — 143.9

Adjusted EBITA (non-GAAP) $ 282.3 $ 136.7 $ (58.0) $ 361.0

Segment operating income margin (non-GAAP) 12.6 % 2.6 % — % 7.0 %

Adjusted EBITA margin (non-GAAP) 14.5 % 12.2 % — % 11.8 %

(1) Restructuring and other related charges in the Medical Technology segment includes $6.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

Stock-based compensation (3)

17.3 5.2 22.5

Depreciation and other amortization 25.2 39.3 64.6

Amortization of acquired intangibles 82.9 20.4 103.3

Inventory step-up 4.3 — 4.3

Adjusted EBITDA (non-GAAP) $ 112.6 $ 49.0 $ 161.5

Adjusted EBITDA margin (non-GAAP) 13.0 % 19.0 % 14.4 %

(1) Non-operating components of Net loss from continuing operations are not allocated to the segments.

(2) Restructuring and other charges in the Prevention & Recovery segment includes $6.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

(3) Certain amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment.

Total Company

8 unchanged sentences

For the year ended December 31, 2021 $ 1,426.2

(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth due to factors such as price and volume.

(2) Represents the incremental sales in comparison to the portion of the prior period during which we did not own the business.

Components of Change:

Existing businesses (1)

Acquisitions (2)

Foreign currency translation (3)

(36.0) (2.5) %

For the year ended December 31, 2022 $ 1,563.1

(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to factors such as price, product mix and volume.

(2) Represents the incremental sales as a result of acquisitions closed subsequent to the beginning of the prior year period.

(3) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates.

Net sales increased during 2021 as compared to 2020 primarily due to the recovery from the COVID-related sales downturn in 2020, as well as inflation-related pricing increases, sales from acquisitions, and to a lesser extent new product sales.

Existing business sales of our Fabrication Technology segment increased $456.6 million due to strong sales volumes, inflation-related pricing increases and new product initiatives.

In our Medical Technology segment, existing business sales increased $154.3 million due to a recovery in sales volumes from the decline related to COVID-19 and expansion in the reconstructive product group from market outperformance and new product launches.

Net sales from acquisitions increased during 2021 as compared to 2020 primarily due to acquisitions in our Medical Technology segment that closed in 2021 and the fourth quarter of 2020.

2022 Compared to 2021

Net sales increased during 2022 as compared to 2021 primarily due to an increase in sales from existing businesses across both of our segments and sales from acquired businesses in our Reconstructive segment, partially offset by foreign currency headwinds primarily in our Prevention & Recovery segment.

In our Reconstructive segment, existing business sales increased $47.1 million, or 11.8%, due to significantly higher sales volumes than the prior year across all product lines driven by market outperformance, new product launches, and reduced COVID impacts.

In our Prevention & Recovery segment, existing business sales increased $32.5 million, or 3.2%, due to improved sales volumes and inflation-related pricing increases.

Net sales from acquisitions increased during 2022 as compared to 2021 primarily due to the Mathys, Trilliant, and Medshape acquisitions in our Reconstructive segment that closed in 2021.

The strengthening of the U.S.

dollar relative to other currencies, most notably the Euro, caused a $36.0 million unfavorable currency translation impact.

2021 Compared to 2020

Net sales increased during 2021 as compared to 2020 due to the recovery from the COVID-related sales downturn in 2020, inflation-related pricing increases, sales from acquisitions, new product sales, and foreign currency tailwinds.

In our Reconstructive segment, existing business sales increased $36.1 million, or 14.0%, primarily due to a recovery in sales volumes from the decline related to COVID-19 and expansion in the reconstructive product group from market outperformance and new product launches.

In our Prevention & Recovery segment, existing business sales increased $117.6 million, or 13.6%, primarily due to a recovery in sales volumes from the decline related to COVID, as well as inflation-related pricing increases and foreign currency tailwinds.

Net sales from acquisitions increased during 2021 as compared to 2020 primarily due to acquisitions that closed in 2021 and the fourth quarter of 2020.

The weakening of the U.S.

dollar relative to other currencies, most notably the Euro, caused a $31.0 million favorable currency translation impact.

dollar relative to other currencies, most notably the Euro, led to an $11.7 million favorable currency translation impact.

Operating Results

The following table summarizes our results from continuing operations for the comparable two-year period.

The following table summarizes our results from continuing operations for the comparable three-year period.

Year Ended December 31,

2022 2021 2020

(Dollars in millions)

2 unchanged sentences

Selling, general and administrative expense $ 772.9 $ 665.8 $ 515.5

Operating income $ 256.6 $ 162.3

Operating income margin 6.7 % 5.3 %

Net income from continuing operations $ 98.7 $ 64.1

Net income margin from continuing operations 2.6 % 2.1 %

Adjusted EBITA (non-GAAP) $ 505.1 $ 361.0

Adjusted EBITA margin (non-GAAP) 13.1 % 11.8 %

Items excluded from Adjusted EBITA:

Restructuring and other related charges (1)

Research and development expense $ 60.8 $ 49.1 $ 34.3

Operating loss $ (71.2) $ (62.8) $ (66.2)

Operating loss margin (4.6) % (4.4) % (5.9) %

Net loss from continuing operations $ (38.2) $ (102.3) $ (74.4)

Net loss margin from continuing operations (GAAP) (2.4) % (7.2) % (6.6) %

Adjusted EBITDA (non-GAAP) $ 236.1 $ 206.0 $ 161.5

Adjusted EBITDA margin (non-GAAP) 15.1 % 14.4 % 14.4 %

Items excluded from Adjusted EBITDA:

Restructuring and other charges (1)

$ 19.0 $ 13.9 $ 23.3

1 unchanged sentence

Strategic transaction costs

Acquisition-related amortization and other non-cash charges $ 163.6 $ 143.9

Pension settlement gain $ (11.2) $ —

$ 61.0 $ 23.4 $ 2.8

Stock-based compensation

$ 31.5 $ 25.7 $ 22.5

Depreciation and other amortization $ 76.7 $ 70.1 $ 64.6

Amortization of acquired intangibles $ 126.3 $ 116.9 $ 103.3

Insurance settlement gain $ (36.7) $ — $ —

Inventory step-up $ 12.8 $ 10.8 $ 4.3

Interest expense, net $ 24.1 $ 29.1 $ 52.8

1 unchanged sentence

Income tax expense (benefit) $ 36.1 $ (19.5) $ (44.6)

(1) Restructuring and other charges includes $1.7 million, $5.2 million and $6.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020, respectively.

2022 Compared to 2021

Gross profit increased $325.6 million during 2021 in comparison to 2020 due to a $151.5 million increase in our Fabrication Technology Segment and a $172.9 million increase in our Medical Technology segment.

The Gross profit increase was primarily attributable to higher sales volumes and the related improved production efficiencies compared to 2020, during which sales volumes were negatively impacted by the COVID-19 pandemic.

During 2021, Gross profit also increased due to acquisitions, new product initiatives and favorable foreign currency impacts, partially offset by increased supply chain and logistic costs in both segments.

Gross profit margin was consistent with 2020, as margin improvements in both segments were offset by the dilutive impact of inflation, net of customer price increases, in our Fabrication Technology segment, which compressed margins.

Selling, general and administrative expense increased $242.0 million primarily due to a $106.1 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses, primarily within our Medical Technology segment, the cessation of prior year temporary cost reduction measures that were taken in response to COVID-19, and increased sales commissions from increased sales levels.

A $41.2 million increase in strategic transaction costs related to the Separation also increased Selling, general and administrative expense during 2021.

Restructuring and other related charges decreased by $12.1 million primarily due to the completion of certain restructuring programs in our Medical Technology segment.

Additionally, during 2021, a pension settlement gain of $11.2 million was recognized when the independent trustees of a company pension plan agreed to merge that plan with another company pension plan and contribute its surplus assets.

Gross profit increased $91.7 million during 2022 in comparison to 2021 due to an $89.5 million increase in our Reconstructive segment.

The Gross profit increase was attributable to contributions from recent business acquisitions and increased sales in our existing businesses, partially offset by inflation of supply chain, logistics, and other costs, unfavorable foreign currency translation effects, and higher inventory step-up charges of $2.0 million.

Gross profit margin increased due to segment performance, including pricing and other benefits, offset by inflation of supply chain, logistics, and other costs.

Selling, general and administrative expense increased $107.1 million primarily due to a $50.3 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses within our Reconstructive segment and a $37.6 million increase in strategic transaction costs, driven by Separation-related costs incurred in the first half of 2022.

Research and development costs also increased compared to the prior year period primarily due to increased spend within recently acquired businesses in our Reconstructive segment.

Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to acquisition-related increases.

On November 18, 2022, we completed an exchange with a lender under our Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of our retained interest in ESAB, for $230.5 million of the $450 million in term loan outstanding under the Enovis Credit Agreement.

We recorded a gain of $102.7 million on the disposition of the investment representing the fair value in excess of cost basis.

During the year ended December 31, 2022, we recorded a net insurance settlement gain of $36.7 million which was related to the 2019 acquisition of DJO and which, along with the aforementioned gain on the disposition of the ESAB investment, significantly impacted our results.

Debt extinguishment charges of $20.4 million were recorded in the year ended December 31, 2022.

Charges of $20.1 million were recorded in the second quarter of 2022, comprised of $12.7 million in redemption premiums and $7.4 million in noncash write-offs of original issue discount and deferred financing fees in conjunction with the Separation.

Additionally, $0.3 million of noncash write-offs of deferred financing fees were recorded in conjunction with the aforementioned debt-for-equity exchange during the fourth quarter of 2022.

Debt extinguishment charges of $29.9 million were recorded in the second quarter of 2021 due to an early redemption of certain senior notes.

Interest expense, net decreased by $31.7 million, primarily due to an overall reduction in debt balances during the current year as a result of the aforementioned redemption of senior notes.

The effective tax rate for Net income from continuing operations during 2021 was 40.3%, which was higher than the 2021 U.S.

federal statutory tax rate of 21% mainly due to the net impact of U.S.

tax on international operations, capital gains on current year transactions, certain non-deductible expenses, and withholding taxes.

These unfavorable impacts were partially offset by the impact of international rates and the reduction of valuation allowances on U.S.

and German net operating losses, and foreign tax credits.

The effective tax rate for 2020 was (10.4)%, which was lower than the 2020 U.S.

Interest expense, net decreased by $5.0 million, primarily due to a reduction in debt balances as a result of the Separation-related debt redemptions at the beginning of the second quarter of 2022.

The effective tax rate for Net income from continuing operations during 2022 was (1,745.8)% on a loss from continuing operations before income taxes, which was different than the 2022 U.S.

federal statutory tax rate of 21% mainly due to the net impact of U.S.

tax credits, a benefit from U.S.

state tax losses, a discrete tax benefit associated with the filing of timely elected change to U.S.

Federal tax returns to credit rather than to deduct foreign taxes and reduction of valuation allowance on U.S.

tax on non-deductible costs and capital gains on current year transactions.

These were partially offset by the reduction of valuation allowances on U.S.

and German net operating losses, and interest limitation carryforwards.

The effective tax rate for 2021 was 16.0% on a loss from continuing operations before income taxes, which was lower than the 2021 U.S.

federal statutory tax rate of 21% mainly due to the impact of additional U.S.

tax on international operations and certain non-deductible expenses.

These were offset by the net impact of reduction of valuation allowance on U.S.

federal net operating losses.

These favorable impacts were partially offset by the impact of additional U.S.

tax on international operations, withholding taxes, and certain non-deductible expenses.

Net income from continuing operations increased in 2021 compared to 2020, largely due to the strong recovery from the prior year COVID-related sales downturn.

The sales-related benefits from this recovery in 2021 were partially offset by increases in expenses attributable to the cessation of aforementioned temporary cost reductions implemented during 2020 in reaction to COVID-driven sales reductions, higher income tax expense, as well as increased supply chain and logistic costs.

During 2021, we also incurred debt extinguishment charges, increased strategic transaction costs related to the Separation, and higher sales commissions related to greater sales, partially offset by a pension settlement gain.

Net income margin from continuing operations increased by 50 basis points due to the aforementioned factors.

Adjusted EBITA increased primarily due to the improved sales volumes and new product initiatives, partially offset by the aforementioned supply chain and logistic costs and sales commission increases, and the cessation of the aforementioned temporary cost reductions.

Adjusted EBITA margin increased for the same reasons, partially offset by inflation-related pricing increases in our Fabrication Technology segment, as well as recent acquisitions in our Medical Technology segment which were dilutive to the margin, but are expected to be accretive in future years.

Net loss from continuing operations decreased primarily due to the gain on the ESAB common stock, as well as the insurance settlement gain and acquisition-related sales, offset by costs associated with the Separation and acquisition-related costs.

Net loss margin from continuing operations decreased by 480 basis points due to the aforementioned factors.

Adjusted EBITDA increased due to organic growth and lower operating expenses in existing businesses, partially offset by inflation of supply chain, logistics, and other costs.

Adjusted EBITDA margin excluding the effects of recent acquisitions and foreign currency pressures increased by approximately 150 basis points.

Our recent acquisitions were dilutive to the margin by approximately 70 basis points and are expected to be accretive to margins in future years.

2021 Compared to 2020

Gross profit increased $174.0 million during 2021 in comparison to 2020 due to an $87.3 million increase in our Prevention & Recovery Segment and an $86.8 million increase in our Reconstructive segment.

The Gross profit increase was primarily attributable to higher sales volumes and related improved production efficiencies compared to 2020 during which sales volumes were negatively impacted by the COVID-19 pandemic.

During 2021, Gross profit and gross profit margin also increased due to acquisitions, new product initiatives and favorable foreign currency impacts, partially offset by increased supply chain and logistic costs in both segments.

Selling, general and administrative expense increased $150.3 million primarily due to a $103.7 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses, primarily within our Reconstructive segment, the cessation of prior year temporary cost reduction measures that were taken in response to COVID-19, and increased sales commissions from higher sales levels.

A $20.6 million increase in strategic transaction costs primarily related to the Separation also increased Selling, general and administrative expense during 2021.

Debt extinguishment charges of $29.9 million were recorded in the second quarter of 2021 due to an early redemption of certain senior notes.

Interest expense, net decreased by $23.7 million, primarily due to an overall reduction in debt balances during the current year as a result of the aforementioned redemption of senior notes.

The effective tax rate for 2021 was 16.0% on a loss from continuing operations before income taxes, which was lower than the 2021 U.S.

federal statutory tax rate of 21% mainly due to the impact of additional U.S.

tax on international operations and certain non-deductible expenses.

These were offset by the impact of the reduction of valuation allowance on U.S federal net operating losses.

The effective tax rate for 2020 was 37.5% on a loss from continuing operations before income taxes, which was higher than the 2020 U.S.

federal statutory tax rate of 21% mainly due to the net impact of reduction of valuation

allowance on U.S.

federal, state and foreign net operating losses.

These were offset by the impact of additional U.S.

tax on international operations and certain non-deductible expenses.

Net loss from continuing operations increased in 2021 compared to 2020, largely due to the cessation of aforementioned temporary cost reductions implemented during 2020 in reaction to COVID-driven sales reductions, higher income tax expense, as well as increased supply chain and logistic costs, offset by increased sales from the 2021 COVID recovery.

During 2021, we also incurred debt extinguishment charges, increased strategic transaction costs related to the Separation, and higher sales commissions related to greater sales.

Net loss margin from continuing operations increased by 60 basis points due to the aforementioned factors.

Adjusted EBITDA increased primarily due to the improved sales volumes and new product initiatives, partially offset by the aforementioned supply chain and logistic costs and sales commission increases, and the cessation of the aforementioned temporary cost reductions.

Adjusted EBITDA margin remained flat due to the above reasons, the impacts of which were offset by costs associated with recent acquisitions which were dilutive to the margin, but are expected to be accretive in future years.

Business Segments

As discussed further above, we report results in two reportable segments:

Fabrication Technology and Medical Technology.

Fabrication Technology

We formulate, develop, manufacture and supply consumable products and equipment, including cutting, joining, and automated welding products, as well as gas control equipment.

Our fabrication technology products are marketed under several brand names, most notably ESAB, providing a wide range of products with innovative technologies to solve challenges in virtually any industry.

ESAB’s comprehensive range of welding consumables includes electrodes, cored and solid wires, and fluxes using a wide range of specialty and other materials, and cutting consumables including electrodes, nozzles, shields and tips.

ESAB’s fabrication technology equipment ranges from portable welding machines to large customized automated cutting and welding systems.

ESAB also offers a range of digital software and solutions to help its customers increase their productivity, remotely monitor their welding operations and digitize their documentation.

Products are sold into a wide range of end markets, including general industry, construction, infrastructure, transportation, energy, renewable energy, and medical & life sciences.

The following table summarizes selected financial data for our Fabrication Technology segment:

Prevention & Recovery and Reconstructive.

Operating loss, adjusted EBITDA and adjusted EBITDA margins at the operating segment level also include allocations of certain central function expenses not directly attributable to either operating segment.

See See Item 7.

“Non-GAAP Measures” for a further discussion and reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

Prevention & Recovery

We develop, manufacture, and distribute rigid bracing products, orthopedic soft goods, vascular systems and compression garments, and hot and cold therapy products and offer robust recovery sciences products in the clinical rehabilitation and sports medicine markets such as bone growth stimulators and electrical stimulators used for pain management.

Our Prevention & Recovery products are marketed under several brand names, most notably DJO, to orthopedic specialists, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers, and other healthcare professionals who treat patients with a variety of treatment needs including musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries.

Many of our medical devices and related accessories are used by athletes and other patients for injury prevention and at-home physical therapy treatments.

We reach a diverse customer base through multiple distribution channels, including independent distributors, direct salespeople, and directly to patients.

The following table summarizes selected financial data for our Prevention & Recovery segment:

Year Ended December 31,

2022 2021 2020

(Dollars in millions)

3 unchanged sentences

Selling, general and administrative expense $ 438.9 $ 421.9 $ 352.8

Segment operating income (non-GAAP) $ 356.3 $ 246.0

Segment operating income margin (non-GAAP) 14.7 % 12.6 %

Adjusted EBITA (non-GAAP) $ 395.1 $ 282.3

Adjusted EBITA margin (non-GAAP) 16.3 % 14.5 %

Items excluded from Adjusted EBITA:

Restructuring and other related charges $ 19.0 $ 21.6

Strategic transaction costs $ 2.9 $ —

Acquisition-related amortization and other non-cash charges $ 35.9 $ 36.3

Net sales in our Fabrication Technology segment increased $478.0 million during 2021 compared to 2020 due to the strong recovery from the COVID-19 effects that impacted 2020, as well as new product initiatives, inflation-related pricing increases, and a $19.3 million favorable foreign currency translation impact.

Gross profit increased $151.5 million in 2021 as a result of improved sales volumes and production efficiencies, while Gross profit margin decreased 70 basis points due to the impact of inflation-related pricing and cost increases, which compressed the margin.

Selling, general and administrative expense increased in the period primarily due to the cessation of temporary cost reductions implemented in 2020, partially offset by benefits from restructuring initiatives.

Segment operating income and Adjusted EBITA increased in 2021 compared to 2020 due to the improved sales volumes, partially offset by increased Selling, general and administrative costs.

The related margins increased for the same reasons, partially offset by the aforementioned impact from inflation-related pricing and cost increases over the same period.

Medical Technology

We develop, manufacture and distribute high-quality medical devices and services across the continuum of patient care from injury prevention to joint replacement to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion.

Our products are used by orthopedic specialists, surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals.

Our products primarily include orthopedic braces, rehabilitation devices, footwear, surgical implants, and bone growth stimulators.

The following table summarizes the selected financial data for our Medical Technology segment:

Research and development expense $ 33.5 $ 30.2 $ 24.1

Operating loss (GAAP) $ (18.2) $ (14.9) $ (43.9)

Operating loss margin (GAAP) (1.8) % (1.5) % (5.1) %

Adjusted EBITDA (non-GAAP) $ 141.3 $ 133.5 $ 112.6

Adjusted EBITDA margin (non-GAAP) 13.8 % 13.0 % 13.0 %

2022 Compared to 2021

Net sales in our Prevention & Recovery segment increased $1.6 million in the year ended December 31, 2022 compared with the prior year period, driven by organic growth in existing businesses which was aided by pricing increases to mitigate inflation, mostly offset by $30.9 million of currency translation pressure.

Gross profit increased $2.1 million due to the improved sales, offset by inflation of supply chain, logistics, and other costs and unfavorable foreign currency effects.

Gross profit margin increased 10 basis points for the same reasons.

Selling, general and administrative expense increased primarily due to increased costs related to the Separation, offset by lower central costs.

Adjusted EBITDA and Adjusted EBITDA margin increased due to the reduction in central cost allocations, partially offset by inflation of supply chain, logistics, and other costs.

2021 Compared to 2020

Net sales in our Prevention & Recovery segment increased $162.9 million during 2021 compared to 2020 due to the strong recovery from the COVID-19 effects that impacted 2020, as well as new product initiatives, acquisition-related sales growth of $33.5 million, and a $11.2 million favorable foreign currency translation impact.

Gross profit increased $87.3 million as a result of improved sales volumes and production efficiencies, offset by inflation-related pricing and cost increases.

Gross profit margin increased 60 basis points for the same reasons.

Selling, general and administrative expense increased primarily due to the cessation of temporary cost reductions implemented in 2020 and higher sales commissions in the current year.

Adjusted EBITDA and Adjusted EBITDA margin increased due to the improved sales volumes, partially offset by increased Selling, general and administrative costs and cost increases over the same period.

Reconstructive

We develop, manufacture, and market a wide variety of knee, hip, shoulder, elbow, foot, ankle, and finger implant products and surgical productivity solutions that serve the orthopedic reconstructive joint implant market.

Our products are primarily used by surgeons for surgical procedures.

The following table summarizes the selected financial data for our Reconstructive segment:

Year Ended December 31,

2022 2021 2020

(Dollars in millions)

3 unchanged sentences

Selling, general and administrative expense $ 334.0 $ 243.8 $ 162.6

Segment operating income (non-GAAP) $ 53.1 $ 29.1

Segment operating income margin (non-GAAP) 3.7 % 2.6 %

Adjusted EBITA (non-GAAP) $ 184.6 $ 136.7

Adjusted EBITA margin (non-GAAP) 12.9 % 12.2 %

Items excluded from Adjusted EBITA:

Restructuring and other related charges (1)

$ 13.9 $ 23.4

MDR and other costs $ 7.9 $ 6.9

Strategic transaction costs $ 3.8 $ —

Acquisition-related amortization and other non-cash charges $ 127.7 $ 107.6

Net sales increased for our Medical Technology segment during 2021 compared with 2020 due to a recovery in sales volumes from the COVID-19-related declines during 2020, as well as continued expansion in the reconstructive product group from market outperformance and new product launches, acquisition-related sales growth of $139.5 million and a favorable foreign currency translation impact of $11.7 million.

Research and development expense $ 27.4 $ 18.9 $ 10.1

Operating loss (GAAP) $ (52.9) $ (47.9) $ (22.3)

Operating loss margin (GAAP) (9.9) % (12.0) % (8.6) %

Adjusted EBITDA (non-GAAP) $ 94.7 $ 72.5 $ 49.0

Adjusted EBITDA margin (non-GAAP) 17.7 % 18.1 % 19.0 %

2022 Compared to 2021

Net sales increased for our Reconstructive segment in the year ended December 31, 2022 compared with the prior year, primarily due to acquisition-related sales growth of $93.3 million and existing business sales growth of $47.1 million.

Sales were negatively impacted in 2021, most notably the second half of the year, due to COVID-19 surges and a related deceleration in elective surgical procedure volumes.

Gross profit and gross profit margin increased primarily due to acquisition and existing business growth, partially offset by inflation of supply chain, logistics, and other costs.

Selling, general and administrative expense also increased primarily due to $50.3 million of costs from acquisitions, including integration costs for the newly-acquired businesses, as well as increased central costs, including costs associated with the Separation.

Adjusted EBITDA increased primarily due to growth in existing businesses, partially offset by inflation of supply chain, logistics, and other costs.

Without the impact of recent acquisition, Adjusted EBITDA margin increased 260 basis points compared to prior year.

Recent acquisitions were dilutive to the margin by approximately 300 basis points, but are expected to be accretive to margins in future years.

2021 Compared to 2020

Net sales increased for our Reconstructive segment during year ended December 31, 2021 compared with the prior year due to a recovery in sales volumes from the COVID-19-related declines during 2020, as well as continued expansion from market outperformance and new product launches, acquisition-related sales growth of $106.0 million and a favorable foreign currency translation impact of $0.5 million.

After a surge of COVID-19 cases in the fourth quarter of 2020, which negatively impacted sales volumes early in 2021, sales volumes began normalizing late in the first quarter and through the second quarter of 2021.

However, as a result of the increase in cases of COVID-19 variants during the second half of 2021, recovery slowed during this period, primarily due to a deceleration in elective surgical procedure volumes.

Gross profit and Gross profit margins increased during 2021 compared to the prior year due to improved sales volumes and acquisition-related growth, partially offset by increased supply chain and logistic costs.

Selling, general and administrative expense also increased primarily due to the additional costs from newly-acquired businesses and related integration costs, the cessation of temporary employee cost reductions implemented during 2020, and higher sales commissions in the current year.

Segment operating income, Adjusted EBITA, and related margins all increased as a result of the aforementioned factors.

Margin improvements were partially offset by the recent acquisitions, which were dilutive to the 2021 margins, but are expected to be accretive in future years.

Restructuring and other related charges decreased by $9.5 million due to the completion of certain projects.

Gross profit increased due to improved sales volumes and acquisition-related growth, partially offset by increased supply chain and logistic costs.

Gross profit margin decreased because of recent acquisitions, which were dilutive to the 2021 margins, but are expected to be accretive in future years.

Adjusted EBITDA margin decreased because of recent acquisitions, which were dilutive to the 2021 margins, but are expected to be accretive in future years.

Liquidity and Capital Resources

We finance our long-term capital and working capital requirements through a combination of cash flows from operating activities, various borrowings and the issuances of equity.

We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, Separation costs, capital expenditures, restructuring, asbestos-related cash outflows, and debt service and required amortization of principal.

We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures, restructuring cash outflows, and interest and principal repayments on amounts drawn on our revolving credit facility.

We believe we could raise additional funds in the form of debt or equity if it was determined to be appropriate for strategic acquisitions or other corporate purposes.

ESAB Separation

We completed the separation of ESAB on April 4, 2022, through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB to our shareholders.

At the time of the Separation, we retained 10% of the shares of ESAB common stock.

In connection with the Separation, ESAB issued $1.2 billion of new debt securities, the proceeds from which were used to fund a $1.2 billion cash distribution to us upon Separation.

We used the distribution proceeds in conjunction with $450 million of borrowings on a term loan under our Enovis Credit Agreement and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest on our prior credit facility, $302.8 million of outstanding debt and accrued interest on our senior notes due February 15, 2026 (“2026 Notes”), as well as a redemption premium at 103.188% of the principal amount of our 2026 Notes, and other fees and expenses due at closing.

Additionally, on April 7, 2022, we completed the redemption of our senior unsecured notes due April 2025 (“Euro Senior Notes”) representing all of our outstanding €350 million principal 3.250% Senior Notes due 2025 at a redemption price of 100.813% of the principal amount and accrued interest for $391.2 million.

See section Enovis Term Loan and Revolving Credit Facility in Note 13, “Debt” in the accompanying Notes to Consolidated Financial Statements for more detail on the new Enovis Credit Agreement.

In the second quarter of 2022, we recorded Debt extinguishment charges of $20.1 million, including $12.7 million of redemption premiums on the retired debt instruments and $7.4 million in noncash write-offs of original issue discount and deferred financing fees.

On November 18, 2022, we divested the retained ESAB shares to a lender under the Enovis Credit Agreement in a tax-efficient exchange for extinguishing $230.5 million of our outstanding term loan under the Enovis Credit Agreement.

Equity Capital

On March 19, 2021, we completed the underwritten public offering of 16.1 million shares of our Common stock at a price to the public of $46.00 per share, resulting in net proceeds of $711.3 million, after deducting offering expenses and underwriters’ discount and commissions.

We used these proceeds to pay down certain of our senior notes, as discussed further below.

On February 12, 2018, our Board of Directors authorized the repurchase of up to $100 million of our Common stock from time-to-time on the open market or in privately negotiated transactions.

In connection with the Separation, we effected a one-for-three reverse stock split of all issued and outstanding shares of Enovis common stock.

As a result of the reverse stock split, all share and per share figures, as applicable, contained in the accompanying Consolidated Financial Statements and Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.

On March 19, 2021, we completed the underwritten public offering of 5.4 million shares of our Common stock, as adjusted for the reverse stock split, resulting in net proceeds of $711.3 million, after deducting offering expenses and underwriters’ discount and commissions.

We used the proceeds to pay down a certain portion of our senior notes.

On July 28, 2021, the Company issued 2.2 million shares of Common stock, as adjusted for the reverse stock split, to the former shareholders of Mathys for acquisition consideration of $285.7 million.

In 2018, our Board of Directors authorized the repurchase of our Common stock from time-to-time on the open market or in privately negotiated transactions.

No stock repurchases have been made under this plan since the third quarter of 2018.

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There is no term associated with the remaining repurchase authorization.

Term Loan and Revolving Credit Facility

Our credit agreement (the “Credit Facility”) by and among the Company, as the borrower, certain U.S.

subsidiaries of the Company, as guarantors, each of the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A., as syndication agent, and the co-documentation agents named therein consists of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan in an initial aggregate principal amount of $825 million (the “Term Loan”), each with a maturity date of December 6, 2024.

Enovis Term Loan and Revolving Credit Facility

On April 4, 2022, we entered into a new credit agreement (the “Enovis Credit Agreement”), consisting of a $900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and a term loan with an initial aggregate principal

amount of $450 million and an April 4, 2023 maturity date (the “Enovis Term Loan”).

The Revolver contains a $50 million swing line loan sub-facility.

Refer to Note 13, “Debt” in the accompanying Notes to the Consolidated Financial Statements for more information.

As of December 31, 2021, we are in compliance with the covenants under the Credit Facility.

As of December 31, 2021, the weighted-average interest rate of borrowings under the Credit Facility was 1.59%, excluding accretion of original issue discount and deferred financing fees, and there was $375 million undrawn capacity available on the Revolver.

Euro Senior Notes

In 2017, we issued senior unsecured notes with an aggregate principal amount of €350 million (the “Euro Notes”).

The Euro Notes are due in April 2025, have an interest rate of 3.25% and are guaranteed by certain of our domestic subsidiaries (the “Guarantees”).

The Euro Notes and the Guarantees have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any other jurisdiction.

2022 Tangible Equity Unit (“TEUs”)

In 2019, we issued $460 million in TEUs with a 5.75% interest rate, comprised of 4.6 million units at $100 per unit.

Total cash of $447.7 million was received upon closing, comprised of $377.8 million TEU prepaid stock purchase contracts and $69.9 million of TEU amortizing notes due January 2022.

Subsequent to December 31, 2021, all of the remaining TEU prepaid stock purchase contracts were converted to shares of common stock and the final quarterly cash installment on the TEU amortizing notes was paid.

Refer to Notes 13 “Debt” and 14, “Equity” in the accompanying Notes to Consolidated Financial Statements for more information.

subsidiaries of the Company guarantee the obligations under the Enovis Credit Agreement.

On November 18, 2022, the Company completed an exchange with a lender under the Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of the retained shares in ESAB following the Separation, for $230.5 million of the $450.0 million in Enovis Term Loan outstanding under the Enovis Credit Agreement, net of cost to sell.

The remaining $219.5 million outstanding balance on the Enovis Term Loan matures on April 4, 2023, and w e expect to use the Revolver to pay the balance due.

The Enovis Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends.

In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum total leverage ratio of not more than 4.00:1.00, with a step-down to 3.75:1.00 commencing with the fiscal quarter ending June 30, 2023, and a step-down to 3.50:1.00 commencing with the fiscal quarter ending June 30, 2024, and (ii) a minimum interest coverage ratio of 3.00:1.00.

The Enovis Credit Agreement contains various events of default (including failure to comply with the covenants under the Enovis Credit Agreement and related agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Enovis Term Loan and the Revolver.

As of December 31, 2022, the Company was in compliance with the covenants under the Enovis Credit Agreement.

As of December 31, 2022, the weighted-average interest rate of borrowings under the Enovis Credit Agreement was 5.71%, excluding accretion of original issue discount and deferred financing fees, and there was $860.0 million available on the Revolver.

In 2017, we issued senior unsecured notes with an aggregate principal amount of €350 million due in May 2025, with an interest rate of 3.25% (the “Euro Notes”).

The Euro Notes were redeemed on April 7, 2022 at 100.813% of the principal amount after the completion of the Separation.

Tangible Equity Unit (“TEU”) Amortizing Notes

In 2019, we issued 5.75% TEU amortizing notes due in January 2022 at an initial principal amount of $15.6099 per note with equal quarterly cash installments of $1.4375 per note representing a payment of interest and partial payment of principal.

The Company paid $6.5 million, $25.0 million, and $23.4 million of principal on the TEU amortizing notes in the years ended December 31, 2022, 2021, and 2020, respectively.

The final installment payment was made on January 15, 2022.

Additionally, in the first quarter of 2022, all of the remaining related TEU prepaid stock purchase contracts were converted to shares of common stock.

See Note 14, “Equity” for further information.

2024 Notes and 2026 Notes

In 2019, we issued two tranches of senior notes with aggregate principal amounts of $600 million (the “2024 Notes”) and $400 million (the “2026 Notes) to finance a portion of the DJO acquisition.

The 2024 Notes were due on February 15, 2024 and had an interest rate of 6.0%.

The 2026 Notes are due on February 15, 2026 and have an interest rate of 6.375%.

The 2026 notes are guaranteed by certain of our domestic subsidiaries.

We redeemed all of the outstanding 2024 Notes and $100 million of the outstanding principal amount of our 2026 Notes on April 24, 2021.

Refer to Note 13, “Debt” in the accompanying Notes to the Consolidated Financial Statements for more information.

The Company had senior notes with a remaining principal amount of $300 million, which were due on February 15, 2026 and had an interest rate of 6.375%.

The 2026 Notes were redeemed on April 7, 2022 at 103.188% of the principal amount after the completion of the Separation.

On April 24, 2021, the Company used the proceeds from its March 2021 equity offering to redeem all of its $600 million 6.0% senior notes due February 14, 2024 (the “2024 Notes”) and $100 million of the outstanding principal of its 2026 Notes for $724.4 million.

The 2024 Notes were redeemed at a redemption price of 103.000% of their principal amount and the 2026 Notes were redeemed at a redemption price of 106.375% of their principal amount, plus, in each case, accrued and unpaid interest through the date of redemption.

In the second quarter of 2021, a net loss on the early extinguishment of debt of $29.9 million was recorded and included $24.4 million of call premium on the retired debt.

Other Indebtedness

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Total letters of credit of $7.1 million were outstanding as of December 31, 2022.

We believe that our sources of liquidity are adequate to fund our operations for the next twelve months.

As of December 31, 2021, we had $719.4 million of Cash and cash equivalents, an increase of $618.3 million from the $101.1 million Cash and cash equivalents and restricted cash on hand as of December 31, 2020.

See Note 2, "Summary of Significant Accounting Policies - Restricted Cash" in the accompanying Notes to the Consolidated Financial Statements for further information.

The following table summarizes the change in Cash and cash equivalents during the periods indicated:

We believe that our sources of liquidity are adequate to fund our operations for the next twelve months and the foreseeable future.

As of December 31, 2022, we had $24.3 million of Cash and cash equivalents, a decrease of $695.1 million from the $719.4 million of Cash and cash equivalents on hand as of December 31, 2021.

The Cash and cash equivalents as of December 31, 2021 include $39.1 million related to the ESAB business reported in Total current assets associated with discontinued operations on the Consolidated Balance Sheet.

The following table summarizes the change in Cash and cash equivalents during the periods indicated and includes cash flows related to discontinued operations:

Year Ended December 31,

2022 2021 2020

(Dollars in millions)

Net cash provided by operating activities $ 356.1 $ 301.9

Purchases of property, plant and equipment (104.2) (114.8)

Net cash provided by (used in) operating activities $ (55.9) $ 356.1 $ 301.9

Purchases of property, plant and equipment and intangibles (105.5) (104.2) (114.8)

Proceeds from sale of property, plant and equipment 2.7 7.0 9.6

Acquisitions, net of cash received (223.3) (69.8)

Acquisitions, net of cash received, and investments (73.7) (223.3) (69.8)

Net cash used in investing activities (176.4) (320.5) (175.1)

Repayments of debt, net (1,591.2) (126.0) (118.3)

Distribution from ESAB Corporation, net 1,143.4 — —

Proceeds from issuance of common stock, net 5.8 745.2 3.5

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Increase (decrease) in Cash and cash equivalents $ (695.1) $ 618.3 $ (8.6)

Cash used in operating activities related to the discontinued operations of the divested Air and Gas Handling business for the years ended December 31, 2021 and 2020 was $9.1 million and $9.4 million, respectively.

As a result of previous divestitures, we also retained certain asbestos-related contingencies and insurance coverages.

Net cash received or paid for asbestos-related costs, net of insurance proceeds, including the disposition of claims, defense costs and legal expenses related to litigation against our insurers, creates variability in our operating cash flows.

We had net cash inflows of $0.3 million during 2021 and net cash outflows of $2.2 million during 2020, which were net of $32.9 million and $79.6 million of reimbursements from insurance companies on our asbestos insurance asset balances, respectively.

Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as pension funding, asbestos-related costs and restructuring.

Cash (used in) provided by operating activities related to discontinued operations for the years ended December 31, 2022, 2021, and 2020 was $(27) million, $224 million, and $302 million, respectively.

Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as restructuring and strategic transaction costs such as Separation costs.

Changes in significant operating cash flow items are discussed below.

• Funding requirements of our defined benefit plans, including pension plans and other post-retirement benefit plans, can vary significantly from period to period due to changes in the fair value of plan assets and actuarial assumptions.

For 2021 and 2020, cash contributions for defined benefit plans were $7.3 million and $11.0 million, respectively.

• During 2021 and 2020, cash payments of $23.5 million and $39.2 million, respectively, were made related to our restructuring initiatives.

• During 2021 and 2020, cash paid for strategic transaction costs were $23.4 million and $5.1 million, respectively.

Payments in 2021 were primarily for costs related to the Separation.

• Year ended December 31, 2021 results include $78.5 million of outflows from working capital as a result of business recovery and growth increasing in inventory, accounts receivable and payable levels from the COVID-impacted 2020 year, as well as supply chain challenges in 2021 which have also impacted inventory levels.

Year ended December 31, 2020 results included a $52.3 million inflow from working capital due to lower sales due to COVID-19 and operational improvements.

We define working capital as Trade receivables, net and Inventories, net, both reduced by Accounts payable and customer advances and billings in excess of costs incurred.

Cash flows used in investing activities during 2021 includes $223.3 million of cash used for five acquisitions and three investments in our Medical Technology segment.

Cash flows used by investing activities during 2020 included $69.8 million of cash used for five acquisitions and three investments in our Medical Technology segment.

• Operating cash flows from continuing operations working capital was a use of $116.0 million in 2022, primarily due to business growth and increases in inventory to insulate for supply chain volatility.

Comparative results was a net inflow of $8.2 million for 2021 and a net outflow of $33.9 million for 2020.

• During 2022 and 2021, cash paid for strategic transaction costs in our continuing operations were $61.0 million and $23.4 million, respectively.

These costs were primarily related to the Separation.

• Cash paid for interest was $37.1 million, $85.5 million and $104.6 million for 2022, 2021 and 2020, respectively.

The decrease from 2021 to 2022 is primarily a result of the change in our capital structure due to the Separation.

At the time of the Separation, the Company’s total debt of $2.1 billion was repaid and replaced with a $450 million term loan.

The decrease from 2020 to 2021 is primarily due to debt repaid in 2021 with the $745.2 million of proceeds from the issuance of our common stock.

• During 2022, 2021, and 2020 cash payments of $18.5 million, $8.0 million and $22.5 million, respectively, were made related to our restructuring initiatives.

• Cash provided by operating activities for 2022 included a net one-time $36.7 million inflow attributable to insurance settlements and 2021 includes a one-time cash inflow from a $36.0 million U.S.

federal tax refund received in the first quarter of 2021.

Cash flows used in investing activities for 2022, 2021 and 2020 include $73.7 million, $223.3 million and $69.8 million, respectively, for acquisitions and investments.

Refer to Note 5 “Acquisitions” in the accompanying Notes to the Consolidated Financial Statements for more information.

Cash flows provided by financing activities in 2021 includes $126.0 million repayment of borrowings, net and $745.2 million proceeds from the issuance of common stock.

Cash flows used in financing activities in 2020 included $122.9 million repayment of borrowings, net and $3.5 million proceeds from the issuance of common stock.

Additionally, cash flows used in investing activities in 2022, 2021, and 2020 include $105.5 million, $104.2 million and $114.8 million, respectively, for purchases of property, plant, equipment, and intangibles.

Included in these amounts is $5.9 million, $35.6 million and $40.1 million for 2022, 2021 and 2020, respectively, related to discontinued operations.

Cash flows used in financing activities in 2022 includes $1.6 billion net repayment of borrowings, which included the outstanding debt on our prior credit facility, 2026 Notes and Euro Senior Notes, partially offset by borrowings on a term loan under our new credit facility.

The repayments were primarily funded by a $1.2 billion cash distribution from ESAB to us upon Separation.

Cash flows provided by financing activities in 2021 include $745.2 million in proceeds from the issuance of common stock, partially offset by net debt repayments of $126.0 million.

Cash flows used in financing activities for 2020 include net debt repayments of $118.3 million.

Our Cash and cash equivalents as of December 31, 2022 include $12.6 million held in jurisdictions outside the U.S.

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As of December 31, 2022, the Company’s Term Loan and Revolver had principal amounts outstanding of $219.5 million and $40.0 million, respectively.

There are no required principal payments due on the Term Loan or Revolver within 12 months.

As of December 31, 2021, the Company had outstanding floating and fixed rate notes with varying maturities for an aggregate principal amount of $700.8 million, with $8.3 million payable within 12 months.

The Term Loan matures on April 4, 2023.

There are no required principal payments due on the Revolver within 12 months and it matures on April 4, 2027.

Interest Payments on Debt

As of December 31, 2021, future interest payments associated with the Term Loan and Revolver amount to $44.4 million and $33.9 million, respectively with $15.1 million and $11.6 million payable within 12 months.

Future interest payments associated with the notes total $123.5 million with $32.7 million payable within 12 months.

Variable interest payments are estimated using a static rate of 1.90%.

Based on December 31, 2022 outstanding balances and our expectation to repay the Term Loan with borrowings on the Revolver on April 4, 2023, we estimate future interest payments associated with the Term Loan and Revolver of $3.3 million and $60.3 million, respectively, with $3.3 million and $11.7 million payable within 12 months.

Variable interest payments are estimated using a static rate of 5.89% for the Term Loan and 5.68% for the Revolver, respectively.

Operating Leases

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Purchase obligations herein exclude open purchase orders for goods or services that are provided on demand as the timing of which is not certain.

We have funding requirements associated with our pension and other post-retirement benefit plans as of December 31, 2021, which are estimated to be $8.6 million for the year ending December 31, 2022.

Other long-term liabilities, such as those for asbestos and other legal claims, employee benefit plan obligations, deferred income taxes and liabilities for unrecognized income tax benefits, are excluded from this disclosure since they are not contractually fixed as to timing and amount.

We have funding requirements associated with our pension plans as of December 31, 2022, which are estimated to be $3.3 million for the year ending December 31, 2023.

Other long-term liabilities, such as those for other legal claims, employee benefit plan obligations, deferred income taxes and liabilities for unrecognized income tax benefits, are excluded from this disclosure since they are not contractually fixed as to timing and amount.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that provide liquidity, capital resources, market or credit risk support that expose us to any liability that is not reflected in our Consolidated Financial Statements at December 31, 2022 other than outstanding letters of credit of $7.1 million and unconditional purchase obligations with suppliers of $162.0 million.

The Company and its subsidiaries have in the past divested certain of its businesses and assets.

In connection with these divestitures, certain representations, warranties and indemnities were made to purchasers to cover various risks or unknown liabilities.

We cannot estimate the potential liability, if any, that may result from such representations, warranties and indemnities because they relate to unknown and unexpected contingencies;

however, we do not believe that any such liabilities will have a material adverse effect on our financial condition, results of operations or liquidity.

Critical Accounting Policies

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For a detailed discussion on the application of these and other accounting policies, see Note 2, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements in this Form 10-K.

Asbestos Liabilities and Insurance Assets

Certain subsidiaries are each one of many defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured with components that are alleged to have contained asbestos.

Such components were acquired from third-party suppliers and were not manufactured by any of our subsidiaries, nor were the subsidiaries producers or direct suppliers of asbestos.

The manufactured products that are alleged to have contained asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the U.S.

We sold our Fluid Handling business in 2017, and pursuant to the purchase agreement, we retained the asbestos-related contingencies and insurance coverages.

However, as we did not retain an interest in the ongoing operations of the business subject to the contingencies, we have classified asbestos-related activity in our Consolidated Statements of Operations as part of Loss from discontinued operations, net of taxes.

See Note 4, “Discontinued Operations” for further information.

We have projected future asbestos-related liability costs with regard to pending and future unasserted claims based upon the Nicholson methodology.

The Nicholson methodology is a standard approach used by experts and has been accepted by numerous courts.

This methodology is based upon risk equations, exposed population estimates, mortality rates, and other demographic statistics.

In applying the Nicholson methodology for each subsidiary we performed:

(1) an analysis of the estimated population likely to have been exposed or claim to have been exposed to products manufactured by the subsidiaries based upon national studies undertaken of the population of workers believed to have been exposed to asbestos;

(2) a review of epidemiological and demographic studies to estimate the number of potentially exposed people that would be likely to develop asbestos-related diseases in each year;

(3) an analysis of the subsidiaries’ recent claims history to estimate likely filing rates for these diseases and (4) an analysis of the historical asbestos liability costs to develop average values, which vary by disease type, jurisdiction and the nature of claim, to determine an estimate of costs likely to be associated with currently pending and projected asbestos claims.

Our projections, based upon the Nicholson methodology, estimate both claims and the estimated cash outflows related to the resolution of such claims for periods up to and including the endpoint of asbestos studies referred to in item (2) above.

It is our policy to record a liability for asbestos-related liability costs for the longest period of time that we can reasonably estimate.

Accordingly, no accrual has been recorded for any costs which may be paid after the next 15 years.

Projecting future asbestos-related liability costs is subject to numerous variables that are difficult to predict, including, among others, the number of future claims that might be received, the type and severity of the disease alleged by each claimant, dismissal rates, the lag time between filing and the settlement of claims, settlement values resulting in part from uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, including fluctuations in the timing of court actions and rulings, and the impact of potential changes in legislative or judicial standards, including potential tort reform.

Furthermore, any projections with respect to these variables are subject to even greater uncertainty as the projection period lengthens.

These trend factors have both positive and negative effects on the dynamics of asbestos litigation in the tort system and the related best estimate of our asbestos liability, and these effects do not move in linear fashion but rather change over multiple year periods.

Accordingly, we monitor these trend factors over time and periodically assess whether an alternative forecast period is appropriate.

Taking these factors into account and the inherent uncertainties, we believe that we can reasonably estimate the asbestos-related liability for pending and future claims that will be resolved in the next 15 years and have recorded that liability as our best estimate.

While it is reasonably possible that the subsidiaries will incur costs after this period, we do not believe the reasonably possible loss or range of reasonably possible loss is estimable at the current time.

Accordingly, no accrual has been recorded for any costs which may be paid after the next 15 years.

Defense costs associated

with asbestos-related liabilities as well as costs incurred related to litigation against the subsidiaries’ insurers are expensed as incurred.

We assessed the subsidiaries’ existing insurance arrangements and agreements, estimated the applicability of insurance coverage for existing and expected future claims, analyzed publicly available information bearing on the current creditworthiness and solvency of the various insurers, and employed such insurance allocation methodologies as we believed appropriate to ascertain the probable insurance recoveries for asbestos liabilities.

The analysis took into account self-insurance retentions, policy exclusions, pending litigation, liability caps and gaps in coverage, existing and potential insolvencies of insurers as well as how legal and defense costs will be covered under the insurance policies.

Each subsidiary has separate insurance coverage acquired prior to our ownership of each independent entity.

In our evaluation of the insurance asset, we use differing insurance allocation methodologies for each subsidiary based upon the applicable law pertaining to the affected subsidiary.

Management’s analyses are based on currently known facts and a number of assumptions.

However, projecting future events, such as new claims to be filed each year, the average cost of resolving each claim, coverage issues among layers of insurers, the method in which losses will be allocated to the various insurance policies, interpretation of the effect on coverage of various policy terms and limits and their interrelationships, the continuing solvency of various insurance companies and collectability of claims tendered, the amount of remaining insurance available, as well as the numerous uncertainties inherent in asbestos litigation could cause the actual liabilities and insurance recoveries to be higher or lower than those projected or recorded which could materially affect our financial condition, results of operations or cash flow.

See Note 18, “Commitments and Contingencies” in the accompanying Notes to Consolidated Financial Statements for additional information regarding our asbestos liabilities and insurance assets.

Goodwill and Intangible Assets

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We engage third-party valuation specialists who review the critical assumptions and calculations of the fair value of acquired intangible assets in connection with our significant acquisitions.

In connection with our acquisitions of Trilliant, MedShape, and Mathys during the year ended December 31, 2021, we recognized aggregate goodwill of approximately $187 million and identifiable intangible assets of approximately $181 million.

In connection with our acquisitions of 360 Med Care and Insight during the year ended December 31, 2022, we recognized aggregate Goodwill of approximately $53 million and identifiable intangible assets of approximately $57 million.

Refer to Notes 2, 5 and 9 to the Consolidated Financial Statements for a description of the Company’s policies relating to Goodwill and intangible assets.

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The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future.

Significant estimates in the discounted cash flow

models include the weighted average cost of capital, revenue growth rates, long-term rate of growth, profitability of our business, tax rates, and working capital effects.

Significant estimates in the discounted cash flow models include the weighted average cost of capital, revenue growth rates, long-term rate of growth, profitability of our business, tax rates, and working capital effects.

The market valuation approach indicates the fair value of the business based on a comparison against certain market information.

Significant estimates in the market approach model include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization.

Due to the sale of the Air and Gas Handling reporting unit in 2019 and the held for sale accounting treatment, we performed a quantitative analysis for impairment in the second quarter of 2019.

Based on the purchase price and the carrying value of the net assets being sold, the Company recorded an impairment loss of $481 million in the second quarter of 2019, which is included in Loss from discontinued operations, net of taxes in the Consolidated Statements of Operations.

The impairment loss included a $449 million goodwill impairment charge and a $32 million valuation allowance charge on assets held for sale relating to the initial estimated cost to sell the business.

An accumulated other comprehensive loss of approximately $350 million associated with the Air and Gas Handling business was included in the determination of the goodwill impairment charge, which is mostly attributable to the recognition of cumulative foreign currency translation effects from the long-term strengthening of the U.S.

The Air and Gas Handling business sale was completed on September 30, 2019.

Impairment charges related to the divested Air and Gas Handling business are recorded in Loss from discontinued operations, net of taxes on the Consolidated Statements of Operations.

See Note 4, “Discontinued Operations” in the accompanying Notes to Consolidated Financial Statements for further information.

A qualitative assessment of Goodwill was performed for the Fabrication Technology reporting unit for the year ended December 31, 2019 which indicated no impairment existed.

Additionally, we performed a qualitative assessment of Goodwill for the Medical Technology reporting unit for the year ended December 31, 2019, which indicated no impairment existed.

Due to overall market declines as a result of the COVID-19 pandemic, management decided to forgo the qualitative assessment and performed quantitative Goodwill impairment tests for both the Fabrication Technology and Medical Technology reporting units for the year ended December 31, 2020, which indicated no impairment existed.

For the year ended December 31, 2021, management performed a qualitative assessment of Goodwill for the Fabrication Technology reporting unit and a quantitative assessment of Goodwill for the Medical Technology reporting unit, both of which indicated no impairment existed.

The carrying amount of Goodwill of the Fabrication Technology and Medical Technology reporting units for the year ended December 31, 2021 was $1.5 billion and $1.9 billion, respectively.

We determined the fair value of the Medical Technology reporting unit by equally weighting a discounted cash flow approach and market valuation approach, and the reporting unit’s fair value exceeded its carrying amount by approximately 22%.

Due to overall market declines as a result of the COVID-19 pandemic, management decided to forgo the qualitative assessment and performed quantitative Goodwill impairment tests for the years ended December 31, 2020 and 2021, which resulted in no impairment.

Upon the Separation in April 2022, Goodwill was allocated on a relative fair value basis between the Company’s new reporting units Reconstructive and Prevention & Recovery.

For the year ended December 31, 2022, management performed a quantitative assessment of Goodwill for the Reconstructive and Prevention & Recovery reporting units, both of which indicated no impairment existed.

The carrying amount of Goodwill of the Reconstructive and Prevention & Recovery reporting units for the year ended December 31, 2022 was $0.9 billion and $1.1 billion, respectively.

We determined the fair value of the reporting units by equally weighting a discounted cash flow approach and market valuation approach, and the reporting unit’s fair value exceeded its carrying amount by approximately 8% and 9%, respectively.

Determining the fair value of a reporting unit requires the application of judgment and involves the use of significant estimates and assumptions which can be affected by changes in business climate, economic conditions, the competitive environment and other factors.

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An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

For sensitivity analysis, we estimated the fair value of the Medical Technology reporting unit if we reduced the long-term revenue growth rate by 25 basis points, and the resulting excess fair value over carrying value decreased by 150 basis points.

In the evaluation of indefinite-lived intangible assets for impairment, which includes certain trade names of our Fabrication Technology business, we first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value.

If we determine that it is more likely than not for the indefinite-lived intangible asset’s fair value to be greater than its carrying value, a calculation of the fair value is not performed.

If we determine that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value, a calculation is performed and compared to the carrying value of the asset.

If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

We measure the fair value of our indefinite-lived intangible assets using the “relief from royalty” method.

Significant estimates in this approach include projected revenues and royalty and discount rates for each trade name evaluated.

A qualitative assessment was performed for the Fabrication Technology segment trade names for the year ended December 31, 2019, which indicated no impairment existed.

For the year ended December 31, 2020, due to overall market declines as a result of the COVID-19 pandemic, we performed quantitative impairment tests on all indefinite-lived trade names within our Fabrication Technology segment, which indicated no impairment existed.

For the year ended December 31, 2021, management

decided to forgo the qualitative assessment and performed quantitative assessments for all the Fabrication Technology segment trade names, which indicated no impairment existed.

For sensitivity analysis, we estimated the fair value of the Prevention & Recovery and Reconstructive reporting units if we reduced the long-term revenue growth rate by 25 basis points, and the resulting excess fair value over carrying value decreased by 120 and 130 basis points, respectively.

A sustained decline in our end-markets and geographic markets could increase the risk of impairments in future years.

Actual results could differ from our estimates and projections, which would also affect the assessment of impairment.

As of December 31, 2021, we have Goodwill of $3.5 billion and indefinite lived trade names of $199.5 million that are subject to at least annual review for impairment.

As of December 31, 2022, we have Goodwill of $2.0 billion that is subject to at least annual review for impairment.

See Note 9, “Goodwill and Intangible Assets”, in the accompanying Notes to Consolidated Financial Statements for further information.

28 unchanged sentences

Billings to customers in excess of recognized revenues are recorded as a component of Accrued liabilities.

Each contract is evaluated

individually to determine the net asset or net liability position.

Each contract is evaluated individually to determine the net asset or net liability position.

Substantially all of our revenue is recognized at a point in time, and revenue recognition and billing typically occur simultaneously.

6 unchanged sentences

The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The allowance for credit losses was $32.5 million as of December 31, 2021 compared to $37.7 million as of December 31, 2020 and $36.0 million as of January 1, 2020, following the adoption of the standard.

The allowance for credit losses was $8.0 million, $6.6 million, and $6.8 million as of December 31, 2022, 2021, and 2020, respectively.

Recently Issued Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis