10-Q 1 cnmd-20220930.htm 10-Q cnmd-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedCommission File Number
September 30, 2022001-39218
CONMED CORPORATION
(Exact name of the registrant as specified in its charter)
Delaware16-0977505
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
11311 Concept BlvdLargo,Florida33773
(Address of principal executive offices)(Zip Code)
(727) 392-6464
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueCNMDNYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  

Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer     Accelerated filer     Non-accelerated filer

Smaller reporting company     Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

The number of shares outstanding of registrant's common stock, as of October 24, 2022 is 30,482,412 shares.



CONMED CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
PART I FINANCIAL INFORMATION
Item NumberPage
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
PART II OTHER INFORMATION
   
   
   


PART I FINANCIAL INFORMATION
Item 1.
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands except per share amounts)
 
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
Net sales$275,088 $248,827 $794,605 $736,665 
Cost of sales123,473 106,521 355,222 324,485 
Gross profit151,615 142,306 439,383 412,180 
Selling and administrative expense114,600 104,736 333,302 307,476 
Research and development expense12,767 10,859 34,932 32,203 
  Operating expenses127,367 115,595 368,234 339,679 
Income from operations24,248 26,711 71,149 72,501 
Interest expense8,536 8,145 19,462 27,917 
Other expense 1,127 112,011 1,127 
Income (loss) before income taxes15,712 17,439 (60,324)43,457 
Provision (benefit) for income taxes(30,438)2,491 46,842 5,359 
Net income (loss)$46,150 $14,948 $(107,166)$38,098 
Comprehensive income (loss)$43,125 $13,756 $(113,096)$42,242 
Per share data: 
Net income (loss) 
Basic$1.51 $0.51 $(3.59)$1.31 
Diluted1.48 0.47 (3.59)1.19 
Weighted average common shares
Basic30,473 29,179 29,892 29,097 
Diluted31,103 32,143 29,892 32,020 

 See notes to consolidated condensed financial statements.
1

CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in thousands except share and per share amounts)
 
September 30,
2022
December 31,
2021
ASSETS 
Current assets: 
Cash and cash equivalents$33,354 $20,847 
Accounts receivable, net197,287 183,882 
Inventories304,813 231,644 
Prepaid expenses and other current assets38,789 23,750 
Total current assets574,243 460,123 
Property, plant and equipment, net113,720 108,863 
Goodwill814,260 617,528 
Other intangible assets, net689,453 471,049 
Other assets100,368 108,454 
Total assets$2,292,044 $1,766,017 
LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities: 
Current portion of long-term debt$237 $12,249 
Accounts payable74,228 58,197 
Accrued compensation and benefits54,095 60,488 
Other current liabilities80,019 65,712 
Total current liabilities208,579 196,646 
Long-term debt1,036,438 672,407 
Deferred income taxes112,578 68,537 
Other long-term liabilities218,112 42,992 
Total liabilities1,575,707 980,582 
Commitments and contingencies
Shareholders' equity: 
Preferred stock, par value $0.01 per share;
 
authorized 500,000 shares; none outstanding
  
Common stock, par value $0.01 per share;
100,000,000 shares authorized; 31,299,194 shares
issued in 2022 and 2021, respectively
313 313 
Paid-in capital407,095 396,771 
Retained earnings392,144 496,605 
Accumulated other comprehensive loss(60,133)(54,203)
Less: 822,438 and 1,925,893 shares of common stock
in treasury, at cost, in 2022 and 2021, respectively
(23,082)(54,051)
Total shareholders’ equity716,337 785,435 
Total liabilities and shareholders’ equity$2,292,044 $1,766,017 

 See notes to consolidated condensed financial statements.
2


CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited, in thousands except per share amounts)
 Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
 SharesAmount
Balance at December 31, 202131,299 $313 $396,771 $496,605 $(54,203)$(54,051)$785,435 
Common stock issued under employee plans  2,232  4,020 6,252 
Stock-based compensation  4,463    4,463 
Dividends on common stock ($0.20 per share)
(5,899)(5,899)
Comprehensive income (loss):
Cash flow hedging gain, net1,082 
Pension liability, net521 
Foreign currency translation adjustments(163)
Net income14,975 
Total comprehensive income16,415 
Cumulative effect of change in accounting principle(1)
(37,911)20,791 (17,120)
Balance at March 31, 202231,299 $313 $365,555 $526,472 $(52,763)$(50,031)$789,546 
Common stock issued under employee plans611 633 1,244 
Stock-based compensation5,755 5,755 
Dividends on common stock ($0.20 per share)
(6,092)(6,092)
Shares issued for the settlement of convertible notes(25,890)25,890  
Convertible note premium on extinguishment103,125 103,125 
Settlement of convertible notes hedge transactions118,912 118,912 
Settlement of warrants(96,758)(96,758)
Issuance of convertible notes hedge transactions, net of tax(142,128)(142,128)
Issuance of warrants72,000 72,000 
Comprehensive income (loss):
Cash flow hedging gain, net4,662 
Pension liability, net490 
Foreign currency translation adjustments(9,497)
Net loss(168,291)
Total comprehensive loss(172,636)
Balance at June 30, 202231,299 $313 $401,182 $352,089 $(57,108)$(23,508)$672,968 
Common stock issued under employee plans159 426 585 
Stock-based compensation5,754 5,754 
Dividends on common stock ($0.20 per share)
(6,095)(6,095)
Comprehensive income (loss):
Cash flow hedging gain, net4,833 
Pension liability, net490 
Foreign currency translation adjustments(8,348)
Net income46,150 
Total comprehensive income43,125 
Balance at September 30, 202231,299 $313 $407,095 $392,144 $(60,133)$(23,082)$716,337 
(1)We recorded the cumulative impact of adopting ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in 2022. Refer to Note 3 for further detail.

3

 Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Shareholders’
Equity
 SharesAmount
Balance at December 31, 202031,299 $313 $382,628 $457,417 $(63,681)$(67,639)$709,038 
Common stock issued under employee plans  2,944  5,271 8,215 
Stock-based compensation  3,387    3,387 
Dividends on common stock ($0.20 per share)
(5,813)(5,813)
Comprehensive income (loss):
Cash flow hedging gain, net3,926 
Pension liability, net631 
Foreign currency translation adjustments(3,674)
Net income9,860 
Total comprehensive income10,743 
Balance at March 31, 202131,299 $313 $388,959 $461,464 $(62,798)$(62,368)$725,570 
Common stock issued under employee plans  414  2,312 2,726 
Stock-based compensation  4,290    4,290 
Dividends on common stock ($0.20 per share)
(5,830)(5,830)
Comprehensive income (loss):
Cash flow hedging gains, net1,221 
Pension liability, net631 
Foreign currency translation adjustments2,601 
Net income13,290 
Total comprehensive income17,743 
Balance at June 30, 202131,299 $313 $393,663 $468,924 $(58,345)$(60,056)$744,499 
Common stock issued under employee plans  (3,180) 2,118 (1,062)
Stock-based compensation  4,327    4,327 
Dividends on common stock ($0.20 per share)
(5,837)(5,837)
Comprehensive income (loss):
Cash flow hedging gain, net2,917 
Pension liability, net631 
Foreign currency translation adjustments(4,740)
Net income14,948 
Total comprehensive income13,756 
Balance at September 30, 202131,299 $313 $394,810 $478,035 $(59,537)$(57,938)$755,683 

See notes to consolidated condensed financial statements.

4

CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended
 September 30,
 20222021
Cash flows from operating activities: 
Net income (loss)$(107,166)$38,098 
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Depreciation12,028 12,519 
Amortization of debt discount 7,611 
Amortization of deferred debt issuance costs3,404 2,946 
Amortization39,754 40,747 
Stock-based compensation15,972 12,003 
Deferred income taxes38,442 (1,311)
Loss on early extinguishment of debt3,426 899 
Loss on convertible notes conversion premium103,125  
Loss on convertible notes hedge transactions settlement5,460  
Increase (decrease) in cash flows from changes in assets and liabilities:  
Accounts receivable(16,092)9,890 
Inventories(52,126)(34,679)
Accounts payable14,475 (6,223)
Accrued compensation and benefits(8,261)5,030 
Other assets(11,710)(15,915)
Other liabilities4,232 6,370 
Net cash provided by operating activities44,963 77,985 
Cash flows from investing activities: 
Purchases of property, plant and equipment(16,109)(11,678)
Payments related to business acquisition, net of cash acquired(227,102) 
Net cash used in investing activities(243,211)(11,678)
Cash flows from financing activities: 
Payments on term loan(92,981)(63,673)
Proceeds from term loan 52,411 
Payments on revolving line of credit(404,000)(272,753)
Proceeds from revolving line of credit317,000 236,753 
Payments to redeem convertible notes(275,000) 
Proceeds from issuance of convertible notes800,000  
Payments related to debt issuance costs(21,830)(2,000)
Dividends paid on common stock(17,865)(17,418)
Purchases of convertible notes hedge transactions(187,600) 
Proceeds from issuance of warrants72,000  
Proceeds from settlement of convertible notes hedge transactions86,228  
Payment for settlement of warrants(69,534) 
Other, net7,067 5,921 
Net cash provided by (used in) financing activities213,485 (60,759)
Effect of exchange rate changes on cash and cash equivalents(2,730)(1,393)
Net increase in cash and cash equivalents12,507 4,155 
Cash and cash equivalents at beginning of period20,847 27,356 
Cash and cash equivalents at end of period$33,354 $31,511 
Non-cash investing and financing activities:
Contingent consideration$183,914 $ 
Dividends payable$6,095 $5,837 
See notes to consolidated condensed financial statements.
5

CONMED CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, in thousands except per share amounts)

Note 1 – Operations

CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides surgical devices and equipment for minimally invasive procedures.  The Company’s products are used by surgeons and other healthcare professionals in a variety of specialties including orthopedics, general surgery, gynecology, thoracic surgery and gastroenterology.

Note 2 - Interim Financial Information

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary to fairly present the results for the periods presented. The consolidated condensed financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated. Results for the period ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The consolidated condensed financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K.

Use of Estimates

Preparation of the consolidated condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenue and expenses during the reporting period.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of October 27, 2022, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Note 3 – New Accounting Pronouncements
    
Recently Adopted Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for convertible instruments by removing certain separation models requiring separate accounting for embedded conversion features which will result in more convertible debt instruments accounted for as a single liability. The ASU eliminates certain settlement conditions that are required for equity classification to qualify for the derivative scope exception. The ASU addresses how convertible instruments are accounted for in the calculation of diluted earnings per share by using the if-converted method. The ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2022 using the modified retrospective method. The adoption of this new guidance resulted in:

an increase of approximately $22.6 million to long-term debt in the consolidated condensed balance sheets, to reflect the full principal amount of the convertible notes then outstanding net of issuance costs (the "2.625% Notes" described more fully in Note 11);
a reduction of approximately $37.9 million to additional paid-in capital, net of income tax effects, to remove the equity component separately recorded for the conversion features associated with the 2.625% Notes;
a decrease to deferred income tax liabilities of approximately $5.5 million, and
6

a cumulative-effect adjustment of approximately $20.8 million, net of income tax effects, to the beginning balance of retained earnings as of January 1, 2022.

The adoption of this new guidance reduced interest expense related to amortization of debt discount on the 2.625% Notes by approximately $2.6 million during the three months ended March 31, 2022. Additionally, the dilutive share count increased by approximately 2.5 million shares as a result of calculating the impact of dilution from the 2.625% Notes using the if-converted method. During the nine months ended September 30, 2022, the Company repurchased and extinguished $275.0 million principal value of the 2.625% Notes as further discussed in Note 11. Concurrently, the Company entered into a Supplemental Indenture related to the remaining $70.0 million in 2.625% Notes, pursuant to which the Company irrevocably elected to settle the principal value of those 2.625% Notes in cash. As a result, in periods in which the Company has net income, only the conversion premium will affect the dilutive share count. During the three months ended September 30, 2022, our average share price exceeded the conversion price of the 2.625% Notes and we included such shares assumed to be issued if the Notes were converted in our diluted share count. Refer to Note 9 for further details. As the Company was in a net loss position for the nine months ended September 30, 2022, there were no dilutive potential shares included in the computation of diluted shares outstanding for the nine months ended September 30, 2022.

Recently Issued Accounting Standards, Not Yet Adopted
    
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance if certain criteria are met for entities that have contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The Company has not adopted this ASU as of September 30, 2022. Our seventh amended and restated senior credit agreement includes language to address the change from LIBOR to an alternative base rate, therefore we do not believe reference rate reform will have a significant impact on our consolidated financial statements, however will continue to monitor our transition away from LIBOR and the potential to elect to apply this guidance in our consolidated financial statements in the event that we are impacted by reference rate reform.

Note 4 - Business Combinations

On June 13, 2022, we acquired In2Bones Global, Inc. ("In2Bones") and all of its stock (the "In2Bones Acquisition") for an aggregate upfront payment of $145.2 million in cash. In addition, there are potential earn-out payments to In2Bones’ equity holders in an amount up to $110.0 million based on the achievement of certain revenue targets for In2Bones products during the sixteen (16) successive quarters commencing on July 1, 2022. In2Bones is a global developer, manufacturer and distributor of medical devices for the treatment of disorders and injuries of the upper (hand, wrist and elbow) and lower (foot and ankle) extremities. The In2Bones Acquisition was funded through a combination of cash on hand and long-term borrowings as further described in Note 11.

On August 9, 2022, we acquired Biorez, Inc. ("Biorez") and all of its stock (the "Biorez Acquisition") for an aggregate upfront payment of $85.9 million in cash. We paid $83.1 million upon closing, with a $2.8 million purchase price adjustment holdback, pursuant to the merger agreement for the Biorez Acquisition. In addition, there are potential earn-out payments to Biorez’ equity holders in an amount up to $165.0 million based on the achievement of certain revenue targets for Biorez products during the sixteen (16) successive quarters commencing on October 1, 2022. Biorez is a medical device start-up focused on advancing the healing of soft tissue using its proprietary BioBrace® implant technology. The Biorez Acquisition was funded through a combination of cash on hand and long-term borrowings.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the In2Bones and Biorez Acquisitions that were accounted for as business combinations. The assessment of fair value is based on preliminary valuations and estimates that were available to management at the time the consolidated condensed financial statements were prepared. Accordingly, the allocation of purchase price is preliminary and therefore subject to adjustment during the measurement adjustment period.
7

In2BonesBiorez
Cash$445 $742 
Accounts receivable, net5,036 318 
Inventories24,247 61 
Prepaid expenses and other current assets403 118 
Current assets30,131 1,239 
Goodwill139,816 59,176 
Developed technology37,300 176,300 
Distributor relationships27,600  
Trademarks and tradenames 1,600 
Other long-term assets2,875 112 
Total assets acquired$237,722 $238,427 
Current liabilities assumed5,972 1,441 
Deferred income taxes16,699 36,621 
Contingent consideration69,402 114,512 
Other long-term liabilities466  
Total liabilities assumed$92,539 $152,574 
Net assets acquired$145,183 $85,853 
    
The goodwill recorded as part of the In2Bones Acquisition primarily represents revenue synergies, the related cost to enter into this new product offering and the In2Bones assembled workforce. Goodwill is not deductible for tax purposes. In2Bones distributor relationships and developed technology are each being amortized over a weighted average life of 15 years.

The goodwill recorded as part of the Biorez Acquisition primarily represents revenue synergies, the related cost to enter into this new product offering and the Biorez assembled workforce. Goodwill is not deductible for tax purposes. Biorez developed technology and trademarks and tradenames are each being amortized over a weighted average life of 20 years.

The contingent consideration was recorded at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues. The recurring Level 3 fair value measurements of contingent consideration for which the liability is recorded include the following significant unobservable inputs:

Assumptions
Unobservable InputIn2BonesBiorez
Discount rate5.67%10.34%
Revenue volatility12.75%18.87%
Projected year of payment
2023-2026
2023-2026

We recorded $10.0 million in net sales for In2Bones products during the third quarter and a total of $12.1 million in net sales since the date of acquisition, June 13, 2022. The net sales were recorded in the consolidated condensed statements of comprehensive income (loss) for the three and nine months ended September 30, 2022, respectively. Earnings recorded in the consolidated condensed statements of comprehensive income (loss) for the three and nine months ended September 30, 2022 were not material. We also believe the proforma information is immaterial for disclosure for the three and nine months ended September 30, 2022 and 2021.

Net sales and earnings for Biorez were immaterial to both the three and nine months ended September 30, 2022. We also believe the proforma information is immaterial for disclosure for the three and nine months ended September 30, 2022 and 2021.


8

Note 5 - Revenues
    
The following tables present revenue disaggregated by primary geographic market where the products are sold, by product line and timing of revenue recognition:
Three Months EndedThree Months Ended
September 30, 2022September 30, 2021
 Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic Markets
United States$45,688 $110,033 $155,721 $37,957 $98,444 $136,401 
Europe, Middle East & Africa26,914 20,300 47,214 24,155 19,905 44,060 
Asia Pacific28,242 17,223 45,465 27,517 16,113 43,630 
Americas (excluding the United States)17,774 8,914 26,688 16,122 8,614 24,736 
Total sales from contracts with customers$118,618 $156,470 $275,088 $105,751 $143,076 $248,827 
Timing of Revenue Recognition
Goods transferred at a point in time$108,875 $154,856 $263,731 $96,389 $141,798 $238,187 
Services transferred over time9,743 1,614 11,357 9,362 1,278 10,640 
Total sales from contracts with customers$118,618 $156,470 $275,088 $105,751 $143,076 $248,827 

Nine Months EndedNine Months Ended
September 30, 2022September 30, 2021
Orthopedic SurgeryGeneral SurgeryTotalOrthopedic SurgeryGeneral SurgeryTotal
Primary Geographic Markets
United States$124,097 $312,034 $436,131 $115,864 $288,069 $403,933 
Europe, Middle East & Africa88,955 63,093 152,048 77,327 58,594 135,921 
Asia Pacific79,333 46,379 125,712 80,403 44,911 125,314 
Americas (excluding the United States)53,932 26,782 80,714 47,215 24,282 71,497 
Total sales from contracts with customers$346,317 $448,288 $794,605 $320,809 $415,856 $736,665 
Timing of Revenue Recognition
Goods transferred at a point in time$317,140 $443,629 $760,769 $291,728 $412,298 $704,026 
Services transferred over time29,177 4,659 33,836 29,081 3,558 32,639 
Total sales from contracts with customers$346,317 $448,288 $794,605 $320,809 $415,856 $736,665 

Contract liability balances related to the sale of extended warranties to customers are as follows:

September 30, 2022December 31, 2021
Contract liability$17,551 $16,760 
    
Revenue recognized during the nine months ended September 30, 2022 and September 30, 2021 from amounts included in contract liabilities at the beginning of the period were $9.5 million and $8.4 million, respectively. There were no material contract assets as of September 30, 2022 and December 31, 2021.

9

Note 6 – Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following:
 
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net income (loss)$46,150 $14,948 $(107,166)$38,098 
Other comprehensive income (loss):
Cash flow hedging gain, net of income tax (income tax expense of $1,546 and $929 for the three months ended September 30, 2022 and 2021, respectively, and $3,384 and $2,568 for the nine months ended September 30, 2022 and 2021, respectively)
4,833 2,917 10,577 8,064 
Pension liability, net of income tax (income tax expense of $157 and $201 for the three months ended September 30, 2022 and 2021, respectively, and $439 and $603 for the nine months ended September 30, 2022 and 2021, respectively)
490 631 1,502 1,893 
Foreign currency translation adjustment(8,348)(4,740)(18,009)(5,813)
Comprehensive income (loss)$43,125 $13,756 $(113,096)$42,242 

Accumulated other comprehensive loss consists of the following:

Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2021$3,656 $(29,671)$(28,188)$(54,203)
Other comprehensive income (loss) before reclassifications, net of tax18,711  (18,009)702 
Amounts reclassified from accumulated other comprehensive income (loss) before taxa
(10,736)1,941  (8,795)
Income tax 2,602 (439) 2,163 
Net current-period other comprehensive income (loss)10,577 1,502 (18,009)(5,930)
Balance, September 30, 2022$14,233 $(28,169)$(46,197)$(60,133)

Cash Flow
Hedging
Gain (Loss)
Pension
Liability
Cumulative
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2020$(5,945)$(36,620)$(21,116)$(63,681)
Other comprehensive income (loss) before reclassifications, net of tax5,141  (5,813)(672)
Amounts reclassified from accumulated other comprehensive income before taxa
3,854 2,496  6,350 
Income tax (931)(603) (1,534)
Net current-period other comprehensive income (loss)8,064 1,893 (5,813)4,144 
Balance, September 30, 2021$2,119 $(34,727)$(26,929)$(59,537)
(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income (loss) components are included in sales or cost of sales and as a component of net periodic pension cost, respectively. Refer to Note 7 and Note 13, respectively, for further details.

10

Note 7 – Fair Value of Financial Instruments
 
 We enter into derivative instruments for risk management purposes only. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of derivative instrument, to manage certain foreign currency exposures.
 
By nature, all financial instruments involve market and credit risks. We enter into forward contracts with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
 
Foreign Currency Forward Contracts. We hedge forecasted intercompany sales