Enovis CORP 10-Q

Item 1. Financial Statements COLFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Dollars in thousands, except per share amounts (Unaudited) Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Net sales $ 965,891 $ 805,931 $ 2,831,030 $ 2,242,647 Cost of sales 561,020 461,811 1,636,098 1,309,227 Gross profit 404,871 344,120 1,194,932 933,420 Selling, general and administrative expense 334,424 278,060 977,711 805,984 Restructuring and other related charges 6,457 4,129 15,983 23,589 Operating income 63,990 61,931 201,238 103,847 Pension settlement gain — — ( 11,208 ) — Interest expense, net 13,540 25,567 57,005 78,647 Debt extinguishment charges — — 29,870 — Income from continuing operations before income taxes 50,450 36,364 125,571 25,200 Income tax expense 22,349 19,528 38,421 2,638 Net income from continuing operations 28,101 16,836 87,150 22,562 Loss from discontinued operations, net of taxes ( 1,244 ) ( 2,641 ) ( 10,351 ) ( 10,906 ) Net income 26,857 14,195 76,799 11,656 Less: income attributable to noncontrolling interest, net of taxes 1,009 789 3,235 2,243 Net income attributable to Colfax Corporation $ 25,848 $ 13,406 $ 73,564 $ 9,413 Net income (loss) per share - basic Continuing operations $ 0.17 $ 0.12 $ 0.56 $ 0.15 Discontinued operations $ ( 0.01 ) $ ( 0.02 ) $ ( 0.07 ) $ ( 0.08 ) Consolidated operations $ 0.16 $ 0.10 $ 0.49 $ 0.07 Net income (loss) per share - diluted Continuing operations $ 0.17 $ 0.12 $ 0.55 $ 0.15 Discontinued operations $ ( 0.01 ) $ ( 0.02 ) $ ( 0.07 ) $ ( 0.08 ) Consolidated operations $ 0.16 $ 0.10 $ 0.48 $ 0.07 See Notes to Condensed Consolidated Financial Statements. 2 COLFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Dollars in thousands (Unaudited) Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Net income $ 26,857 $ 14,195 $ 76,799 $ 11,656 Other comprehensive income (loss): Foreign currency translation, net of tax expense of $ 1,948 , $ 258 , $ 5,124 and $ 652 ( 57,176 ) 51,610 ( 101,573 ) ( 49,316 ) Unrealized gain (loss) on hedging activities, net of tax expense (benefit) of $ 2,203 , $( 4,344 ), $ 5,709 and $( 4,448 ) 6,424 ( 12,076 ) 16,655 ( 12,700 ) Amounts reclassified from Accumulated other comprehensive loss: Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $ 327 , $ 330 , $ 958 and $ 767 1,093 1,152 3,193 2,814 Other comprehensive income (loss) ( 49,659 ) 40,686 ( 81,725 ) ( 59,202 ) Comprehensive income (loss) ( 22,802 ) 54,881 ( 4,926 ) ( 47,546 ) Less: comprehensive income attributable to noncontrolling interest 1,373 1,987 2,046 1,192 Comprehensive income (loss) attributable to Colfax Corporation $ ( 24,175 ) $ 52,894 $ ( 6,972 ) $ ( 48,738 ) See Notes to Condensed Consolidated Financial Statements. 3 COLFAX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS Dollars in thousands, except share amounts (Unaudited) October 1, 2021 December 31, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 177,482 $ 97,068 Trade receivables, less allowance for credit losses of $ 34,677 and $ 37,666 603,214 517,006 Inventories, net 780,984 564,822 Prepaid expenses 85,540 69,515 Other current assets 78,467 113,418 Total current assets 1,725,687 1,361,829 Property, plant and equipment, net 510,828 486,960 Goodwill 3,497,355 3,314,541 Intangible assets, net 1,726,955 1,663,446 Lease asset - right of use 159,118 173,942 Other assets 352,368 350,831 Total assets $ 7,972,311 $ 7,351,549 LIABILITIES AND EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 14,340 $ 27,074 Accounts payable 472,499 330,251 Accrued liabilities 488,632 454,333 Total current liabilities 975,471 811,658 Long-term debt, less current portion 1,611,690 2,204,169 Non-current lease liability 127,259 139,230 Other liabilities 627,367 608,618 Total liabilities 3,341,787 3,763,675 Equity: Common stock, $ 0.001 par value; 400,000,000 shares authorized; 154,781,842 and 118,496,687 shares issued and outstanding as of October 1, 2021 and December 31, 2020, respectively 155 118 Additional paid-in capital 4,528,097 3,478,008 Retained earnings 590,931 517,367 Accumulated other comprehensive loss ( 532,642 ) ( 452,106 ) Total Colfax Corporation equity 4,586,541 3,543,387 Noncontrolling interest 43,983 44,487 Total equity 4,630,524 3,587,874 Total liabilities and equity $ 7,972,311 $ 7,351,549 See Notes to Condensed Consolidated Financial Statements. 4 COLFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY Dollars in thousands, except share amounts (Unaudited) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at December 31, 2020 118,496,687 $ 118 $ 3,478,008 $ 517,367 $ ( 452,106 ) $ 44,487 $ 3,587,874 Net income — — — 19,074 — 1,166 20,240 Distributions to noncontrolling owners — — — — — ( 1,054 ) ( 1,054 ) Other comprehensive loss, net of tax of $ 6,840 — — — — ( 39,621 ) ( 124 ) ( 39,745 ) Conversion of tangible equity units into common stock 344,412 — — — — — — Common stock repurchases ( 21,082 ) — ( 971 ) — — — ( 971 ) Common stock offering, net of issuance costs 16,100,000 16 711,305 — — — 711,321 Common stock-based award activity 677,314 1 13,403 — — — 13,404 Balance at April 2, 2021 135,597,331 135 4,201,745 536,441 ( 491,727 ) 44,475 4,291,069 Net income — — — 28,642 — 1,060 29,702 Other comprehensive income (loss), net of tax of $ 473 — — — — 9,108 ( 1,429 ) 7,679 Conversion of tangible equity units into common stock 6,174,000 6 ( 6 ) — — — — Common stock repurchases ( 710 ) — ( 32 ) — — — ( 32 ) Common stock-based award activity 571,025 1 23,541 — — — 23,542 Balance at July 2, 2021 142,341,646 142 4,225,248 565,083 ( 482,619 ) 44,106 4,351,960 Net income — — — 25,848 — 1,009 26,857 Distributions to noncontrolling owners — — — — — ( 1,496 ) ( 1,496 ) Other comprehensive income (loss), net of tax of $ 4,478 — — — — ( 50,023 ) 364 ( 49,659 ) Conversion of tangible equity units into common stock 5,537,100 6 ( 6 ) — — — — Common stock issued for acquisition, net of issuance costs 6,544,522 7 285,674 — — — 285,681 Common stock-based award activity 358,574 — 17,181 — — — 17,181 Balance at October 1, 2021 154,781,842 $ 155 $ 4,528,097 $ 590,931 $ ( 532,642 ) $ 43,983 $ 4,630,524 See Notes to Condensed Consolidated Financial Statements. 5 COLFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY Dollars in thousands, except share amounts (Unaudited) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at December 31, 2019 118,059,082 $ 118 $ 3,445,597 $ 479,560 $ ( 483,845 ) $ 48,198 $ 3,489,628 Cumulative effect of accounting change — — — ( 4,818 ) — — ( 4,818 ) Net income — — — 4,481 — 1,027 5,508 Distributions to noncontrolling owners — — — — — ( 8 ) ( 8 ) Other comprehensive loss, net of tax of $ 4,644 — — — — ( 158,297 ) ( 2,593 ) ( 160,890 ) Common stock-based award activity 268,323 — 8,344 — — — 8,344 Balance at April 3, 2020 118,327,405 118 3,453,941 479,223 ( 642,142 ) 46,624 3,337,764 Net income (loss) — — — ( 8,474 ) — 427 ( 8,047 ) Distributions to noncontrolling owners — — — — — ( 3,734 ) ( 3,734 ) Other comprehensive income, net of tax of $( 3,917 ) — — — — 60,658 344 61,002 Common stock-based award activity 61,608 — 8,591 — — — 8,591 Balance at July 3, 2020 118,389,013 118 3,462,532 470,749 ( 581,484 ) 43,661 3,395,576 Net income — — — 13,406 — 789 14,195 Distributions to noncontrolling owners — — — — — ( 625 ) ( 625 ) Other comprehensive income, net of tax of $( 3,756 ) — — — — 39,488 1,198 40,686 Common stock-based award activity 68,166 — 7,637 — — — 7,637 Balance at October 2, 2020 118,457,179 $ 118 $ 3,470,169 $ 484,155 $ ( 541,996 ) $ 45,023 $ 3,457,469 See Notes to Condensed Consolidated Financial Statements. 6 COLFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in thousands (Unaudited) Nine Months Ended October 1, 2021 October 2, 2020 Cash flows from operating activities: Net income $ 76,799 $ 11,656 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other impairment charges 197,641 181,114 Stock-based compensation expense 26,235 21,642 Non-cash interest expense 3,757 4,253 Deferred income tax benefit ( 5,904 ) ( 30,946 ) (Gain) loss on sale of property, plant and equipment ( 1,483 ) 523 Loss on debt extinguishment 29,870 — Changes in operating assets and liabilities: Trade receivables, net ( 70,407 ) 44,592 Inventories, net ( 130,348 ) 28,556 Accounts payable 143,694 ( 42,869 ) Other operating assets and liabilities ( 9,971 ) ( 45,388 ) Net cash provided by operating activities 259,883 173,133 Cash flows from investing activities: Purchases of property, plant and equipment ( 73,595 ) ( 81,583 ) Proceeds from sale of property, plant and equipment 2,908 4,929 Acquisitions, net of cash received, and investments ( 222,961 ) ( 7,477 ) Net cash used in investing activities ( 293,648 ) ( 84,131 ) Cash flows from financing activities: Payments under term credit facility — ( 40,000 ) Proceeds from borrowings on revolving credit facilities and other 515,696 794,678 Repayments of borrowings on revolving credit facilities and other ( 409,961 ) ( 866,215 ) Repayments of borrowings on senior notes ( 700,000 ) — Payment of debt issuance costs — ( 4,560 ) Proceeds from issuance of common stock, net 738,177 2,930 Payment of debt extinguishment costs ( 24,375 ) — Deferred consideration payments and other ( 7,700 ) ( 12,411 ) Net cash provided by (used in) financing activities 111,837 ( 125,578 ) Effect of foreign exchange rates on Cash and cash equivalents and Restricted cash ( 1,659 ) ( 6,633 ) Increase (decrease) in Cash and cash equivalents and Restricted cash 76,413 ( 43,209 ) Cash and cash equivalents and Restricted Cash, beginning of period 101,069 109,632 Cash and cash equivalents, end of period $ 177,482 $ 66,423 Supplemental disclosures of non-cash investing and financing activities: Common stock issued for acquisition, net of issuance costs $ 285,681 $ — See Notes to Condensed Consolidated Financial Statements. 7 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General Colfax Corporation (the “Company” or “Colfax”) is a leading diversified technology company that provides fabrication technology and medical device products and services to customers around the world, principally under the ESAB and DJO brands. The Company conducts its operations through two operating segments, “Fabrication Technology”, which incorporates the operations of ESAB and its related brands, and “Medical Technology”, which incorporates the operations of DJO and its related brands. On March 4, 2021, the Company announced its intention to separate its fabrication technology and specialty medical technology businesses into two differentiated, independent, and publicly traded companies. The current Colfax entity will retain the specialty medical technology business under a new name, while the fabrication technology business will operate independently under the existing ESAB brand name. The separation is intended to be structured in a tax-free manner and is targeted to be completed in the first quarter of 2022. The assets, liabilities, revenues and expenses of the fabrication technology businesses are included in continuing operations of the Company in the accompanying Condensed Consolidated Financial Statements. The Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements. Certain prior period amounts have been reclassified to conform to the current period presentation. The Condensed Consolidated Balance Sheet as of December 31, 2020 is derived from the Company’s audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim financial statements. The Condensed Consolidated Financial Statements included herein should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”), filed with the SEC on February 18, 2021. The Condensed Consolidated Financial Statements reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. Intercompany transactions and accounts are eliminated in consolidation. The Company makes certain estimates and assumptions in preparing its Condensed Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates. In the normal course of business, the Company incurs research and development costs related to new product development which are expensed as incurred and included in Selling, general and administrative expense on the Company’s Condensed Consolidated Statements of Operations. Research and development costs were $ 20.2 million and $ 61.4 million during the three and nine months ended October 1, 2021, respectively, and $ 16.8 million and $ 49.4 million during the three and nine months ended October 2, 2020, respectively. On April 24, 2021, the Company used the proceeds from its March 2021 equity offering to redeem all $ 600 million of its 2024 senior notes and $ 100 million of outstanding principal on its 2026 senior notes. The Company paid an early redemption premium of $ 24.4 million and recorded a loss on the extinguishment of debt of $ 29.9 million. Additionally, a pension settlement gain of $ 11.2 million was recognized in the second quarter of 2021 when the independent trustees of a company pension plan agreed to merge that plan with another company pension plan and contribute its surplus assets. The results of operations for the three and nine months ended October 1, 2021 are not necessarily indicative of the results of operations that may be achieved for the full year. Quarterly results are affected by seasonal variations in the Company’s businesses, and European operations typically experience a slowdown during the July, August and December holiday seasons. Medical Technology sales typically peak in the fourth quarter. General economic conditions may, however, impact future seasonal variations. 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 8 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 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 the Company’s products. While these impacts have lessened in 2021 due to broadening access to COVID-19 vaccines and gradual relaxing of some government-mandated restrictions, the surge of COVID-19 variant viruses in the third quarter of 2021 has led to the reinstatement of restrictions in certain jurisdictions, slowing the overall economic recovery. The COVID-19 outbreak has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities in the Condensed Consolidated Financial Statements as the extent and period of recovery from the COVID-19 outbreak and related economic disruption are difficult to forecast. Furthermore, the historical seasonality trends have been disrupted by the commercial impacts caused by the COVID-19 pandemic. 2. Recently Issued Accounting Pronouncements Accounting Guidance Implemented in 2021 Standard Description Effective Date ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans The ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The adoption of this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements. January 1, 2021 ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of accounting for income taxes. The Company adopted this ASU as of January 1, 2021 on a prospective basis, and the adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements. January 1, 2021 3. Discontinued Operations The Company retained certain asbestos-related contingencies and insurance coverages from divested businesses for which it did not retain an interest in the ongoing operations subject to the contingencies. The Company has classified asbestos-related selling, general and administrative activity in its Condensed Consolidated Statements of Operations as part of Loss from discontinued operations, net of taxes. Asbestos-related costs, net of taxes were $ 1.1 million and $ 3.5 million during the three and nine months ended October 1, 2021, respectively, and $ 2.0 million and $ 4.8 million during the three and nine months ended October 2, 2020, respectively . See Note 13, “Commitments and Contingencies” for further information. The Company also recorded Loss from discontinued operations, net of taxes of $ 0.2 million and $ 6.8 million during the three and nine months ended October 1, 2021, respectively, and $ 0.6 million and $ 6.2 million during the three and nine months ended October 2, 2020, respectively, related to its divested air and gas handling business, including a settlement executed in the first quarter of 2021, as well as certain professional, legal, and consulting fees in 2020. Cash used in operating activities related to discontinued operations for the nine months ended October 1, 2021 and October 2, 2020 was $ 7.2 million and $ 18.4 million, respectively. 4. Acquisitions The Company completed one acquisition in its Fabrication Technology segment and five acquisitions in its Medical Technology segment during the nine months ended October 1, 2021 for net cash consideration of $ 208.1 million and equity consideration of $ 285.7 million. The acquisitions are accounted for under the acquisition method of accounting, and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the respective acquisition date. The Condensed Consolidated Balance Sheet as of October 1, 2021 reflects our preliminary estimates of fair value and are subject to adjustment. The Company also made two investments in medical technology 9 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) businesses during the nine months ended October 1, 2021 for a total of $ 14.8 million. Both investments are carried at cost, as they do not have a readily determinable fair value. In the first quarter of 2021, the Medical Technology segment acquired Trilliant Surgical (“Trilliant”), a national provider of foot and ankle orthopedic implants. The product technologies of Trilliant support the Medical Technology segment’s focused expansion into the adjacent foot and ankle market. Trilliant has a broad product portfolio that covers the full universe of foot reconstructive and fixation procedures, and includes the novel Arsenal Foot Plating System, designed for greater flexibility and speed of implant placement. In the second quarter of 2021, the Medical Technology segment acquired MedShape, Inc. (“MedShape”), a provider of innovative surgical solutions for foot and ankle surgeons using its patented superelastic nickel titanium (NiTiNOL) and shape memory polymer technologies. This acquisition further expands the Company's foot and ankle platform. These two acquisitions were completed for total consideration, net of cash received, of $ 205.4 million, subject to certain adjustments. Net working capital and intangible assets acquired represent 8 % and 46 % of the total consideration exchanged for these two acquisitions, respectively, with the residual amount primarily attributable to Goodwill. These amounts, as well as useful lives of the intangible assets, deferred taxes, and property, plant and equipment, are determined based upon certain valuations and studies that have yet to be finalized. The Goodwill acquired in the Trilliant acquisition is deductible for income tax purposes. The estimated proforma annual revenues of these two acquisitions are approximately 1 % of Colfax’s consolidated revenues. In the third quarter of 2021, the Medical Technology segment acquired Mathys AG Bettlach (“Mathys”) for total acquisition equity consideration of $ 285.7 million of Colfax Common stock, which included cash acquired of $ 14.7 million. Mathys, a Switzerland-based company, develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions, and sports medicine. The acquisition expands the Medical Technology segment’s reconstructive product portfolio with Mathys’ complimentary surgical solutions and broadens its international customer base. The following table summarizes the Company’s best initial estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of the Mathys acquisition. These amounts, including inventories, deferred taxes, intangible assets, useful lives of the intangible assets, and property, plant and equipment, are determined based upon certain valuations and studies that have yet to be finalized. Accordingly, the assets acquired and liabilities assumed, as detailed below, are subject to adjustment once the detailed analyses are completed, which could be material. None of the Goodwill recognized is expected to be deductible for income tax purposes. July 28, 2021 (In thousands) Trade receivables $ 20,050 Inventories 81,809 Property, plant and equipment 37,137 Goodwill 120,127 Intangible assets 93,105 Accounts payable ( 4,808 ) Other assets and liabilities, net ( 76,426 ) Consideration, net of cash acquired $ 270,994 5. Revenue The Company’s Fabrication Technology segment formulates, develops, manufactures and supplies consumable products and equipment for use in cutting, joining and automated welding, as well as gas control equipment. Substantially all revenue from the Fabrication Technology business is recognized at a point in time. The Company disaggregates its Fabrication Technology revenue into the following product groups: 10 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 (In thousands) Equipment $ 192,365 $ 157,730 $ 564,971 $ 443,563 Consumables 413,603 333,767 1,238,929 987,838 Total $ 605,968 $ 491,497 $ 1,803,900 $ 1,431,401 Contracts with customers in the consumables product grouping generally have a shorter fulfillment period than equipment contracts. The Company’s Medical Technology segment provides products and services spanning the orthopedic continuum of patient care, from injury prevention to rehabilitation. While the Company’s Medical Technology sales are primarily derived from three sales channels including dealers and distributors, insurance, and direct to consumers and hospitals, substantially all its revenue is recognized at a point in time. The Company disaggregates its Medical Technology revenue into the following product groups: Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 (In thousands) Prevention & Recovery (1) $ 260,001 $ 242,591 $ 765,207 $ 626,227 Reconstructive 99,922 71,843 261,923 185,019 Total $ 359,923 $ 314,434 $ 1,027,130 $ 811,246 (1) For the periods presented, the Prevention & Recovery product group includes bone growth stimulation products, which were previously classified as part of the Reconstructive product group. Given the nature of the Fabrication Technology and Medical Technology businesses, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of October 1, 2021 is immaterial. The nature of the Company’s contracts gives rise to certain types of variable consideration, including rebates, implicit price concessions, and other discounts. The Company includes estimated amounts of variable consideration in the transaction price to the extent that it is probable there will not be a significant reversal of revenue. In some circumstances, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 2020 and 2019, total contract liabilities were $ 36.6 million and $ 14.8 million, respectively. During the three and nine months ended October 1, 2021, revenue recognized that was included in the contract liability balance at the beginning of the year was $ 6.3 million and $ 25.7 million, respectively. During the three and nine months ended October 2, 2020, revenue recognized that was included in the contract liability balance at the beginning of the year was $ 4.5 million and $ 13.2 million, respectively. As of October 1, 2021 and October 2, 2020, total contract liabilities were $ 30.7 million and $ 30.4 million, respectively, and were included in Accrued liabilities on the Company’s Condensed Consolidated Balance Sheets. The contract liabilities as of October 1, 2021 and December 31, 2020 included $ 7.2 million and $ 11.8 million, respectively, of certain one-time advance payments in the Medical Technology business. Allowance for Credit Losses The Company’s 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. In calculating and applying its current expected credit losses, the Company disaggregates trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. The business segments are further disaggregated based on either geography or product type. The Company uses a loss rate methodology in calculating its current expected credit losses, leveraging historical write-offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts using an adjustment for current and projected macroeconomic factors. 11 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses considering the location and risks associated with the Company. A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Condensed Consolidated Balance Sheets is as follows: Nine Months Ended October 1, 2021 Balance at Beginning of Period Charged to Expense, net Write-Offs and Deductions Foreign Currency Translation Balance at End of Period (In thousands) Allowance for credit losses $ 37,666 $ ( 17 ) $ ( 2,194 ) $ ( 778 ) $ 34,677 6. Net Income Per Share from Continuing Operations Net income per share from continuing operations was computed as follows: Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 (In thousands, except share and per share data) Computation of Net income per share from continuing operations - basic: Net income from continuing operations attributable to Colfax Corporation (1) $ 27,092 $ 16,047 $ 83,915 $ 20,319 Weighted-average shares of Common stock outstanding – basic 159,093,384 136,832,909 150,822,061 136,730,112 Net income per share from continuing operations – basic $ 0.17 $ 0.12 $ 0.56 $ 0.15 Computation of Net income per share from continuing operations - diluted: Net income from continuing operations attributable to Colfax Corporation (1) $ 27,092 $ 16,047 $ 83,915 $ 20,319 Weighted-average shares of Common stock outstanding – basic 159,093,384 136,832,909 150,822,061 136,730,112 Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units 2,073,711 1,257,701 2,076,332 2,339,794 Weighted-average shares of Common stock outstanding – diluted 161,167,095 138,090,610 152,898,393 139,069,906 Net income per share from continuing operations – diluted $ 0.17 $ 0.12 $ 0.55 $ 0.15 (1) Net income from continuing operations attributable to Colfax Corporation for the respective periods is calculated using Net income from continuing operations less the income attributable to noncontrolling interest, net of taxes, of $ 1.0 million and $ 3.2 million for the three and nine months ended October 1, 2021, respectively, and $ 0.8 million and $ 2.2 million for the three and nine months ended October 2, 2020, respectively. For all periods presented, the weighted-average shares of Common stock outstanding - basic includes the impact of 18.4 million shares related to the issuance of Colfax’s tangible equity units. During the three and nine months ended October 1, 2021, conversions of the Company’s tangible equity units resulted in the issuance of approximately 5.6 million and 12.1 million shares of Colfax common stock, respectively. All issuances of Colfax common stock related to the tangible equity units were converted at the minimum settlement rate 4.0000 shares of common stock for each purchase contract as a result of the Company’s share price. The issued shares are included in the Common stock issued and outstanding as of October 1, 2021. For the nine months ended October 2, 2020, the weighted-average shares of Common stock outstanding - diluted includes the 12 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) impact of an additional 1.2 million potentially issuable dilutive shares related to Colfax’s tangible equity units as a result of the Company’s share price in March 2020. See Note 8, “Equity” for details. The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three and nine months ended October 1, 2021 excludes 0.8 million and 1.3 million, respectively, of outstanding stock-based compensation awards as their inclusion would be anti-dilutive. The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three and nine months ended October 2, 2020 excludes 2.8 million and 4.2 million, respectively, of outstanding stock-based compensation awards as their inclusion would be anti-dilutive. 13 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 7. Income Taxes During the three and nine months ended October 1, 2021, Income from continuing operations before income taxes was $ 50.5 million and $ 125.6 million, respectively, while income tax expense was $ 22.3 million and $ 38.4 million, respectively. The effective tax rates were 44.3 % and 30.6 % for the three and nine months ended October 1, 2021, respectively, which both differed from the 2021 U.S. federal statutory rate of 21% mainly due to withholding taxes, U.S. tax on international operations, and other non-deductible expenses offset in part by the effective settlements on uncertain tax positions, a benefit from U.S. state tax losses, and U.S. tax credits. The effective tax rate for the three months ended October 1, 2021 was primarily impacted by the relative unfavorable increase in U.S. tax on international operations due to lower U.S. forecasted income and increased taxable foreign exchange gains as compared to the three months ended July 2, 2021 and nine months ended October 1, 2021. During the three and nine months ended October 2, 2020, Income from continuing operations before income taxes was $ 36.4 million and $ 25.2 million, respectively, while income tax expense was $ 19.5 million and $ 2.6 million, respectively. The effective tax rates were 53.7 % and 10.5 % for the three and nine months ended October 2, 2020, respectively. The effective tax rate for the three months ended October 2, 2020 differed from the 2020 U.S. federal statutory rate of 21% mainly due to the net impact of additional U.S. tax on international operations, withholding taxes, and certain non-deductible expenses. These unfavorable impacts were partially offset by the impact of U.S. tax credits, benefit from U.S. state tax losses, and the realization of tax benefits associated with effective settlements on uncertain tax positions. The effective tax rate for the nine months ended October 2, 2020 differed from the 2020 U.S. federal statutory rate of 21%, mainly due to the net impact of U.S. tax credits and benefits from U.S. state tax losses, a discrete tax benefit associated with the filing of timely elected changes to U.S. Federal tax returns to credit rather than to deduct foreign taxes, the impact of an enacted law change in India, and the realization of tax benefits associated with effective settlements on uncertain tax positions. These favorable impacts were partially offset by the impact of additional U.S. tax on international operations, withholding taxes, and certain non-deductible expenses. In conjunction with the filing of the timely elected changes to credit rather than to deduct foreign taxes, the Company obtained additional foreign tax credit carryforwards. The Company evaluated all positive and negative evidence in determining the realizability of these deferred tax assets and based on such evidence, concluded a full valuation allowance was needed. 14 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 8. Equity Common Stock On March 19, 2021, the Company completed the underwritten public offering of 16.1 million shares of Colfax Common stock at a price to the public of $ 46.00 per share, resulting in net proceeds of approximately $ 711.3 million, after deducting offering expenses and underwriters’ discount and commissions. On July 28, 2021, the Company issued 6.5 million shares of Colfax Common stock to the former shareholders of Mathys for acquisition consideration of $ 285.7 million. Share Repurchase Program In 2018, the Company’s Board of Directors authorized the repurchase of shares of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. No repurchases of the Company’s Common stock have been made under this plan since the third quarter of 2018. As of October 1, 2021, the remaining stock repurchase authorization provided by the Board of Directors was $ 100 million. The timing, amount and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors. There is no term associated with the remaining repurchase authorization. Accumulated Other Comprehensive Loss The following tables present the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the nine months ended October 1, 2021 and October 2, 2020. All amounts are net of tax and noncontrolling interest, if any. Accumulated Other Comprehensive Loss Components Net Unrecognized Pension and Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Unrealized Gain on Hedging Activities Total (In thousands) Balance at December 31, 2020 $ ( 112,783 ) $ ( 360,977 ) $ 21,654 $ ( 452,106 ) Other comprehensive income (loss) before reclassifications: Foreign currency translation adjustment 1,089 ( 124,824 ) ( 2,582 ) ( 126,317 ) Gain on long-term intra-entity foreign currency transactions — 25,933 — 25,933 Gain on net investment hedges — — 16,655 16,655 Other comprehensive income (loss) before reclassifications 1,089 ( 98,891 ) 14,073 ( 83,729 ) Amounts reclassified from Accumulated other comprehensive loss 3,193 — — 3,193 Net Other comprehensive income (loss) 4,282 ( 98,891 ) 14,073 ( 80,536 ) Balance at October 1, 2021 $ ( 108,501 ) $ ( 459,868 ) $ 35,727 $ ( 532,642 ) 15 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Accumulated Other Comprehensive Loss Components Net Unrecognized Pension and Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Unrealized Gain on Hedging Activities Total (In thousands) Balance at December 31, 2019 $ ( 106,500 ) $ ( 421,889 ) $ 44,544 $ ( 483,845 ) Other comprehensive income (loss) before reclassifications: Foreign currency translation adjustment ( 389 ) ( 31,747 ) 1,894 ( 30,242 ) Loss on long-term intra-entity foreign currency transactions — ( 18,023 ) — ( 18,023 ) Loss on net investment hedges — — ( 12,700 ) ( 12,700 ) Other comprehensive income (loss) before reclassifications ( 389 ) ( 49,770 ) ( 10,806 ) ( 60,965 ) Amounts reclassified from Accumulated other comprehensive loss 2,814 — — 2,814 Net Other comprehensive income (loss) 2,425 ( 49,770 ) ( 10,806 ) ( 58,151 ) Balance at October 2, 2020 $ ( 104,075 ) $ ( 471,659 ) $ 33,738 $ ( 541,996 ) Tangible equity unit (“TEU”) offering On January 11, 2019, the Company issued 4.6 million TEUs at the stated amount of $ 100 per unit. Net cash of $ 447.7 million was received upon closing. A portion of the proceeds from the issuance of the TEUs were allocated initially to equity (the “TEU prepaid stock purchase contracts”) and debt (the “TEU amortizing notes”) based on the relative fair value of the respective components of each TEU. See Note 10, “Debt” for further information regarding the TEU amortizing notes. TEU prepaid stock purchase contracts Unless previously settled at the holder’s option, for each TEU prepaid stock purchase contract the Company will deliver to holders on January 15, 2022 (subject to postponement in certain limited circumstances, the “mandatory settlement date”) a number of shares of common stock. The number of shares of common stock issuable upon settlement of each purchase contract (the “settlement rate”) will be determined using the arithmetic average of the volume average weighted price for the 20 consecutive trading days beginning on, and including, the 21st scheduled trading day immediately preceding January 15, 2022 (“the Applicable Market Value”) with reference to the following settlement rates: • if the Applicable Market Value of the common stock is greater than the threshold appreciation price of $ 25.00 , the holder will receive 4.0000 shares of common stock for each purchase contract; • if the Applicable Market Value of the common stock is greater than or equal to the reference price of $ 20.81 , but less than or equal to the threshold appreciation price of $ 25.00 , the holder will receive a number of shares of common stock for each purchase contract having a value, based on the Applicable Market Value, equal to $ 100 ; and • if the Applicable Market Value of the common stock is less than the reference price of $ 20.81 , the holder will receive 4.8054 shares of common stock for each purchase contract. Earnings per share impact of TEU prepaid stock purchase contracts Unless the TEU prepaid stock purchase contracts are redeemed by the Company or settled earlier at the unit holder’s option, they are mandatorily convertible into shares of Colfax common stock at not less than 4.0000 shares per purchase contract or more than 4.8054 shares per purchase contract on January 15, 2022. This corresponds to not less than 18.4 million shares and not more than 22.1 million shares at the maximum. The 18.4 million minimum shares are included in the calculation of weighted-average shares of Common stock outstanding - basic. The difference between the minimum and maximum shares represents potentially dilutive securities. The Company includes them in its calculation of weighted-average shares of Common stock outstanding - diluted on a pro rata basis to the extent the effect is not anti-dilutive and the average Applicable Market Value is higher than the reference price but is less than the threshold appreciation price. During the three and nine months ended October 1, 2021, 1.4 million and 3.0 million TEU prepaid stock purchase contracts were settled at the holder’s option 16 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) into approximately 5.6 million and 12.1 million shares of Colfax common stock, respectively, at a conversion rate of 4.0 shares per contract. 9. Inventories, Net Inventories, net consisted of the following: October 1, 2021 December 31, 2020 (In thousands) Raw materials $ 138,421 $ 110,848 Work in process 66,012 40,517 Finished goods 650,927 476,297 855,360 627,662 Less: allowance for excess, slow-moving and obsolete inventory ( 74,376 ) ( 62,840 ) $ 780,984 $ 564,822 10. Debt Long-term debt consisted of the following: October 1, 2021 December 31, 2020 (In thousands) Term loan $ 782,216 $ 781,557 Euro senior notes 403,234 425,045 2024 and 2026 notes 297,780 991,319 TEU amortizing notes 12,875 31,251 Revolving credit facilities and other 129,925 2,071 Total debt 1,626,030 2,231,243 Less: current portion ( 14,340 ) ( 27,074 ) Long-term debt $ 1,611,690 $ 2,204,169 Term Loan and Revolving Credit Facility The Company’s 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 with an initial aggregate principal amount of $ 825 million (the “Term Loan”), each with a maturity date of December 6, 2024. The Revolver contains a $ 50 million swing line loan sub-facility. Certain U.S. subsidiaries of the Company guarantee the obligations under the Credit Facility. The Credit Facility contains customary covenants limiting the ability of Colfax 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 Credit Facility contains financial covenants requiring Colfax to maintain (subject to certain exceptions) (i) a maximum total leverage ratio, calculated as the ratio of Consolidated Net Debt (as defined in the Credit Facility) to EBITDA (as defined in the Credit Facility) of 4.50 :1.00 for the quarter ending September 30, 2021, 4.25 :1.00 for the quarters ending December 31, 2021 and March 31, 2022, 4.00 :1.00 for the quarters ending June 30, 2022 and September 30, 2022, and 3.50 :1.00 as of December 31, 2022 and for each fiscal quarter ending thereafter, and (ii) a minimum interest coverage ratio of 3.00 :1.00 for the quarters ending September 30, 2021 and thereafter. The Credit Facility also includes a “springing” collateral provision (based upon the Gross Leverage Ratio as defined in the Credit Facility) which requires the obligations under the Credit Facility to be secured by substantially all personal property of Colfax and its U.S. subsidiaries and the equity of its first tier foreign subsidiaries, subject to customary exceptions, in the event Colfax’s gross leverage ratio under the Credit Facility is greater than 5.00 :1.00 as of the last day of any fiscal quarter. The Credit Facility contains various events of default (including failure to comply with the covenants under the Credit Facility 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 Term Loan and the Revolver. As of October 1, 2021, the Company was in compliance with the covenants under the Credit Facility. 17 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) As of October 1, 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 $ 850 million available on the Revolver. Euro Senior Notes The Company has 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, or the securities laws of any other jurisdiction. TEU Amortizing Notes Each TEU amortizing note has an initial principal amount of $ 15.6099 , bears interest at a rate of 6.50 % per annum, and has equal quarterly cash installments of $ 1.4375 per TEU amortizing note with a final installment payment date of January 15, 2022. The quarterly cash installment constitutes a payment of interest and a partial repayment of principal. The Company paid $ 18.6 million and $ 17.4 million of principal on the TEU amortizing notes in the nine months ended October 1, 2021 and October 2, 2020, respectively. The TEU amortizing notes are the direct, unsecured and unsubordinated obligations of the Company and rank equally with all of the existing and future other unsecured and unsubordinated indebtedness of the Company. For more information on the TEUs, refer to Note 8, “Equity.” 2024 Notes and 2026 Notes The Company had senior notes with an initial aggregate principal amount of $ 600 million (the “2024 Notes”), which were due on February 15, 2024 and had an interest rate of 6.0 %. The Company has senior notes with an aggregate initial principal amount of $ 400 million (the “2026 Notes”), which are due on February 15, 2026 and have an interest rate of 6.375 %. The 2026 Notes are guaranteed by certain domestic subsidiaries of the Company. On April 24, 2021, the Company redeemed all $ 600 million outstanding principal amount of its 2024 Notes and $ 100 million of the outstanding principal amount 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 In addition to the debt agreements discussed above, the Company is party to various bilateral credit facilities with a borrowing capacity of $ 170.0 million. As of October 1, 2021, there were no outstanding borrowings under these facilities. The Company is party to letter of credit facilities with an aggregate capacity of $ 292.9 million. Total letters of credit of $ 34.6 million were outstanding as of October 1, 2021. Deferred Financing Fees In total, deferred financing fees related to the Company’s debt activities were $ 13.3 million as of October 1, 2021, which will be charged to Interest expense, net, primarily using the effective interest method, over the life of the applicable debt agreements. 18 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 11. Accrued Liabilities Accrued liabilities in the Condensed Consolidated Balance Sheets consisted of the following: October 1, 2021 December 31, 2020 (In thousands) Accrued compensation and related benefits $ 136,759 $ 98,455 Accrued taxes 53,614 57,286 Accrued asbestos-related liability 47,412 41,626 Warranty liability - current portion 17,594 15,543 Accrued restructuring liability - current portion 7,784 7,889 Accrued third-party commissions 30,352 25,480 Customer advances and billings in excess of costs incurred 30,707 36,737 Lease liability - current portion 35,857 39,695 Accrued interest 8,364 27,153 Other 120,189 104,469 $ 488,632 $ 454,333 Warranty Liability The activity in the Company’s warranty liability consisted of the following: Nine Months Ended October 1, 2021 October 2, 2020 (In thousands) Warranty liability, beginning of period $ 15,543 $ 15,528 Accrued warranty expense 7,262 5,613 Changes in estimates related to pre-existing warranties 1,401 1,108 Cost of warranty service work performed ( 6,716 ) ( 7,003 ) Acquisition-related liability 1,092 — Foreign exchange translation effect ( 277 ) ( 255 ) Warranty liability, end of period (1) $ 18,305 $ 14,991 (1) As of October 1, 2021, $ 17.6 million of the Company’s Warranty liability was included in Accrued expenses, whereas $ 0.7 million of the Company’s Warranty liability was included in Other liabilities on the Company’s Condensed Consolidated Balance Sheet. 19 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Accrued Restructuring Liability The Company’s restructuring programs include a series of actions to reduce the structural costs of the Company. A summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Condensed Consolidated Balance Sheets is as follows: Nine Months Ended October 1, 2021 Balance at Beginning of Period Provisions Payments Foreign Currency Translation Balance at End of Period (3) (In thousands) Restructuring and other related charges: Fabrication Technology: Termination benefits (1) $ 5,336 $ 4,572 $ ( 4,611 ) $ ( 43 ) $ 5,254 Facility closure costs (2) 591 5,186 ( 5,555 ) ( 18 ) 204 5,927 9,758 ( 10,166 ) ( 61 ) 5,458 Non-cash charges (2) 1,033 10,791 Medical Technology: Termination benefits (1) 1,884 2,728 ( 2,149 ) ( 9 ) 2,454 Facility closure costs and other (2) 297 2,464 ( 2,735 ) — 26 2,181 5,192 ( 4,884 ) ( 9 ) 2,480 Non-cash charges (2) — 5,192 Total Colfax Corporation: Total restructuring liability activity $ 8,108 14,950 $ ( 15,050 ) $ ( 70 ) $ 7,938 Total Non-cash charges 1,033 $ 15,983 (1) Includes severance and other termination benefits, including outplacement services. (2) Includes the cost of relocating associates, relocating equipment and lease termination expense in connection with the closure of facilities. (3) As of October 1, 2021, $ 7.8 million of the Company’s restructuring liability was included in Accrued liabilities, whereas less than $ 0.2 million of the Company’s restructuring liability was included in Other liabilities. 20 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 12. Financial Instruments and Fair Value Measurements The carrying values of financial instruments, including Trade receivables and Accounts payable, approximate their fair values due to their short-term maturities. The $ 1.6 billion and $ 2.3 billion estimated fair value of the Company’s debt as of October 1, 2021 and December 31, 2020, respectively, was based on current interest rates for similar types of borrowings and is in Level Two of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future. A summary of the Company’s assets and liabilities that are measured at fair value for each fair value hierarchy level for the periods presented is as follows: October 1, 2021 Level One Level Two Level Three Total (In thousands) Assets: Cash equivalents $ 5,044 $ — $ — $ 5,044 Foreign currency contracts - not designated as hedges — 2,025 — 2,025 Deferred compensation plans — 12,695 — 12,695 $ 5,044 $ 14,720 $ — $ 19,764 Liabilities: Foreign currency contracts - not designated as hedges $ — $ 4,159 $ — $ 4,159 Deferred compensation plans — 12,695 — 12,695 $ — $ 16,854 $ — $ 16,854 December 31, 2020 Level One Level Two Level Three Total (In thousands) Assets: Cash equivalents $ 7,420 $ — $ — $ 7,420 Foreign currency contracts - not designated as hedges — 2,194 — 2,194 Deferred compensation plans — 10,881 — 10,881 $ 7,420 $ 13,075 $ — $ 20,495 Liabilities: Foreign currency contracts - not designated as hedges $ — $ 1,781 $ — $ 1,781 Deferred compensation plans — 10,881 — 10,881 $ — $ 12,662 $ — $ 12,662 There were no transfers in or out of Level One, Two or Three during the nine months ended October 1, 2021. 21 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Foreign Currency Contracts As of October 1, 2021 and December 31, 2020, the Company had foreign currency contracts related to purchases and sales with notional values of $ 310.6 million and $ 250.4 million, respectively. The Company recognized the following in its Condensed Consolidated Financial Statements related to its derivative instruments: Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 (In thousands) Contracts Designated as Hedges: Unrealized gain (loss) on net investment hedges (1) $ 6,424 $ ( 14,456 ) $ 16,655 $ ( 12,700 ) Contracts Not Designated in a Hedge Relationship: Foreign Currency Contracts Unrealized gain (loss) ( 2,134 ) ( 894 ) ( 7,023 ) 1,479 Realized gain (loss) ( 1,355 ) 132 64 ( 1,022 ) (1) The unrealized gain (loss) on net investment hedges is attributable to the change in valuation of Euro denominated debt. Restricted Cash Financial instruments also include Restricted cash. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are excluded from Cash and cash equivalents in the Condensed Consolidated Balance Sheets. The Restricted cash as of December 31, 2020 was related to an acquisition which closed in the first quarter of 2021 and was recorded as a component of Other current assets on the Condensed Consolidated Balance Sheets. The following table summarizes the Company’s Cash and cash equivalents and Restricted cash: October 1, 2021 December 31, 2020 (In thousands) Cash and cash equivalents $ 177,482 $ 97,068 Restricted cash — 4,001 Cash and cash equivalents and Restricted cash $ 177,482 $ 101,069 13. Commitments and Contingencies For further description of the Company’s litigation and contingencies, reference is made to Note 18, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements in the Company’s 2020 Form 10-K. Since the Company did not retain an interest in the ongoing operations of its divested businesses, the retained asbestos-related activity has been classified in its Condensed Consolidated Statements of Operations as a component of Loss from discontinued operations, net of taxes. 22 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) Asbestos Contingencies Asbestos-related claims activity since December 31 is as follows: Nine Months Ended October 1, 2021 October 2, 2020 (Number of claims) Claims unresolved, beginning of period 14,809 16,299 Claims filed (1) 3,238 2,898 Claims resolved (2) ( 3,504 ) ( 3,712 ) Claims unresolved, end of period 14,543 15,485 (1) Claims filed include all asbestos claims for which notification has been received or a file has been opened. (2) Claims resolved include all asbestos claims that have been settled, dismissed or that are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants. The Company’s Condensed Consolidated Balance Sheets included the following amounts related to asbestos-related litigation: October 1, 2021 December 31, 2020 (In thousands) Long-term asbestos insurance asset (1) $ 230,506 $ 232,712 Long-term asbestos insurance receivable (1) 23,996 31,815 Accrued asbestos liability (2) 47,412 41,626 Long-term asbestos liability (3) 244,063 253,144 (1) Included in Other assets in the Condensed Consolidated Balance Sheets. (2) Represents current accruals for probable and reasonably estimable asbestos-related liability costs that the Company believes the subsidiaries will pay, and unpaid legal costs related to defending themselves against asbestos-related liability claims and legal action against the Company’s insurers, which is included in Accrued liabilities in the Condensed Consolidated Balance Sheets. (3) Included in Other liabilities in the Condensed Consolidated Balance Sheets. Management’s analyses are based on currently known facts and assumptions. 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, 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 the Company’s financial condition, results of operations or cash flow. General Litigation The Company is involved in other pending legal proceedings arising out of the ordinary course of the Company’s business. None of these legal proceedings are expected to have a material adverse effect on the financial condition, results of operations or cash flow of the Company. With respect to these proceedings and the litigation and claims described in the preceding paragraphs, management of the Company believes that it will either prevail, has adequate insurance coverage or has established appropriate accruals to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company. 23 COLFAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited) 14. Segment Information The Company conducts its continuing operations through the Fabrication Technology and Medical Technology operating segments, which also represent the Company’s reportable segments. ▪ 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.” The Company’s management evaluates the operating results of each of its reportable segments based upon Net sales and segment operating income (loss), which represents Operating income (loss) before Restructuring and other related charges and European Union Medical Devices Regulation (“MDR”) and other costs. The Company’s segment results were as follows: Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 (In thousands) Net sales: Fabrication Technology $ 605,968 $ 491,497 $ 1,803,900 $ 1,431,401 Medical Technology 359,923 314,434 1,027,130 811,246 $ 965,891 $ 805,931 $ 2,831,030 $ 2,242,647 Segment operating income (loss) (1) : Fabrication Technology $ 90,604 $ 63,058 $ 267,306 $ 175,703 Medical Technology 10,845 22,869 31,254 5,877 Corporate and other ( 29,100 ) ( 15,079 ) ( 75,765 ) ( 44,730 ) $ 72,349 $ 70,848 $ 222,795 $ 136,850 (1) Following is a reconciliation of Income (loss) from continuing operations before income taxes to segment operating income: Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 (In thousands) Income from continuing operations before income taxes $ 50,450 $ 36,364 $ 125,571 $ 25,200 Pension settlement gain — — ( 11,208 ) — Interest expense, net 13,540 25,567 57,005 78,647 Debt extinguishment charges — — 29,870 — Restructuring and other related charges (1) 6,457 6,328 15,983 28,514 MDR and other costs (2) 1,902 2,589 5,574 4,489 Segment operating income $ 72,349 $ 70,848 $ 222,795 $ 136,850 (1) Restructuring and other related charges includes $ 2.2 million and $ 4.9 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended October 2, 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 the Company’s Condensed Consolidated Statements of Operations for all periods presented. 24