Enovis CORP 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting ( Ernst & Young LLP , Baltimore, MD , Auditor Firm ID: 42 ) 56 Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements ( Ernst & Young LLP , Baltimore, MD , Auditor Firm ID: 42 ) 57 Consolidated Statements of Operations 60 Consolidated Statements of Comprehensive Income (Loss) 61 Consolidated Balance Sheets 62 Consolidated Statements of Equity 63 Consolidated Statements of Cash Flows 64 Notes to Consolidated Financial Statements 65 Note 1. Organization and Nature of Operations 65 Note 2. Summary of Significant Accounting Policies 65 Note 3. Recently Issued Accounting Pronouncements 72 Note 4. Discontinued Operations 73 Note 5. Acquisitions 74 Note 6. Revenue 76 Note 7. Net Income Per Share from Continuing Operations 78 Note 8. Income Taxes 78 Note 9. Goodwill and Intangible Assets 83 Note 10. Property, Plant and Equipment, Net 84 Note 11. Inventories, Net 84 Note 12. Leases 85 Note 13. Debt 85 Note 14. Equity 88 Note 15. Accrued Liabilities 94 Note 16. Defined Benefit Plans 97 Note 17. Financial Instruments and Fair Value Measurements 105 Note 18. Commitments and Contingencies 107 Note 19. Segment Information 111 55 Report of Independent Registered Public Accounting Firm Internal Control Over Financial Reporting To the Shareholders and the Board of Directors of Colfax Corporation Opinion on Internal Control Over Financial Reporting We have audited Colfax Corporation’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Colfax Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Colfax Corporation as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index 15(A)(2) and our report dated February 22, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Baltimore, Maryland February 22, 2022 56 Report of Independent Registered Public Accounting Firm Consolidated Financial Statements To the Shareholders and the Board of Directors of Colfax Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Colfax Corporation (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(A)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 57 Goodwill Description of the Matter At December 31, 2021, the Company’s goodwill allocated to the Medical Technology reporting unit was $1.9 billion. As discussed in Note 9 to the consolidated financial statements, goodwill is not amortized, but rather is subject to an annual impairment review, or more frequent reviews if events and circumstances indicate an impairment exists. Auditing the Company's goodwill impairment test was complex and highly judgmental due to the significant estimation required by management to determine the fair value of the Medical Technology reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as changes in the discount rate, market multiples, projected net sales and projected operating income metrics that are forward-looking and affected by future economic and market conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its annual goodwill impairment review process, including controls over management’s review of the significant assumptions described above. We also tested management’s controls over the completeness and accuracy of the data used in the model. To test the estimated fair value of the Medical Technology reporting unit, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions used in the Company’s analyses, as well as testing the completeness and accuracy of the underlying data. For example, we compared the significant assumptions to current third-party industry data, and to the historical results of the Medical Technology reporting unit. We performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the Medical Technology reporting unit that would result from changes in key assumptions. We also involved internal valuation specialists to assist in our evaluation of the methodologies and significant assumptions used by the Company. In addition, we tested management’s reconciliation of the fair value of both reporting units to the market capitalization of the Company. Valuation of Acquired Intangible Assets Description of the Matter During 2021, the Company completed the acquisitions of Trilliant, MedShape and Mathys for net cash consideration of $204 million and equity consideration of $286 million and recognized identifiable intangible assets of $181 million as disclosed in Note 5 to the consolidated financial statements. These transactions were accounted for as business combinations. Auditing the Company's purchase accounting for these acquisitions was complex due to the significant estimation required by management to determine the fair value of the acquired intangible assets, which consisted of customer relationships, tradenames and technology. The estimation complexity was primarily due to the valuation models used to measure the fair value of the intangible assets and the sensitivity of the respective fair values to the significant underlying assumptions. The significant assumptions used to estimate the fair value of the intangible assets included discount rates, royalty rates, customer attrition, and certain assumptions that form the basis of the forecasted results (e.g., net sales, and operating profit metrics). These significant assumptions are forward looking and could be affected by future economic and market conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its accounting for acquisitions. For example, we tested controls over the recognition and measurement of intangible assets, including the valuation models and underlying assumptions used to develop such estimates. We also tested management’s controls over the completeness and accuracy of the data used in the models. To audit the estimated fair value of the intangible assets, we performed audit procedures that included, among others, evaluating the Company's valuation models and testing the significant assumptions used in the models, as well as testing the completeness and accuracy of the underlying data. We compared the significant assumptions to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions, and to the historical results of the acquired businesses. We also involved an internal valuation specialist to assist in our evaluation of the significant assumptions and those procedures included the completion of independent calculations of the fair value of the acquired intangible assets. 58 Asbestos Liability Description of the Matter At December 31, 2021, the Company’s asbestos liability balance was $292 million. As discussed in Note 18 of the consolidated financial statements, certain of the Company’s subsidiaries are defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured with components that are alleged to have contained asbestos. The Company records an asbestos liability for probable pending and future claims over the period that the Company believes it can reasonably estimate such claims. Auditing the asbestos liability was complex and highly judgmental due to the significant estimation of numerous variables required in determining the asbestos obligation. In particular, the estimates were sensitive to significant assumptions such as the period of time over which claims activity can be reasonably predicted, the number of future asbestos-related claims that may be received, the type and severity of disease alleged by each claimant, dismissal rates, the lag time between the filing and the settlement of claims, and settlement values. These assumptions have a significant effect on the asbestos liability. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to estimate the asbestos liability, including controls related to estimates of expected future claims and other key assumptions underlying the calculation of the obligation. We also tested management’s controls over the completeness and accuracy of the data used in the calculation. To audit the asbestos liability recorded by management, we performed procedures that included, among others, evaluating the methodology applied and the significant assumptions used in the Company’s calculation. For example, we assessed management’s assumptions for the nature and rate of future claims, claims disposition and settlement patterns by comparing these assumptions to the Company’s historical experience and industry data. We considered the Company’s historical data and industry data in evaluating the adequacy of the Company’s projections. We developed, with the assistance of an internal actuarial specialist, an independent range of estimated asbestos liability. We tested the completeness and accuracy of the claims data used by management. We also performed analyses to determine the sensitivity of changes in certain assumptions, such as the period over which claims can be estimated, to the calculated liability. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002. Baltimore, Maryland February 22, 2022 59 COLFAX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Dollars in thousands, except per share amounts Year Ended December 31, 2021 2020 2019 Net sales $ 3,854,303 $ 3,070,769 $ 3,327,458 Cost of sales 2,240,645 1,782,664 1,926,402 Gross profit 1,613,658 1,288,105 1,401,056 Selling, general and administrative expense 1,329,376 1,087,401 1,132,149 Restructuring and other related charges 27,639 38,413 65,295 Operating income 256,643 162,291 203,612 Pension settlement loss (gain) ( 11,208 ) — 33,616 Interest expense, net 72,593 104,262 119,503 Debt extinguishment charges 29,870 — — Income from continuing operations before income taxes 165,388 58,029 50,493 Income tax expense (benefit) 66,695 ( 6,053 ) 31,630 Net income from continuing operations 98,693 64,082 18,863 Loss from discontinued operations, net of taxes ( 22,415 ) ( 18,311 ) ( 536,009 ) Net income (loss) 76,278 45,771 ( 517,146 ) Less: income attributable to noncontrolling interest, net of taxes 4,621 3,146 10,500 Net income (loss) attributable to Colfax Corporation $ 71,657 $ 42,625 $ ( 527,646 ) Net income (loss) per share - basic Continuing operations $ 0.61 $ 0.45 $ 0.10 Discontinued operations $ ( 0.15 ) $ ( 0.13 ) $ ( 3.99 ) Consolidated operations $ 0.47 $ 0.31 $ ( 3.89 ) Net income (loss) per share - diluted Continuing operations $ 0.60 $ 0.44 $ 0.10 Discontinued operations $ ( 0.15 ) $ ( 0.13 ) $ ( 3.99 ) Consolidated operations $ 0.46 $ 0.31 $ ( 3.89 ) See Notes to Consolidated Financial Statements. 60 COLFAX CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Dollars in thousands Year Ended December 31, 2021 2020 2019 Net income (loss) $ 76,278 $ 45,771 $ ( 517,146 ) Other comprehensive income (loss): Foreign currency translation, net of tax expense (benefit) of $ 3,449 , $( 25 ) and $ 2,248 ( 114,389 ) 59,880 ( 47,734 ) Unrealized gain (loss) on hedging activities, net of tax expense (benefit) of $ 6,980 , $( 9,120 ) and $ 1,574 23,247 ( 26,268 ) 5,832 Changes in unrecognized pension and other post-retirement benefit (cost), net of tax expense (benefit) of $ 3,368 , $( 1,502 ) and $( 3,980 ) 20,870 ( 8,169 ) ( 27,931 ) Amounts reclassified from Accumulated other comprehensive loss: Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $ 1,148 , $ 883 and $ 779 5,025 3,735 2,597 Amortization of pension and other post-retirement prior service cost — — 32 Divestiture-related recognition of foreign currency translation, pension, and other post-retirement cost — — 291,263 Other comprehensive income (loss) ( 65,247 ) 29,178 224,059 Comprehensive income (loss) 11,031 74,949 ( 293,087 ) Less: comprehensive income (loss) attributable to noncontrolling interest 3,281 585 ( 97,101 ) Comprehensive income (loss) attributable to Colfax Corporation $ 7,750 $ 74,364 $ ( 195,986 ) See Notes to Consolidated Financial Statements. 61 COLFAX CORPORATION CONSOLIDATED BALANCE SHEETS Dollars in thousands, except share amounts December 31, 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 719,370 $ 97,068 Trade receivables, less allowance for credit losses of $ 32,501 and $ 37,666 638,700 517,006 Inventories, net 776,295 564,822 Prepaid expenses 78,186 69,515 Other current assets 90,728 113,418 Total current assets 2,303,279 1,361,829 Property, plant and equipment, net 521,391 486,960 Goodwill 3,467,295 3,314,541 Intangible assets, net 1,675,462 1,663,446 Lease asset - right of use 184,429 173,942 Other assets 363,489 350,831 Total assets $ 8,515,345 $ 7,351,549 LIABILITIES AND EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 8,314 $ 27,074 Accounts payable 504,173 330,251 Accrued liabilities 511,097 454,333 Total current liabilities 1,023,584 811,658 Long-term debt, less current portion 2,078,679 2,204,169 Non-current lease liability 145,326 139,230 Other liabilities 606,323 608,618 Total liabilities 3,853,912 3,763,675 Equity: Common stock, $ 0.001 par value; 400,000,000 shares authorized; 156,249,234 and 118,496,687 issued and outstanding as of December 31, 2021 and December 31, 2020, respectively 156 118 Additional paid-in capital 4,544,211 3,478,008 Retained earnings 589,024 517,367 Accumulated other comprehensive loss ( 516,013 ) ( 452,106 ) Total Colfax Corporation equity 4,617,378 3,543,387 Noncontrolling interest 44,055 44,487 Total equity 4,661,433 3,587,874 Total liabilities and equity $ 8,515,345 $ 7,351,549 See Notes to Consolidated Financial Statements. 62 COLFAX CORPORATION CONSOLIDATED STATEMENTS OF EQUITY Dollars in thousands, except share amounts and as noted Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at January 1, 2019 117,275,217 $ 117 $ 3,057,982 $ 991,838 $ ( 780,177 ) $ 207,186 $ 3,476,946 Cumulative effect of accounting change — — — 15,368 ( 15,368 ) — — Net loss — — — ( 527,646 ) — 10,500 ( 517,146 ) Distributions to noncontrolling owners — — — — — ( 12,379 ) ( 12,379 ) Noncontrolling interest share repurchase — — ( 24,037 ) — ( 19,960 ) ( 49,508 ) ( 93,505 ) Other comprehensive income, net of tax expense of $ 621 — — — — 331,660 ( 107,601 ) 224,059 Issuance of Tangible Equity Units — — 377,814 — — — 377,814 Common stock-based award activity 783,865 1 33,838 — — — 33,839 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 — — — 42,625 — 3,146 45,771 Distributions to noncontrolling owners — — — — — ( 4,296 ) ( 4,296 ) Other comprehensive income, net of tax benefit of $ 9,764 — — — — 31,739 ( 2,561 ) 29,178 Common stock-based award activity 437,605 — 32,411 — — — 32,411 Balance at December 31, 2020 118,496,687 118 3,478,008 517,367 ( 452,106 ) 44,487 3,587,874 Net income — — — 71,657 — 4,621 76,278 Distributions to noncontrolling owners — — — — — ( 3,713 ) ( 3,713 ) Other comprehensive income, net of tax expense of $ 14,945 — — — — ( 63,907 ) ( 1,340 ) ( 65,247 ) Common stock offering, net of issuance costs 16,100,000 16 711,323 — — — 711,339 Conversion of tangible equity units into common stock 13,324,464 13 ( 13 ) — — — — Common stock issued for acquisition, net of issuance costs 6,544,522 7 285,673 — — — 285,680 Common stock-based award activity 1,783,561 2 69,220 — — — 69,222 Balance at December 31, 2021 156,249,234 $ 156 $ 4,544,211 $ 589,024 $ ( 516,013 ) $ 44,055 $ 4,661,433 See Notes to Consolidated Financial Statements. 63 COLFAX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in thousands Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ 76,278 $ 45,771 $ ( 517,146 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Divestiture impairment loss — — 449,000 Depreciation, amortization and other impairment charges 262,919 246,229 236,026 Stock-based compensation expense 35,350 28,911 21,960 Non-cash interest expense 4,752 5,739 9,937 Debt extinguishment charges 29,870 — — Deferred income tax benefit ( 22,188 ) ( 29,218 ) ( 590 ) (Gain) loss on sale of property, plant and equipment ( 2,573 ) ( 491 ) 61 Gain on sale of business — — ( 14,233 ) Pension settlement (gain) loss ( 11,208 ) — 77,390 Changes in operating assets and liabilities: Trade receivables, net ( 110,985 ) 42,688 49,924 Inventories, net ( 129,967 ) 23,787 ( 44,887 ) Accounts payable 178,467 ( 30,747 ) ( 119,325 ) Other operating assets and liabilities 45,384 ( 30,734 ) ( 17,169 ) Net cash provided by operating activities 356,099 301,935 130,948 Cash flows from investing activities: Purchases of property, plant and equipment ( 104,237 ) ( 114,785 ) ( 125,402 ) Proceeds from sale of property, plant and equipment 7,033 9,552 7,781 Acquisitions, net of cash received, and investments ( 223,272 ) ( 69,846 ) ( 3,151,056 ) Proceeds from sale of business, net — — 1,635,920 Net cash used in investing activities ( 320,476 ) ( 175,079 ) ( 1,632,757 ) Cash flows from financing activities: Proceeds from borrowings on term credit facility — — 1,725,000 Payments under term credit facility — ( 40,000 ) ( 1,387,500 ) Proceeds from borrowings on revolving credit facilities and other 991,494 860,681 2,045,083 Repayments of borrowings on revolving credit facilities and other ( 417,526 ) ( 938,997 ) ( 2,273,802 ) (Repayments of)/Proceeds from borrowings on senior notes ( 700,000 ) — 1,000,000 Payment of debt issuance costs — ( 4,560 ) ( 23,380 ) Proceeds from prepaid stock purchase contract — — 377,814 Proceeds from issuance of common stock, net 745,179 3,500 11,879 Payment of debt extinguishment costs ( 24,375 ) — — Payment for noncontrolling interest share repurchase — — ( 93,505 ) Deferred consideration payments and other ( 9,866 ) ( 12,275 ) ( 12,095 ) Net cash provided by (used in) financing activities 584,906 ( 131,651 ) 1,369,494 Effect of foreign exchange rates on Cash and cash equivalents and Restricted Cash ( 2,228 ) ( 3,768 ) ( 3,072 ) Increase (decrease) in Cash and cash equivalents and Restricted cash 618,301 ( 8,563 ) ( 135,387 ) Cash and cash equivalents and Restricted Cash, beginning of period 101,069 109,632 245,019 Cash and cash equivalents and Restricted Cash, end of period $ 719,370 $ 101,069 $ 109,632 Supplemental disclosures: Interest payments $ 85,487 $ 104,620 $ 139,268 Income tax payments, net $ 47,188 $ 59,377 $ 134,915 Common stock issued for acquisition, net of issuance costs $ 285,680 $ — $ — See Notes to Consolidated Financial Statements. 64 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Nature of Operations 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 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. The Company completed the purchase of DJO Global, Inc. (“DJO”) on February 22, 2019, which became a new growth platform for Colfax. See Note 5, “Acquisitions”, for further information. Colfax completed the sale of its Air and Gas Handling business on September 30, 2019. See Note 4, “Discontinued Operations”, for further information. These transactions were the culmination of a multi-year strategic plan to remodel the Company into a faster growth, higher margin, and less cyclical business with opportunities for significant bolt-on and adjacent acquisitions over time. The Company applies the Colfax Business System (“CBS”) to continuously improve and pursue growth in revenues and increase profits and cash flows. 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 “Separation”). The current Colfax entity will retain the specialty medical technology business under a new name, Enovis Corporation. 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 near the end of 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 Consolidated Financial Statements. 2. Summary of Significant Accounting Policies Principles of Consolidation The Company’s Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all majority-owned subsidiaries over which the Company exercises control and, when applicable, entities or joint ventures for which the Company has a controlling financial interest or is the primary beneficiary. When protective rights, substantive rights or other factors exist, further analysis is performed in order to determine whether or not there is a controlling financial interest. The Consolidated Financial Statements reflect the assets, liabilities, revenues and expenses of consolidated subsidiaries and the noncontrolling parties’ ownership share is presented as a noncontrolling interest. All significant intercompany accounts and transactions have been eliminated. Investments Investments where the Company has a significant influence but not a controlling interest, are accounted for using the equity method of accounting. Investments accounted for under the equity method are initially recorded at the amount of the Company’s initial investment and adjusted each period for the Company’s share of the investee’s income or loss and dividends paid. The Company accounts for equity investments that do not have a readily determinable fair value as cost method investments under the measurement alternative under U.S. GAAP to the extent such investments are not subject to consolidation or the equity method of accounting as described above. Under the measurement alternative, these financial instruments are carried at cost, less any impairment, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The Company accounts for investments as a noncurrent asset within Other assets in the Consolidated Financial Statements as the Company does not have the intent and ability to sell such assets within the next twelve months. All equity investments are reviewed periodically for indications of other-than-temporary impairment, including, but not limited to, significant and sustained decreases in quoted market prices or a series of historic and projected operating losses by investees. If the decline in fair value is considered to be other-than-temporary, an impairment loss is recorded and the investment is written down to a new carrying value. Revenue Recognition The Company recognizes revenue when control of promised goods or services is transferred to the customer. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for transferring the 65 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) goods or services. The nature of the Company’s contracts gives rise to certain types of variable consideration, including rebates 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. Estimates are based on historical or anticipated performance and represent the Company’s best judgment at the time. Any estimates are evaluated on a quarterly basis until the uncertainty is resolved. Additionally, related to sales of its medical device products and services, the Company maintains provisions for estimated contractual allowances for reimbursement amounts from certain third-party payors based on negotiated contracts, historical experience for non-contracted payors, and the impact of new contract terms or modifications of existing arrangements with these customers. We report these allowances as a reduction to net sales. The Company provides a variety of products and services to its customers. Most of the Company’s contracts consist of a single, distinct performance obligation or promise to transfer goods or services to a customer. For contracts that include multiple performance obligations, we allocate the total transaction price to each performance obligation using our best estimate of the stand-alone selling price of each identified performance obligation. A significant majority of our revenue relates to the shipment of off-the-shelf products that is recognized when control is transferred to the customer. On a limited basis, we have agreements with customers that have multiple performance obligations. In determining whether there are multiple performance obligations, we first assess the goods or services promised in the customer arrangement and then consider the guidance in ASC 606, Revenue from Contracts with Customers, to evaluate whether goods and services are capable of being distinct and are considered distinct within the customer arrangement. To determine whether promised goods or services are separately identifiable (i.e., whether a promise to transfer a good or service is distinct in the context of the contract), we evaluate whether the contract is to deliver (1) multiple promised goods or services or (2) a combined item that comprises the individual goods or services promised in the contract. Substantially all revenue involving development and application engineering projects consists of a single performance obligation and is recognized at a point in time. A majority of revenue recognized by the Company relates to contracts with the customers for standard or off-the-shelf products. As control typically transfers to the customer upon shipment of the product in these circumstances, revenue is generally recognized at that point in time. Revenue recognition and billing typically occur simultaneously for contracts recognized at a point in time. Therefore, we do not have material revenues in excess of customer billings or billings to customers in excess of recognized revenues. Refer to Note 6, “Revenue”, and Note 15, “Accrued Liabilities”, for additional information on the Company’s contract liability balances. For service contracts, the Company recognizes revenue ratably over the period of performance as the customer simultaneously receives and consumes the benefits of the services provided. The Company applies the available practical expedient involving the existence of a significant financing component. As the Company generally does not receive payments greater than one year in advance or arrears of revenue recognition, the Company does not consider any arrangements to include financing components. The period of benefit for the Company’s incremental costs of obtaining a contract generally have less than a one-year duration; therefore, the Company applies the practical expedient available and expenses costs to obtain a contract when incurred. Taxes Collected from Customers and Remitted to Governmental Authorities The Company collects various taxes and fees as an agent in connection with the sale of products and remits these amounts to the respective taxing authorities. These taxes and fees have been presented on a net basis in the Consolidated Statements of Operations and are recorded as a component of Accrued liabilities in the Consolidated Balance Sheets until remitted to the respective taxing authority. Research and Development Expense Research and development costs of $ 88.8 million, $ 68.6 million and $ 61.8 million fo r the years ended December 31, 2021, 2020 and 2019, respectively, are expensed as incurred and are included in Selling, general and administrative expense in the Consolidated Statements of Operations. These amounts do not include development and application engineering costs incurred in conjunction with fulfilling customer orders and executing customer projects. Interest Expense, Net Interest expense, net includes interest income of $ 1.0 million, $ 3.2 million and $ 3.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, primarily associated with interest bearing deposits of certain foreign subsidiaries. 66 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Cash and Cash Equivalents Cash and cash equivalents include all financial instruments purchased with an initial maturity of three months or less. 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 Consolidated Balance Sheets. Restricted cash is recorded as a component of Other current assets on the Consolidated Balance Sheets. The following table summarizes the Company’s Cash and cash equivalents and Restricted cash: December 31, 2021 2020 (In thousands) Cash and cash equivalents $ 719,370 $ 97,068 Restricted cash — 4,001 Total cash and cash equivalents and restricted cash $ 719,370 $ 101,069 Trade Receivables Trade receivables are presented net of an allowance for credit losses. The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1, 2020. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Estimated credit losses are reviewed periodically by management. Inventories Inventories, net include the cost of material, labor and overhead and are stated at the lower of cost or net realizable value. Cost is determined under various methods including average cost, last-in, first-out (“LIFO”) and first-in, first-out, but predominantly first-in, first-out. The value of inventory stated using the LIFO method as of December 31, 2021 and 2020 was $ 142.4 million and $ 105.1 million, respectively. The Company periodically reviews its quantities of inventories on hand and compares these amounts to the expected usage of each particular product. The Company records a charge to Cost of sales for any amounts required to reduce the carrying value of inventories to its net realizable value. Property, Plant and Equipment Property, plant and equipment, net is stated at historical cost, which includes the fair values of such assets acquired through acquisitions. Repair and maintenance expenditures are expensed as incurred unless the repair extends the useful life of the asset. The Company capitalizes surgical implant instruments that are provided free of charge to surgeons for use while implanting its surgical products and the related depreciation expense is recorded as a component of Selling, general and administrative expense. Impairment of Goodwill and Indefinite-Lived Intangible Assets Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company. Indefinite-lived intangible assets consist of certain trade names. The Company evaluates the recoverability of Goodwill and indefinite-lived intangible assets annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. The annual impairment test date elected by the Company is the first day of its fourth quarter. Goodwill and indefinite-lived intangible assets are considered to be impaired when the carrying value of a reporting unit or asset exceeds its fair value. The Company currently has two reporting units: Medical Technology and Fabrication Technology. In the evaluation of goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying value. If the Company determines that it is more likely than not for a reporting unit’s fair value to be greater than its carrying value, a calculation of the fair value is not 67 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) performed. If the Company determines that it is more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the reporting entity’s fair value is performed and compared to the carrying value of that entity. In certain instances, the Company may elect to forgo the qualitative assessment and proceed directly to the quantitative impairment test. If the carrying value of a reporting unit exceeds its fair value, goodwill of that reporting unit is impaired and an impairment loss is recorded equal to the excess of the reporting unit’s carrying value over its fair value. When a quantitative impairment test is needed, the Company measures fair value of reporting units based on a present value of future discounted cash flows and a market valuation approach. The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future. Significant estimates in the discounted cash flow models include the weighted average cost of capital, revenue growth rates, long-term rate of growth, profitability of the business, tax rates, and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison against certain market information. Significant estimates in the market approach model include identifying appropriate peer companies, market multiples and assessing earnings before interest, income taxes, depreciation and amortization. A qualitative annual impairment test of Goodwill for the Fabrication Technology reporting unit was performed for the years ended December 31, 2021 and 2019, while a quantitative assessment was performed for the year ended December 31, 2020 , all of which indicated no impairment existed. A quantitative annual impairment test of Goodwill for the Medical Technology reporting unit was performed for the years ended December 31, 2021 and 2020, while a qualitative assessment was performed for the year ended December 31, 2019 , all of which indicated no impairment existed. In the evaluation of indefinite-lived intangible assets for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. If the Company determines that it is more likely than not for the indefinite-lived intangible asset’s fair value to be greater than its carrying value, a calculation of the fair value is not performed. If the Company determines that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value, a calculation is performed and compared to the carrying value of the asset. In certain instances, the Company may elect to forgo the qualitative assessment and proceed directly to the quantitative impairment test. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company measures the fair value of its indefinite-lived intangible assets using the “relief from royalty” method. Significant estimates in this approach include projected revenues and royalty and discount rates for each trade name evaluated . Quantitative impairment tests were performed for all the indefinite-lived trade name brands in the Fabrication Technology segment for the year ended December 31, 2021 and 2020 while a combination of quantitative impairment tests and qualitative assessments were performed for the year ended December 31, 2019, all of which indicated no impairment existed. Impairment of Long-Lived Assets Other than Goodwill and Indefinite-Lived Intangible Assets Intangible assets primarily represent acquired trade names, customer relationships, acquired technology and software license agreements. A portion of the Company’s acquired customer relationships is being amortized on an accelerated basis over periods ranging from ten to thirty years based on the present value of the future cash flows expected to be generated from the acquired customers. All other intangible assets are being amortized on a straight-line basis over their estimated useful lives, generally rang ing from three to twenty years . The Company assesses its long-lived assets and finite-lived intangible assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected cash flows are less than the carrying amounts, an impairment loss equal to the difference between the carrying amount of the asset and its fair value would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. Assets held for sale are reported at the lower of the carrying amounts or fair value less cost to sell. Management determines fair value using the discounted cash flow method or other accepted valuation techniques. The Company recorded asset impairment losses related to facility closures total ing $ 1.3 million, $ 3.5 million and $ 4.2 million during the years ended December 31, 2021, 2020 and 2019, respectively, as a c omponent of Restructuring and other related charges in the Consolidated Statements of Operations. The aggregate carrying value of these assets subsequent to impairment wa s $ 8.3 million, $ 62.5 million and $ 44.6 million as of December 31, 2021, 2020 and 2019, respectively. 68 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Derivatives The Company is subject to foreign currency risk associated with the translation of the net assets of foreign subsidiaries to United States (“U.S.”) dollars on a periodic basis. On April 19, 2017, the Company issued senior unsecured notes with an aggregate principal amount of € 350 million (as defined and further discussed in Note 13, “Debt”), which has been designated as a net investment hedge in order to mitigate a portion of its foreign currency risk. Derivative instruments are generally recognized on a gross basis in the Consolidated Balance Sheets in either Other current assets, Other assets, Accrued liabilities or Other liabilities depending upon their respective fair values and maturity dates. For all instruments designated as hedges, including net investment hedges and cash flow hedges, the Company formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and the strategy for using the hedging instrument. The Company assesses whether the relationship between the hedging instrument and the hedged item is highly effective at offsetting changes in the fair value both at inception of the hedging relationship and on an ongoing basis. For cash flow hedges and net investment hedges, unrealized gains and losses are recognized as a component of Accumulated other comprehensive loss in the Consolidated Balance Sheets to the extent that it is effective at offsetting the change in the fair value of the hedged item and realized gains and losses are recognized in the Consolidated Statements of Operations consistent with the underlying hedged instrument. The Company does not enter into derivative contracts for speculative purposes. See Note 17, “Financial Instruments and Fair Value Measurements” for additional information regarding the Company’s derivative instruments. Warranty Costs Estimated expenses related to product warranties are accrued as the revenue is recognized on products sold to customers and included in Cost of sales in the Consolidated Statements of Operations. Estimates are established using historical information as to the nature, frequency, and average costs of warranty claims. The activity in the Company’s warranty liability, which is included in Accrued liabilities in the Company’s Consolidated Balance Sheets, consisted of the following: Year Ended December 31, 2021 2020 (In thousands) Warranty liability, beginning of period $ 15,543 $ 15,528 Accrued warranty expense 8,810 7,253 Changes in estimates related to pre-existing warranties 2,416 1,849 Cost of warranty service work performed ( 10,857 ) ( 9,708 ) Acquisition-related liability 1,830 300 Foreign exchange translation effect ( 285 ) 321 Warranty liability, end of period $ 17,457 $ 15,543 69 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Income Taxes Income taxes for the Company are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the Consolidated Financial Statements and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets and liabilities are reported in Other assets and Other liabilities in the Company’s Consolidated Balance Sheets, respectively. The effect on deferred income tax assets and liabilities of a change in tax rates is generally recognized in Income tax expense (benefit) in the period that includes the enactment date. Global Intangible Low-Taxed Income (“GILTI”) is accounted for as a current tax expense in the year the tax is incurred. Valuation allowances are recorded if it is more likely than not that some portion of the deferred income tax assets will not be realized. In evaluating the need for a valuation allowance, the Company considers various factors, including the expected level of future taxable income and available tax planning strategies. Any changes in judgment about the valuation allowance are recorded through Income tax expense (benefit) and are based on changes in facts and circumstances regarding realizability of deferred tax assets. The Company must presume that an income tax position taken in a tax return will be examined by the relevant tax authority and determine whether it is more likely than not that the tax position will be sustained upon examination based upon the technical merits of the position. An income tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Company establishes a liability for unrecognized income tax benefits for income tax positions for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority to the extent such tax positions reduce the Company’s income tax liability. The Company recognizes interest and penalties related to unrecognized income tax benefits in Income tax expense (benefit) in the Consolidated Statements of Operations. Foreign Currency Exchange Gains and Losses The Company’s financial statements are presented in U.S. dollars. The functional currencies of the Company’s operating subsidiaries are generally the local currencies of the countries in which each subsidiary is located. Assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the balance sheet date. The amounts recorded in each year in Foreign currency translation are net of income taxes to the extent the underlying equity balances in the entities are not deemed to be permanently reinvested. Revenues and expenses are translated at average rates of exchange in effect during the year. Transactions in foreign currencies are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated for inclusion in the Consolidated Balance Sheets are recognized in Selling, general and administrative expense or Interest expense, net in the Consolidated Statements of Operations for that period. During the year ended December 31, 2021, the Company recognized net foreign currency transaction gain of $ 0.4 million in Interest expense, net and net foreign currency transaction loss of $ 4.2 million in Selling, general and administrative expense in the Consolidated Statements of Operations. During the year ended December 31, 2020, the Company recognized net foreign currency transaction gain of $ 2.8 million in Interest expense, net and net foreign currency transaction loss o f $ 2.4 million in Selling, general and administrative expense in the Consolidated Statements of Operations. During the year ended December 31, 2019, the Company recognized net foreign currency transaction gain of $ 0.5 million i n Interest expense, net and net foreign currency transaction loss of $ 0.7 million in Selling, general and administrative expense in the Consolidated Statements of Operations. 70 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Debt Issuance Costs and Debt Discount Costs directly related to the placement of debt are capitalized and amortized to Interest expense primarily using the effective interest method over the term of the related obligation. Further, the carrying value of debt is reduced by an original issue discount, which is accreted to Interest expense, net using the effective interest method over the term of the related obligation. As of December 31, 2021, $ 5.2 million and $ 7.1 million of deferred issuance costs were included in Other assets and as a reduction of Long-term debt, respectively. As of December 31, 2020, $ 7.0 million and $ 15.6 million of deferred issuance costs were included in Other assets and as a reduction of Long-term debt, respectively. See Note 13, “Debt” for additional discussion regarding the Company’s borrowing arrangements. Use of Estimates The Company makes certain estimates and assumptions in preparing its Consolidated Financial Statements in accordance with U.S. GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses for the period presented. Actual results may differ from those estimates. Reclassifications Certain prior period amounts have been reclassified to conform to current year presentations, including certain items within Note 6, “Revenue” and Note 11, “Inventories, Net”. 71 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 3. Recently Issued Accounting Pronouncements Accounting Guidance Implemented in 2021 Standards Adopted 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 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 Consolidated Financial Statements. January 1, 2021 72 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 4. Discontinued Operations Sale of Air and Gas Handling Business As discussed previously in Note 1, “Organization and Nature of Operations,” the Company sold its Air and Gas Handling business on September 30, 2019. Accordingly, the accompanying Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as a discontinued operation. The total consideration for the sale was $ 1.8 billion, including $ 1.67 billion in cash paid at closing and the assumption of certain liabilities and minority interests by the purchaser. Based on the purchase price and the carrying value of the net assets sold, the Company recorded an impairment loss of $ 481 million in the second quarter of 2019, which is included in Loss from discontinued operations, net of taxes in the Consolidated Statements of Operations. The impairment loss included a $ 449 million goodwill impairment charge and a $ 32 million valuation allowance charge on assets held for sale relating to the initial estimated cost to sell the business. An accumulated other comprehensive loss of approximately $ 350 million associated with the Air and Gas Handling business was included in the determination of the goodwill impairment charge, which is mostly attributable to the recognition of cumulative foreign currency translation effects from the long-term strengthening of the U.S. Dollar. The Company recorded a pre-tax gain on disposal of $ 14.2 million which is included in Loss from discontinued operations, net of taxes in the Consolidated Statements of Operations. In connection with the purchase agreement, the Company entered into various agreements to provide a framework for its relationships after the disposition, including a transition services agreement. The transition services under the above agreements have been completed and were not material to the Company’s results of operations. The key components of Loss from discontinued operations, net of taxes related to the Air and Gas Handling business for the years ended December 31, 2021, 2020 and 2019 were as follows: Year Ended December 31, 2021 2020 2019 (In thousands) Net sales $ — $ — $ 998,793 Cost of sales — — 689,004 Selling, general and administrative expense — — 194,589 Restructuring and other related charges — — 13,354 Goodwill impairment charge — — 449,000 Divestiture-related expense (1) 9,121 9,040 48,640 Operating loss ( 9,121 ) ( 9,040 ) ( 395,794 ) Interest expense (2) — — 47,553 Pension settlement loss — — 43,774 Gain on disposal — — 14,233 Loss from discontinued operations before income taxes ( 9,121 ) ( 9,040 ) ( 472,888 ) Income tax (benefit) expense (3) ( 2,919 ) ( 238 ) 44,062 Loss from discontinued operations, net of taxes (4) $ ( 6,202 ) $ ( 8,802 ) $ ( 516,950 ) (1) For the year ended December 31, 2021, Divestiture-related expenses are primarily related to a settlement executed in the first quarter of 2021. For the years ended December 31, 2020 and 2019, Divestiture-related expenses are primarily related to professional, consulting, and legal fees associated with the divestiture including seller due diligence and preparation of regulatory filings, as well as other disposition-related activities. (2) During the year ended December 31, 2019, the Company reclassified the portion of its interest expense associated with the mandatory pay down of the Term Loan Facilities using net proceeds from the sale of the business. (3) Income tax expense for the year ended December 31, 2019 is largely due to nondeductible items that do not provide a tax benefit on the loss. (4) Loss from discontinued operations, net of taxes on the Statements of Operations also includes the results from retained asbestos-related contingencies attributable to the divested fluid handling business as discussed in the Asbestos Contingencies section below. 73 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Total income attributable to noncontrolling interest related to the Air and Gas Handling business, net of taxes was $ 5.9 million for the year ended December 31, 2019. This amount is presented within Income attributable to noncontrolling interest, net of taxes on the Consolidated Statements of Operations. Cash used in operating activities related to the discontinued operations of the divested Air and Gas Handling business for the years ended December 31, 2021, 2020 and 2019 was $ 9.1 million, $ 9.4 million and $ 18.1 million, respectively. Cash used in investing activities related to the discontinued operations of the divested Air and Gas Handling business was $ 27.5 million for the year ended December 31, 2019. Asbestos Contingencies As a result of previous divestitures, the Company retained certain asbestos-related contingencies and insurance coverages. Loss from discontinued operations, net of taxes on the Statements of Operations for the years ended December 31, 2021, 2020 and 2019 includes a loss from retained asbestos-related contingencies of $ 16.2 million, $ 9.5 million, and $ 19.0 million, respectively. Net cash inflows related to asbestos claims of divested businesses were $ 0.3 million for the year ended December 31, 2021. Net cash outflows were $ 2.2 million and $ 3.2 million for the years ended December 31, 2020 and 2019, respectively. See Note 18, “Commitments and Contingencies” for further information. 5. Acquisitions 2021 Acquisitions The Company completed one acquisition in its Fabrication Technology segment and five acquisitions in its Medical Technology segment in 2021, for net cash consideration of $ 206.5 million and equity consideration of $ 285.7 million. The acquisitions are accounted for under the acquisition method of accounting, and accordingly, the Consolidated Financial Statements include the financial position and results of operations from the respective acquisition date. The Consolidated Balance Sheet as of December 31, 2021 reflects our estimates of fair value and are subject to adjustment for certain of the acquisitions as discussed below. The estimated proforma annual revenues of the acquisitions in the year ended December 31, 2021 are approximately 5 % of Colfax consolidated revenues. The Company also made three investments during the year ended December 31, 2021 for a total of $ 16.8 million. These investments are carried at cost as they do not have a readily determinable fair value. On January 19, 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. On April 23, 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. The acquisition further expands the Company’s foot and ankle platform. These two acquisitions were completed for total consideration, net of cash received, of $ 204.1 million, subject to certain adjustments. Net working capital and intangible assets acquired represent 7.3 % and 36.5 % of the total consideration exchanged for these two acquisitions, respectively, with the residual amount primarily attributable to Goodwill. The Goodwill acquired in the Trilliant acquisition of $ 30 million is deductible for income tax purposes. Expected synergies between Trilliant, MedShape, and DJO through this portfolio of foot and ankle products and cross-selling to existing and acquired customers are primary drivers of the acquired Goodwill. The estimated pro-forma revenues of the Trilliant and MedShape acquisitions are approximately 1 % of Colfax’s consolidated revenues. The purchase accounting related to the Trilliant and MedShape acquisitions has been completed. On July 28, 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 estimate of the aggregate fair value of assets acquired and liabilities assumed at the date of the Mathys acquisition. These amounts, including inventories, deferred taxes, intangibles assets, useful lives of the intangible assets and property, plant and equipment, are determined based upon certain valuations and studies that 74 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) have yet to be finalized. Accordingly, the assets acquired and liabilities assumed, as detailed below, are subject to adjustment once the detailed analysis are completed, which could be material. None of the Goodwill recognized is expected to be deductible for income tax purposes. Goodwill recognized for the Mathys acquisition is primarily attributable to synergies from cross-selling DJO products with the acquired customers and cost savings through supply chain management. July 28, 2021 (In thousands) Trade receivables $ 19,578 Inventories 81,012 Property, plant and equipment 62,925 Other assets 16,822 Goodwill 82,605 Intangible assets 106,000 Accounts payable ( 4,808 ) Accrued and other current liabilities ( 33,254 ) Non-current deferred tax liabilities ( 30,022 ) Non-current pension liabilities ( 25,536 ) Other liabilities ( 4,327 ) Consideration, net of cash acquired $ 270,995 The following table summarizes Intangible assets acquired, excluding Goodwill, as of July 28, 2021: Intangible Amortization Asset Period (In thousands) (Years) Acquired technology $ 54,000 12 Customer relationships 34,000 16 Trademarks 18,000 20 Intangible assets $ 106,000 2020 Acquisitions Our Medical Technology segment completed five acquisitions in 2020 for total consideration, net of cash received, of $ 67.5 million. Total Goodwill acquired through the acquisitions was $ 21.4 million, of which $ 15.9 million is expected to be deductible for income tax purposes. Acquisitions in our Medical Technology segment included LiteCure LLC (“LiteCure”), a U.S. leader in high-powered laser rehabilitation products for human and veterinary medical applications. The acquisition was completed in the fourth quarter of 2020 for net cash consideration of $ 39.6 million. Net working capital and intangible assets acquired represent 10 % and 69 % of the total consideration paid, respectively, with the residual amount primarily attributable to Goodwill. DJO Acquisition in 2019 The Medical Technology segment platform at Colfax was established on February 22, 2019 when Colfax completed the acquisition of DJO. The Company paid an aggregate net purchase price of $ 3.15 billion. The Company incurred $ 2.8 million and $ 60.8 million of advisory, legal, audit, valuation and other professional service fees in connection with the DJO acquisition in the years ended December 31, 2020 and 2019, respectively which are included in Selling, general and administrative expense in the Consolidated Statements of Operations. During the first quarter of 2020, as part of the fair value adjustments to the assets and liabilities acquired, the Company increased the valuation allowance on U.S. deferred taxes, presented net within Other 75 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) liabilities, by $ 51.4 million as of the acquisition date, with a corresponding increase to Goodwill. The accounting related to the DJO acquisition was finalized as of the end of the first quarter of 2020. The following unaudited proforma financial information presents Colfax’s consolidated financial information for the years ended December 31, 2020 and 2019 assuming the acquisition had taken place on January 1, 2019. These amounts are presented in accordance with U.S. GAAP, consistent with the Company’s accounting policies. Year Ended December 31, 2020 2019 (In thousands) Net sales $ 3,070,769 $ 3,496,624 Net income from continuing operations attributable to Colfax Corporation 68,039 105,491 For the years ended December 31, 2021, 2020, and 2019, Net sales associated with acquisitions consummated during each period were $ 96.0 million, $ 7.1 million, and $ 1,080.4 million, respectively. 2021 Net loss attributable to current year acquisitions was $ 17.7 million, which includes $ 18.6 million amortization expense for inventory fair value adjustments and acquired intangible assets. Net Income attributable to Colfax Corporation common shareholders associated with acquisitions consummated during the year ended December 31, 2020 was not material. Net Income attributable to Colfax Corporation common shareholders associated with the DJO acquisition consummated during the year ended December 31, 2019 was $ 57.3 million. 6. Revenue The Company’s Fabrication Technology segment develops, manufactures and supplies consumable welding and cutting products and equipment as well as gas control equipment. The segment provides a wide range of products with innovative technologies to solve challenges in a range of industries, including cutting, joining and automated welding. Substantially all revenue from the Fabrication Technology business is recognized at a point in time. The Company further disaggregates its Fabrication Technology revenue into the following product groups: Year Ended December 31, 2021 2020 2019 (In thousands) Equipment $ 758,267 $ 607,504 $ 703,024 Consumables 1,669,848 1,342,565 1,544,002 Total $ 2,428,115 $ 1,950,069 $ 2,247,026 The consumables product grouping generally has less production complexity and shorter production cycles than equipment products. The Company’s Medical Technology segment provides orthopedic solutions, including products and services spanning the full 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: 76 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2021 2020 (2) 2019 (1)(2) (In thousands) Prevention & Recovery $ 1,026,029 $ 863,150 $ 845,890 Reconstructive 400,159 257,550 234,542 Total $ 1,426,188 $ 1,120,700 $ 1,080,432 (1) For the year ended December 31, 2019, the Medical Technology segment includes results from the acquisition date of February 22, 2019. (2) For the years 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 December 31, 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, 2021, 2020 and 2019, total contract liabilities were $ 31.5 million, $ 36.6 million and $ 14.8 million, respectively. Contract liabilities are included in Accrued liabilities on the Company’s Consolidated Balance Sheets. During the years ended December 31, 2021 and 2020, revenue recognized that was included in the contract liability balance at the beginning of the year was $ 29.3 million and $ 14.8 million, respectively. The contract liabilities as of December 31, 2021 and December 31, 2020 included $ 4.9 million and $ 11.8 million, respectively, of certain one-time advance payments in the Medical Technology business. Allowance for Credit Losses The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1, 2020. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type. The Company leveraged 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. 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 Consolidated Balance Sheets is as follows: Year Ended December 31, 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 $ 2,546 $ ( 6,680 ) $ ( 1,031 ) $ 32,501 77 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 7. Net Income Per Share from Continuing Operations Net income per share from continuing operations was computed as follows: Year Ended December 31, 2021 2020 2019 (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) $ 94,072 $ 60,936 $ 14,245 Weighted-average shares of Common stock outstanding – basic 153,423,632 136,766,124 135,716,944 Net income per share from continuing operations – basic $ 0.61 $ 0.45 $ 0.10 Computation of Net income per share from continuing operations - diluted: Net income from continuing operations attributable to Colfax Corporation (1) $ 94,072 $ 60,936 $ 14,245 Weighted-average shares of Common stock outstanding – basic 153,423,632 136,766,124 135,716,944 Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units 2,118,509 2,144,304 949,942 Weighted-average shares of Common stock outstanding – diluted 155,542,141 138,910,428 136,666,886 Net income per share from continuing operations – diluted $ 0.60 $ 0.44 $ 0.10 (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 $ 4.6 million, $ 3.1 million, and $ 4.6 million for the years ended December 31, 2021, 2020 and 2019, 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 year ended December 31, 2021, conversions of the Company’s tangible equity units resulted in the issuance of approximately 13.3 million shares of Colfax common stock. All issuances of Colfax common stock related to the tangible equity units were converted at the minimum settlement rate of 4.0000 shares of common stock for each purchase contract as a result of the Company’s share price. For the year ended December 31, 2020, the weighted-average shares of Common stock outstanding - diluted includes the impact of an additional 0.9 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 14, “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 years ended December 31, 2021, 2020 and 2019 excludes 0.8 million, 4.2 million and 4.3 million outstanding stock-based compensation awards, respectively, as their inclusion would be anti-dilutive. 78 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 8. Income Taxes Income from continuing operations before income taxes and Income tax expense (benefit) consisted of the following: Year Ended December 31, 2021 2020 2019 (In thousands) Income from continuing operations before income taxes: Domestic operations $ ( 136,718 ) $ ( 156,675 ) $ ( 129,182 ) Foreign operations 302,106 214,704 179,675 $ 165,388 $ 58,029 $ 50,493 Income tax expense (benefit): Current: Federal $ 5,714 $ ( 39,376 ) $ 811 State 4,330 1,454 6,712 Foreign 81,509 56,076 56,477 $ 91,553 $ 18,154 $ 64,000 Deferred: Domestic operations $ ( 13,894 ) $ 3,641 $ ( 24,151 ) Foreign operations ( 10,964 ) ( 27,848 ) ( 8,219 ) ( 24,858 ) ( 24,207 ) ( 32,370 ) $ 66,695 $ ( 6,053 ) $ 31,630 See Note 4, “Discontinued Operations” for the loss from discontinued operations and related income taxes. On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code which included how the U.S. imposes income tax on multinational corporations. In 2020 the Company timely filed changes to U.S. federal tax returns to credit rather than to deduct foreign taxes and reduced its transition tax by $ 6.8 million. 79 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company’s Income tax expense (benefit) from continuing operations differs from the amount that would be computed by applying the U.S. federal statutory rate as follows: Year Ended December 31, 2021 2020 2019 (In thousands) Taxes calculated at the U.S. federal statutory rate $ 34,732 $ 12,186 $ 10,677 State taxes 1,720 ( 2,196 ) ( 5,358 ) Effect of tax rates on international operations ( 6,113 ) ( 18,577 ) ( 14,115 ) Change in enacted international tax rates ( 12,104 ) ( 1,023 ) ( 2,843 ) Changes in valuation allowance ( 25,461 ) ( 24,149 ) 11,196 Changes in tax reserves 331 1,394 1,119 Tax Act - mandatory repatriation taxes — ( 6,766 ) — Research and development tax credits — ( 1,649 ) ( 4,029 ) Foreign tax credits ( 15,265 ) ( 12,197 ) ( 15,299 ) Net items not deductible in an international jurisdiction 12,870 5,365 10,060 SubPart F and GILTI 50,522 27,797 29,407 U.S. Deal Costs and other non-deductibles 459 38 5,556 Withholding taxes 11,129 8,570 4,545 Non-deductible employee compensation 3,016 6,619 714 Capital gains 12,052 — — Other ( 1,193 ) ( 1,465 ) — Income tax expense (benefit) $ 66,695 $ ( 6,053 ) $ 31,630 The valuation allowance benefit reflected above is predominately the utilization of net operating losses in the current period. Certain movements of valuation allowance, particularly related to repatriation taxes, foreign tax credits, SubPart F and GILTI, and withholding taxes have been aggregated with that particular line item within the rate reconciliation. Deferred income taxes, net reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The significant components of deferred tax assets and liabilities included in continuing operations, in addition to the reconciliation of the beginning and ending amount of gross unrecognized tax benefits, are as follows: 80 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2021 2020 (In thousands) Deferred tax assets: Post-retirement benefit obligation $ 5,418 $ 11,617 Expenses currently not deductible 170,939 147,636 Net operating loss carryforward 286,047 308,965 Tax credit carryforward 32,803 33,674 Depreciation and amortization 15,503 6,433 Inventory 3,061 — Other 73,040 42,881 Valuation allowance ( 193,532 ) ( 203,341 ) Deferred tax assets, net $ 393,279 $ 347,865 Deferred tax liabilities: Depreciation and amortization $ ( 402,899 ) $ ( 403,704 ) Inventory — ( 1,559 ) Outside basis differences and other ( 119,452 ) ( 78,012 ) Total deferred tax liabilities $ ( 522,351 ) $ ( 483,275 ) Total deferred tax liabilities, net $ ( 129,072 ) $ ( 135,410 ) The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a more lik ely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded. During the year ended December 31, 2021, the valuation allowance decreased from $ 203.3 million to $ 193.5 million with a net decrease of $ 10.3 million recognized in Income tax expense (benefit), $ 1.3 million increase attributed to acquisitions, and a $ 0.8 million decrease related to changes in foreign currency rates. Consideration was given to tax planning strategies and, when applicable, future taxable income as to how much of the relevant deferred tax asset could be realized on a more likely than not basis. The Company has U.S. net operating loss carryforwards of $ 462.7 million expiring in years 2022 through 2037 and $ 102.2 million that may be carried forward indefinitely. The Company’s ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions. As of December 31, 2021, the Company also has $ 528.1 million foreign net operating loss carryforwards primarily in Brazil, Germany, Sweden, and the United Kingdom that may be subject to local tax limitations including changes in ownership. The foreign net operating losses can be carried forward indefinitely, except in applicable jurisdictions that make up less than five percent of the available net operating losses. The Company has U.S. foreign tax and R&D tax credits that may be used to offset U.S. tax in previous or future tax periods subject to Section 382 and other federal provisions. The Company’s $ 22.5 million foreign tax credit can be carried back one year and can be carried forward to tax years through 2026-2030. The Company’s $ 16.6 million R&D credit can be carried back one year and can be carried forward to tax years through 2022-2041. For the year ended December 31, 2021, all undistributed earnings of the Company’s foreign subsidiaries, which are indefinitely reinvested outside the U.S., were provisionally estimated to be $ 189.2 million. The Company has assessed a total deferred tax liability of $ 0.2 million as of December 31, 2021 on such earnings that have not been indefinitely reinvested. This is a decrease of $ 1.7 million as compared to the deferred tax liability as of December 31, 2020. 81 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company records a liability for unrecognized income tax benefits for the amount of benefit included in its previously filed income tax returns and in its financial results expected to be included in income tax returns to be filed for periods through the date of its Consolidated Financial Statements for income tax positions for which it is not more likely than not to be sustained upon examination by the respective taxing authority. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (inclusive of associated interest and penalties): (In thousands) Balance, January 1, 2019 $ 37,621 Acquisitions and divestitures 18,248 Addition for tax positions taken in prior periods 1,441 Addition for tax positions taken in the current period 2,054 Reductions related to settlements with taxing authorities ( 118 ) Reductions resulting from a lapse of applicable statute of limitations ( 3,643 ) Other, including the impact of foreign currency translation and U.S. tax rate changes ( 123 ) Balance, December 31, 2019 55,480 Addition for tax positions taken in prior periods 5,911 Addition for tax positions taken in the current period 1,980 Reductions related to settlements with taxing authorities — Reductions resulting from a lapse of applicable statute of limitations ( 5,689 ) Other, including the impact of foreign currency translation and U.S. tax rate changes 332 Balance, December 31, 2020 58,014 Acquisitions and divestitures 4,450 Addition for tax positions taken in prior periods 228 Addition for tax positions taken in the current period 3,653 Reductions related to settlements with taxing authorities ( 425 ) Reductions resulting from a lapse of applicable statute of limitations ( 3,239 ) Other, including the impact of foreign currency translation and U.S. tax rate changes ( 734 ) Balance, December 31, 2021 $ 61,947 The Company is routinely examined by tax authorities around the world. Tax examinations remain in process in multiple countries, including but not limited to Brazil, Germany, Italy, Indonesia, Sweden, Switzerland, the United States and various U.S. states. The Company files numerous group and separate tax returns in U.S. federal and state jurisdictions, as well as international jurisdictions. In the U.S., tax years dating back to 2009 remain subject to examination, due to tax attributes available to be carried forward to open or future tax years. With some exceptions, other major tax jurisdictions generally are not subject to tax examinations for years beginning before 2015. The Company’s total unrecognized tax benefits were $ 61.9 million and $ 58.0 million as of December 31, 2021 and 2020, respectively, inclusive of $ 7.5 million and $ 6.9 million, respectively, of interest and penalties. The Company records interest and penalties on uncertain tax positions as a component of Income tax expense (benefit), which was $ 0.6 million, $ 0.7 million and $ 1.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Due to the difficulty in predicting with reasonable certainty when tax audits will be fully resolved and closed, the range of reasonably possible significant increases or decreases in the liability for unrecognized tax benefits that may occur within the next 12 months is difficult to ascertain. Currently, the Company estimates that it is reasonably possible that the expiration of various statutes of limitations, resolution of tax audits and court decisions may reduce its tax expense in the next 12 months up to $ 3.7 million. 82 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 9. Goodwill and Intangible Assets The following table summarizes the activity in Goodwill, by segment during the years ended December 31, 2021 and 2020: Medical Technology Fabrication Technology Total (In thousands) Balance, January 1, 2020 $ 1,672,921 $ 1,529,596 $ 3,202,517 Goodwill attributable to acquisitions (1) 72,815 — 72,815 Impact of foreign currency translation 15,574 23,635 39,209 Balance, December 31, 2020 1,761,310 1,553,231 3,314,541 Goodwill attributable to acquisitions (1) 190,081 4,159 194,240 Impact of foreign currency translation ( 17,089 ) ( 24,397 ) ( 41,486 ) Balance, December 31, 2021 $ 1,934,302 $ 1,532,993 $ 3,467,295 (1) Includes purchase accounting adjustments associated with acquisitions discussed in Note 5, “Acquisitions”. See Note 4, “Discontinued Operations” for discussion of the impairment on the Air and Gas Handling business recorded in 2019 as part of the divestiture, which is presented within Loss from discontinued operations, net of taxes on the Consolidated Statements of Operations. The following table summarizes the Company’s Intangible assets, excluding Goodwill: December 31, 2021 2020 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization (In thousands) Indefinite-Lived Intangible Assets Trade names $ 199,484 $ — $ 212,048 $ — Definite-Lived Intangible Assets Acquired customer relationships 981,373 ( 343,995 ) 952,007 ( 266,347 ) Acquired technology 575,728 ( 140,597 ) 455,738 ( 99,748 ) Acquired trade names 421,636 ( 62,686 ) 404,076 ( 41,960 ) Software 140,933 ( 101,339 ) 129,852 ( 90,196 ) Other intangible assets 24,499 ( 19,574 ) 24,511 ( 16,535 ) $ 2,343,653 $ ( 668,191 ) $ 2,178,232 $ ( 514,786 ) Amortization expense related to intangible assets of $ 167.7 million, $ 158.4 million, and $ 135.8 million are included in the Selling, general, and administrative expense in the Consolidated Statements of Operations for the years ended December 31, 2021, 2020, and 2019, respectively. See Note 2, “Summary of Significant Accounting Policies” for discussion regarding impairment of Intangible assets. 83 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Expected Amortization Expense The Company’s expected annual amortization expense for intangible assets for the next five years is as follows: December 31, 2021 (In thousands) 2022 $ 167,082 2023 161,281 2024 154,543 2025 153,027 2026 137,803 10. Property, Plant and Equipment, Net December 31, Depreciable Life 2021 2020 (In years) (In thousands) Land n/a $ 22,104 $ 23,821 Buildings and improvements 5 - 40 206,004 205,397 Machinery and equipment 3 - 15 687,415 570,411 915,523 799,629 Accumulated depreciation ( 394,132 ) ( 312,669 ) $ 521,391 $ 486,960 Depreciation expense for the years ended December 31, 2021, 2020 and 2019, was $ 93.7 million, $ 85.5 million and $ 76.1 million, respectively. Impairment of fixed assets recorded for the years ended December 31, 2021, 2020 and 2019 wa s $ 1.5 million, $ 2.1 million and $ 0.5 million, respectively. 11. Inventories, Net Inventories, net consisted of the following: December 31, 2021 2020 (1) (In thousands) Raw materials $ 215,200 $ 165,482 Work in process 69,101 40,517 Finished goods 567,281 412,817 851,582 618,816 LIFO reserve 1,129 13,851 Less: allowance for excess, slow-moving and obsolete inventory ( 76,416 ) ( 67,845 ) $ 776,295 $ 564,822 (1) Certain immaterial classification adjustments were made to enhance conformity with the current year presentation. The valuation of LIFO inventories is made at the end of the year based on inventory levels and costs at that time. At December 31, 2021 and 2020, approximately 18.3 % and 18.6 % of total inventories, respectively, were valued using the LIFO method. 84 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 12. Leases The Company leases certain office spaces, warehouses, facilities, vehicles, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include renewal options, which can extend the lease term into the future. The Company determines the lease term by assuming options that are reasonably certain of being renewed will be exercised. Certain of the Company’s leases include rental payments adjusted for inflation. The right-of-use lease asset and lease liability are recorded on the Consolidated Balance Sheet, with the current lease liability being included in Accrued liabilities. December 31, 2021 (In thousands) Future lease payments by year: 2022 $ 45,720 2023 38,633 2024 26,758 2025 18,831 2026 16,489 Thereafter 67,904 Total 214,335 Less: present value discount ( 26,606 ) Present value of lease liabilities $ 187,729 Weighted-average remaining lease term (in years): Operating leases 8.3 Weighted-average discount rate: Operating leases 3.6 % The Company’s operating leases extend for varying periods and, in some cases, contain renewal options that would extend the existing terms. During the years ended December 31, 2021, 2020 and 2019, the Company’s net rental expense related to operating leases was $ 43.9 million, $ 38.0 million and $ 34.3 million, respectively. 13. Debt Long-term debt consisted of the following: December 31, 2021 2020 (In thousands) Term loan $ 782,435 $ 781,557 Euro senior notes 395,552 425,045 TEU amortizing notes 6,501 31,251 2024 and 2026 notes 297,906 991,319 Revolving credit facilities and other 604,599 2,071 Total debt 2,086,993 2,231,243 Less: current portion ( 8,314 ) ( 27,074 ) Long-term debt $ 2,078,679 $ 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 85 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) “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 4.25 :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 quarter 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 Amendment to the Credit Facility) which requires the obligations under the Amendment to 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 Facilities and the Revolver. As of December 31, 2021, the Company was in compliance with the covenants under the Credit Facility. As of December 31, 2021, the weighted-average interest rate of borrowings under the Credit Facility was 1.59 %, excluding accretion of original issue discount and deferred financing fees, and there was $ 375 million undrawn capacity available on the Revolver. The Company has $ 7.8 million in deferred financing fees recorded in conjunction with the Credit Facility as of December 31, 2021, which is being accreted to Interest expense, net primarily using the effective interest method over the life of the facility. 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. Tangible Equity Unit (“TEU”) Amortizing Notes On January 11, 2019, the Company issued $ 460 million in TEUs with a 5.75 % interest rate, comprised of 4.6 million units at the stated amount of $ 100 per unit. Total cash of $ 447.7 million was received upon closing, comprised of $ 377.8 million TEU prepaid stock purchase contracts and $ 69.9 million of TEU amortizing notes due January 2022. The proceeds were used to finance a portion of the purchase price for the DJO acquisition and for general corporate purposes. Refer to Note 14, “Equity” for additional information on the TEU prepaid stock purchase contracts. Each TEU amortizing note had an initial principal amount of $ 15.6099 , bearing interest at a rate of 6.50 % per annum, and had 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 constituted a payment of interest and a partial repayment of principal. The company paid $ 25.0 million, $ 23.4 million , and $ 16.9 million of principal on the TEU amortizing notes in the years ended December 31, 2021, 2020, and 2019, respectively. Subsequent to December 31, 2021, all of the remaining TEU prepaid stock purchase contracts were converted to shares of common stock and the final quarterly cash installment on the TEU Amortizing Notes was paid. 2024 Notes and 2026 Notes On February 5, 2019, two tranches of senior notes with aggregate principal amounts of $ 600 million (the “2024 Notes”) and $ 400 million (the “2026 Notes”) were issued to finance a portion of the purchase price for the DJO acquisition. The 2024 Notes were due on February 15, 2024 and had an interest rate of 6.0 %. The 2026 Notes are due on February 15, 2026 and have an interest rate of 6.375 %. The 2026 Notes are guaranteed by certain domestic subsidiaries of the Company. 86 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On April 24, 2021, the Company used the proceeds from its March 2021 equity offering to redeem all $ 600 million outstanding principal of its 2024 Notes and $ 100 million of the outstanding principal of its 2026 Notes for $ 724.4 million. The 2024 Notes were redeemed at a redemption price of 103.000 % of their principal amount and the 2026 Notes were redeemed at a redemption price of 106.375 % of their principal amount, plus, in each case, accrued and unpaid interest through the date of redemption. In the second quarter of 2021, a net loss on the early extinguishment of debt of $ 29.9 million was recorded and included $ 24.4 million of call premium on the retired debt. 87 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Other Indebtedness In addition to the d ebt agreements discussed above, the Company is party to various bilateral credit facilities with a borrowing capacity of $ 169.0 million. As of December 31, 2021, there were no outstanding borrowings under these facilities. The Company is party to letter of credit facilities with an aggregate capacity of $ 277.3 million. Total letters of credit of $ 36.0 million were outstanding as of December 31, 2021. Deferred Financing Fees In total, the Company had deferred financing fe es of $ 12.3 million i ncluded in its Consolidated Balance Sheet as of December 31, 2021, which will be charged to Interest expense, net, primarily using the effective interest method, over the life of the applicable debt agreements. Contractual Maturities The contractual maturities of the Company’s debt are as follows: December 31, 2021 (In thousands) 2022 $ 8,314 2023 2,792 2024 1,385,000 2025 398,016 2026 300,000 Thereafter — Total contractual maturities 2,094,122 Debt discount ( 7,129 ) Total debt $ 2,086,993 88 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 14. 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 On February 12, 2018, the Company’s Board of Directors authorized the repurchase of up to $ 100 million of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. The Board of Directors increased the repurchase authorization by an additional $ 100 million on June 6, 2018. On July 19, 2018, the Board of Directors increased the repurchase authorization by another $ 100 million. The timing, amount and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors. During the year ended December 31, 2018, the Company repurchased 6,449,425 shares of our Common stock in open market transactions for $ 200 million. Since 2018, there have been no repurchases made under this program. As of December 31, 2021, the remaining stock repurchase authorization by the Company’s Board of Directors was $ 100 million. There is no term associated with the remaining repurchase authorization. Accumulated Other Comprehensive Loss The following table presents the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the years ended December 31, 2021, 2020 and 2019. All amounts are net of tax and noncontrolling interest, if any. 89 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Accumulated Other Comprehensive Loss Components Net Unrecognized Pension And Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Unrealized Gain (Loss) On Hedging Activities Total (In thousands) Balance at January 1, 2019 $ ( 71,494 ) $ ( 752,989 ) $ 44,306 $ ( 780,177 ) Other comprehensive income (loss) before reclassifications: Net actuarial loss ( 27,931 ) — — ( 27,931 ) Foreign currency translation adjustment ( 404 ) ( 78,468 ) ( 65 ) ( 78,937 ) Divestiture-related AOCI write-off — 400,143 — 400,143 Gain on long-term intra-entity foreign currency transactions — 29,385 — 29,385 Gain on net investment hedges — — 6,215 6,215 Unrealized gain on cash flow hedges — — 156 156 Other comprehensive income (loss) before reclassifications ( 28,335 ) 351,060 6,306 329,031 Amounts reclassified from Accumulated other comprehensive loss (1) 2,629 — — 2,629 Net Other comprehensive income (loss) ( 25,706 ) 351,060 6,306 331,660 Noncontrolling interest share repurchase — ( 19,960 ) — ( 19,960 ) Cumulative effect of accounting change ( 9,300 ) — ( 6,068 ) ( 15,368 ) Balance at December 31, 2019 ( 106,500 ) ( 421,889 ) 44,544 ( 483,845 ) Other comprehensive income (loss) before reclassifications: Net actuarial loss ( 8,169 ) — — ( 8,169 ) Foreign currency translation adjustment ( 1,849 ) 57,623 3,378 59,152 Gain on long-term intra-entity foreign currency transactions — 3,289 — 3,289 Loss on net investment hedges — — ( 26,268 ) ( 26,268 ) Other comprehensive income (loss) before reclassifications ( 10,018 ) 60,912 ( 22,890 ) 28,004 Amounts reclassified from Accumulated other comprehensive loss (1) 3,735 — — 3,735 Net Other comprehensive income (loss) ( 6,283 ) 60,912 ( 22,890 ) 31,739 Balance at December 31, 2020 ( 112,783 ) ( 360,977 ) 21,654 ( 452,106 ) Other comprehensive income (loss) before reclassifications: Net actuarial gain 20,866 — — 20,866 Foreign currency translation adjustment 1,339 ( 146,409 ) ( 230 ) ( 145,300 ) Gain on long-term intra-entity foreign currency transactions — 32,261 — 32,261 Gain on net investment hedges — — 23,247 23,247 Other comprehensive income (loss) before reclassifications: 22,205 ( 114,148 ) 23,017 ( 68,926 ) Amounts reclassified from Accumulated other comprehensive loss (1) 5,019 — — 5,019 Net Other comprehensive income (loss) 27,224 ( 114,148 ) 23,017 ( 63,907 ) Balance at December 31, 2021 $ ( 85,559 ) $ ( 475,125 ) $ 44,671 $ ( 516,013 ) (1) Included in the computation of net periodic benefit cost. See Note 16, “Defined Benefit Plans” for additional details. 90 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) During the years ended December 31, 2021, 2020 and 2019, Noncontrolling interest decreased by $ 1.3 million, $ 2.6 million, and $ 107.6 million, respectively, as a result of Other comprehensive income, primarily due to the Howden sale and foreign currency translation adjustment. Share-Based Payments On May 21, 2020, the shareholders of the Company approved the Colfax Corporation 2020 Omnibus Incentive Plan (the “2020 Plan”) which replaced the Colfax Corporation 2016 Omnibus Incentive Plan dated May 13, 2016 (the “2016 Plan”). Upon the approval of the 2020 Plan, no additional ordinary shares were to be granted under the previously approved plans. All awards previously granted and outstanding under the prior plans remain subject to the terms of those prior plans. The 2020 Plan provides the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) discretion in creating employee equity incentives. Awards under the 2020 Plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based stock, performance-based stock units, dividend equivalents, and other stock-based awards. The Company measures and recognizes compensation expense related to share-based payments based on the fair value of the instruments issued, net of an estimated forfeiture rate. Stock-based compensation expense is generally recognized as a component of Selling, general and administrative expense in the Consolidated Statements of Operations, as payroll costs of the employees receiving the awards are recorded in the same line item. The Company’s Consolidated Statements of Operations reflect the following amounts related to stock-based compensation: Year Ended December 31, 2021 2020 2019 (In thousands) Stock-based compensation expense $ 35,350 $ 28,911 $ 21,960 Deferred tax benefit 2,658 1,804 1,280 As of December 31, 2021, the Company had $ 45.7 million of unrecognized compensation expense related to stock-based awards that will be recognized over a weighted-average period of 0.9 years. The intrinsic value of awards exercised or issued upon vesting was $ 48.6 million, $ 11.5 million, and $ 11.2 million during the years ended December 31, 2021, 2020 and 2019, respectively. Stock Options Under the 2020 Plan, the Company may grant options to purchase Common stock, with a maximum term of 10 years at a purchase price equal to the market value of the Company’s Common stock on the date of grant. Stock-based compensation expense for stock option awards is based upon the grant-date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the entire award. The following table shows the weighted-average assumptions used to calculate the fair value of stock option awards using the Black-Scholes option pricing model, as well as the weighted-average fair value of options granted: Year Ended December 31, 2021 2020 2019 Expected period that options will be outstanding (in years) 4.50 4.62 4.56 Interest rate (based on U.S. Treasury yields at the time of grant) 0.61 % 1.09 % 2.46 % Volatility 43.10 % 37.76 % 34.51 % Dividend yield — — — Weighted-average fair value of options granted $ 16.25 $ 11.81 $ 8.80 During the years ended December 31, 2021, 2020 and 2019, expected volatility was estimated based on the historical volatility of the Company’s stock price. The Company considers historical data to estimate employee termination within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for 91 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) valuation purposes. The Company has elected to estimate the expected life of an award based upon the Securities and Exchange Commission-approved “simplified method” noted under the provisions of Staff Accounting Bulletin No. 107 with the continued use of this method extended under the provisions of Staff Accounting Bulletin No. 110. Stock option activity is as follows: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (In years) Aggregate Intrinsic Value (1 (In thousands) Outstanding at January 1, 2021 4,599,067 $ 33.92 Granted 563,394 44.96 Exercised ( 1,211,875 ) 28.78 Forfeited and expired ( 289,940 ) 57.24 Outstanding at December 31, 2021 3,660,646 35.47 3.47 $ 38,420 Vested or expected to vest at December 31, 2021 3,620,213 35.41 3.44 $ 38,246 Exercisable at December 31, 2021 2,456,142 34.42 2.57 $ 28,361 (1) The aggregate intrinsic value is based upon the difference between the Company’s closing stock price at the date of the Consolidated Balance Sheet and the exercise price of the stock option for in-the-money stock options. The intrinsic value of outstanding stock options fluctuates based upon the trading value of the Company’s Common stock. The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 21.4 million, $ 1.1 million and $ 2.0 million, respectively. The fair value of options vested during the years ended December 31, 2021, 2020 and 2019 was $ 9.0 million, $ 11.9 million and $ 10.9 million, respectively. Restricted Stock Units Under the 2020 Plan, the Compensation Committee may award performance-based restricted stock units (“PRSUs”), the vesting of which is contingent upon meeting service conditions and various performance goals. During the years ended December 31, 2021, 2020 and 2019 , the Company granted certain employees PRSUs, the vesting of which is fully based on the Company’s total shareholder return (“TSR”) ranking among a peer group over a three-yea r performance period. The awards also have a service requirement that equals the respective performance periods. During the year ended December 31, 2018, PRSUs were awarded under the 2016 Plan based upon two discrete measures: a profit performance metric and relative TSR. The profit performance metric, which accounts for 50 % of the PRSU award upon issuance, is measured upon the completion of a three-year performance period ending December 31, 2020. The remaining 50 % of the PRSU award is tied exclusively to relative TSR performance, which will be measured against the three-year TSR of a custom index of companies. TSR relative to peers is considered a market condition under applicable authoritative guidance, while the profit performance metric is considered a performance condition. In the first quarter of 2021, it was determined that 200 % of the profit performance metric was achieved and 78 % of the relative TSR metric was achieved in accordance with the applicable criteria established by the Compensation Committee. PRSUs with TSR conditions are valued at grant date using a binomial-lattice model (i.e., Monte Carlo simulation model), while PRSUs with a company-specific profit performance metric are valued at the market value of a share of Common stock on the date of grant taking into consideration the probability of achieving the specified performance goal. The Company estimates the ultimate payout of PRSUs with a profit performance metric and adjusts the cumulative expense based on its estimate and the percent of the requisite service period that has elapsed. PRSUs with TSR conditions are recognized on a straight-line basis over the performance periods regardless of the performance condition achievement because the probability is factored into the valuation of the award. The related compensation expense for each of the awards is recognized, on a straight-line basis, over the vesting period. Under the 2020 Plan, the Compensation Committee may also award non-performance-based restricted stock units (“RSUs”) to select executives, employees and outside directors, which typically vest three years after the date of grant. With limited exceptions, the employee must remain in service until the vesting date. The Compensation Committee determines the 92 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) terms and conditions of each award, incl uding the restriction period and other criteria applicable to the awards. Directors may also elect to defer their annual board fees into RSUs with immediate vesting. Delivery of the shares underlying these director restricted stock units is deferred until termination of the director’s service on the Company’s Board of Directors. The activity in the Company’s PRSUs and RSUs is as follows: PRSUs RSUs Number of Units Weighted- Average Grant-Date Fair Value Number of Units Weighted- Average Grant-Date Fair Value Nonvested at January 1, 2021 731,401 $ 35.12 827,512 $ 32.52 Granted 248,747 45.79 789,649 46.26 Vested ( 193,784 ) 31.03 ( 426,099 ) 30.89 Forfeited and expired ( 164,036 ) 28.41 ( 94,941 ) 39.16 Nonvested at December 31, 2021 622,328 42.43 1,096,121 42.47 The weighted-average grant-date fair value of PRSUs granted during the years ended December 31, 2020 and 2019 was $ 50.91 and $ 24.77 , respectively. The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2020 and 2019 was $ 34.80 and $ 27.58 , respectively. The fair value of shares vested during the years ended December 31, 2021, 2020 and 2019 was $ 18.3 million, $ 9.7 million and $ 10.9 million, respectively. Tangible equity unit (“TEU”) offering On January 11, 2019, we issued $ 460 million in TEUs with a 5.75 % interest rate, comprised of 4.6 million units at $ 100 per unit. Total cash of $ 447.7 million was received upon closing. The proceeds from the issuance of the TEUs were allocated initially to equity and debt based on the relative fair value of the respective components of each TEU as follows: TEU prepaid stock purchase contracts TEU amortizing notes Total (In millions, except per unit amounts) Fair value per unit $ 84.39 $ 15.61 $ 100.00 Gross proceeds $ 388.2 $ 71.8 $ 460.0 Less: Issuance costs 10.4 1.9 12.3 Net Proceeds $ 377.8 $ 69.9 $ 447.7 The $ 377.8 million fair value of the prepaid stock purchase contracts was recorded in Additional paid-in capital and the fair value of the $ 69.9 million of TEU amortizing notes due January 2022 was initially recorded in debt in the Consolidated Balance Sheets. The Company deferred certain debt issuance costs associated with the debt component of the TEUs. These amounts offset the debt liability balance in the Consolidated Balance Sheets and are amortized over its term. Refer to Note 13, “Debt” for additional information on the TEU amortizing notes. TEU prepaid stock purchase contracts During the year ended December 31, 2021, 3.3 million TEU prepaid stock purchase contracts were settled at the holder’s option into approximately 13.3 million shares of Colfax common stock at a conversion rate of 4.0 shares per contact. For the remaining 1.3 million TEU purchase contracts as of December 31, 2021, based on the arithmetic average of the volume weighted price for the 20 consecutive trading days from December 17, 2021 through January 14, 2022 which was greater than the minimum settlement rate, the Company will deliver 4.0 shares of common stock per contract. Subsequent to December 31, 2021, the Company settled the remaining purchase contracts per the terms of the agreement and issued approximately 5.1 million shares of Colfax common stock in January 2022. 93 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Since the 4.6 million TEU prepaid stock purchase contracts are mandatorily convertible into shares of Colfax common stock the 18.4 million shares are included in our net income per share calculations. See Note 7, “Net Income Per Share from Continuing Operations” for additional information. Repurchase of noncontrolling interest shares During 2019, the Company repurchased all of the noncontrolling interest shares of its South Africa consolidated subsidiary from existing shareholders under a general offer. As a part of the Air and Gas Handling business, this subsidiary was subsequently sold on September 30, 2019, and its results of operations are included in Loss from discontinued operations, net of taxes for the year ended December 31, 2019. 94 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 15. Accrued Liabilities Accrued liabilities in the Consolidated Balance Sheets consisted of the following: December 31, 2021 2020 (In thousands) Accrued compensation and related benefits $ 142,203 $ 98,455 Accrued taxes 72,276 57,286 Accrued asbestos-related liability 30,572 41,626 Warranty liability - current portion 17,457 15,543 Accrued restructuring liability - current portion 10,221 7,889 Accrued third-party commissions 38,492 25,480 Customer advances and billings in excess of costs incurred 31,468 36,737 Lease liability - current portion 42,403 39,695 Accrued interest 11,065 27,153 Other 114,940 104,469 $ 511,097 $ 454,333 95 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 Consolidated Balance Sheets is as follows: Year Ended December 31, 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 $ 9,633 $ ( 7,096 ) $ ( 55 ) $ 7,818 Facility closure costs and other (2) 591 8,068 ( 8,351 ) ( 17 ) 291 Subtotal 5,927 17,701 ( 15,447 ) ( 72 ) 8,109 Non-cash charges (2) 1,253 Fabrication Technology total provisions 18,954 Medical Technology: Termination benefits (1) 1,884 4,036 ( 3,441 ) ( 9 ) 2,470 Facility closure costs and other (2) 297 4,627 ( 4,566 ) — 358 Subtotal 2,181 8,663 ( 8,007 ) ( 9 ) 2,828 Non-cash charges (2) 5,251 Medical Technology total provisions 13,914 Total $ 8,108 26,364 $ ( 23,454 ) $ ( 81 ) $ 10,937 Non-cash charges (2) 6,504 Total Colfax provisions $ 32,868 (1) Includes severance and other termination benefits, including outplacement services. (2) Includes the cost of relocating associates, relocating equipment, lease termination expense, and other costs in connection with the closure and optimization of facilities and product lines. Medical Technology segment charges include $ 5.2 million classified as Cost of sales on the Company’s Consolidated Statements of Operations for the year ended December 31, 2021. (3) As of December 31, 2021, all of the restructuring liability was included in Accrued liabilities. In the Accrued liabilities table above, $ 0.4 million and $ 0.3 million of the Company’s restructuring liability is included in Accrued compensation and related benefits and Other, respectively. 96 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2020 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) $ 1,638 $ 11,381 $ ( 7,698 ) $ 15 $ 5,336 Facility closure costs (2) 1,284 8,358 ( 9,060 ) 9 591 Subtotal 2,922 19,739 ( 16,758 ) 24 5,927 Non-cash charges (2) 1,894 Fabrication Technology total provisions 21,633 Medical Technology: Termination benefits (1) 3,919 3,284 ( 5,405 ) 86 1,884 Facility closure costs (2) 257 17,125 ( 17,085 ) — 297 Subtotal 4,176 20,409 ( 22,490 ) 86 2,181 Non-cash charges (2) 2,985 Medical Technology total provisions 23,394 Total $ 7,098 40,148 $ ( 39,248 ) $ 110 $ 8,108 Non-cash charges (2) 4,879 Total Colfax provisions $ 45,027 (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. Medical Technology segment charges include costs related to product and distribution channel transformations, facilities optimization, and integration charges, as well as $ 6.6 million classified as Cost of sales on the Company’s Consolidated Statements of Operations for the year ended December 31, 2020. (3) As of December 31, 2020, $ 7.9 million and $ 0.2 million of the Company’s restructuring liability was included in Accrued liabilities and Other liabilities, respectively. 16. Defined Benefit Plans The Company sponsors various defined benefit plans, defined contribution plans and other post-retirement benefits plans, including health and life insurance, for certain eligible employees or former employees. The Company uses December 31 st as the measurement date for all of its employee benefit plans. 97 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes the total changes in the Company’s pension and accrued post-retirement benefits and plan assets and includes a statement of the plans’ funded status: Pension Benefits Other Post-Retirement Benefits Year Ended December 31, Year Ended December 31, 2021 2020 2021 2020 (In thousands) Change in benefit obligation: Projected benefit obligation, beginning of year $ 379,295 $ 361,146 $ 13,344 $ 13,057 Acquisitions (1) 101,312 — — — Service cost 3,719 1,933 14 8 Interest cost 4,642 7,454 189 313 Plan amendment 911 95 — — Actuarial loss (gain) (2) ( 11,171 ) 21,642 ( 650 ) 1,139 Foreign exchange effect ( 6,569 ) 9,757 ( 7 ) ( 3 ) Benefits paid ( 22,073 ) ( 24,105 ) ( 812 ) ( 1,170 ) Settlements ( 847 ) ( 418 ) — — Other 5,848 1,791 — — Projected benefit obligation, end of year $ 455,067 $ 379,295 $ 12,078 $ 13,344 Accumulated benefit obligation, end of year $ 447,275 $ 375,267 $ 12,078 $ 13,344 Change in plan assets: Fair value of plan assets, beginning of year $ 267,254 $ 251,291 $ — $ — Acquisitions (1) 72,263 — — — Actual return on plan assets 27,554 26,123 — — Employer contribution 6,531 9,830 812 1,170 Foreign exchange effect ( 1,374 ) 2,806 — — Benefits paid ( 22,073 ) ( 24,105 ) ( 812 ) ( 1,170 ) Settlements (3) 11,272 ( 418 ) — — Other 5,393 1,727 — — Fair value of plan assets, end of year $ 366,820 $ 267,254 $ — $ — Funded status, end of year $ ( 88,247 ) $ ( 112,041 ) $ ( 12,078 ) $ ( 13,344 ) Amounts recognized on the Consolidated Balance Sheet at December 31: Non-current assets $ 7,733 $ — $ — $ — Current liabilities ( 3,564 ) ( 3,800 ) ( 923 ) ( 1,028 ) Non-current liabilities ( 92,416 ) ( 108,241 ) ( 11,155 ) ( 12,316 ) Total $ ( 88,247 ) $ ( 112,041 ) $ ( 12,078 ) $ ( 13,344 ) (1) Acquisitions in the year ended December 31, 2021 relate to our acquisition of Mathys. See Note 5, “Acquisitions”, for further information. (2) The reported actuarial gain in the year ended December 31, 2021 is primarily due to the increase in discount rates in most markets. The reported actuarial loss in the year ended December 31, 2020 is primarily due to the decrease in discount rates in most markets. (3) Settlements includes $ 11.2 million classified as Pension settlement gain on the Company’s Consolidated Statements of Operations for the year ended December 31, 2021, when independent trustees of a company pension plan agreed to merge that plan with another company pension plan and contribute its surplus assets. For pension plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and fair value of plan assets were $ 171.4 million and $ 82.1 million, respectively, as of December 31, 2021 and $ 367.4 million and $ 259.1 million, respectively, as of December 31, 2020. For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and fair value of plan assets were $ 185.0 million and $ 87.5 million, respectively, as of December 31, 2021 and $ 376.0 million and $ 263.9 million, respectively, as of December 31, 2020. 98 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The projected benefit obligation increased by $ 77.3 million in the year ended December 31, 2021 compared to an increase of $ 18.1 million in the year ended December 31, 2020. In the year ended December 31, 2021, the single largest driver was an increase of $ 101.3 million from the Mathys acquisition. This was offset by benefits paid of $ 22.1 million, a foreign exchange gain of $ 6.6 million, and an actuarial gain of $ 11.2 million, of which approximately $ 7.8 million related to domestic pension plans and $ 3.4 million related to foreign pension plans. The following table summarizes the changes in the Company’s foreign pension benefit obligation, which is determined based upon an employee’s expected date of separation, and plan assets, included in the table above, and includes a statement of the plans’ funded status: Foreign Pension Benefits Year Ended December 31, 2021 2020 (In thousands) Change in benefit obligation: Projected benefit obligation, beginning of year $ 157,195 $ 144,739 Acquisitions (1) 101,312 — Service cost 3,719 1,933 Interest cost 1,741 2,315 Plan amendments 911 95 Actuarial loss (gain) (2) ( 3,449 ) 5,778 Foreign exchange effect ( 6,569 ) 9,757 Benefits paid ( 7,122 ) ( 8,795 ) Settlements ( 847 ) ( 418 ) Other 5,848 1,791 Projected benefit obligation, end of year $ 252,739 $ 157,195 Accumulated benefit obligation, end of year $ 244,946 $ 153,167 Change in plan assets: Fair value of plan assets, beginning of year $ 73,114 $ 67,535 Acquisitions (1) 72,263 — Actual return on plan assets 5,665 4,037 Employer contribution 6,350 6,222 Foreign exchange effect ( 1,374 ) 2,806 Benefits paid ( 7,122 ) ( 8,795 ) Settlements (3) 11,272 ( 418 ) Other 5,393 1,727 Fair value of plan assets, end of year $ 165,561 $ 73,114 Funded status, end of year $ ( 87,178 ) $ ( 84,081 ) (1) Acquisitions in the year ended December 31, 2021 relate to our acquisition of Mathys. See Note 5, “Acquisitions”, for further information. (2) The reported actuarial gain in the year ended December 31, 2021 is primarily due to the increase in discount rates in most markets. The reported actuarial loss in the year ended December 31, 2020 is primarily due to the decrease in discount rates in most markets. (3) Settlements includes $ 11.2 million classified as Pension settlement gain on the Company’s Consolidated Statements of Operations for the year ended December 31, 2021. Expected contributions to the Company’s pension and other post-employment benefit plans for the year ending December 31, 2022, related to plans as of December 31, 2021, are $ 8.6 million. The following benefit payments are expected to be paid during each respective fiscal year: 99 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Pension Benefits Other Post-Retirement Benefits All Plans Foreign Plans (In thousands) 2022 $ 27,790 $ 12,308 $ 923 2023 27,505 12,359 858 2024 26,897 12,159 816 2025 27,139 21,817 810 2026 26,944 13,068 805 2027 - 2031 123,379 61,457 3,644 The Company’s primary investment objective for its pension plan assets is to provide a source of retirement income for the plans’ participants and beneficiaries. The assets are invested with the goal of preserving principal while providing a reasonable real rate of return over the long term. Diversification of assets is achieved through strategic allocations to various asset classes. Actual allocations to each asset class vary due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions, and the timing of benefit payments and contributions. The asset allocation is monitored and rebalanced as required, as frequently as on a quarterly basis in some instances. The plan assets are planned to have a higher allocation to fixed income to account for the improvement in funded status during 2021. The following are the actual and target allocation percentages for the Company’s pension plan assets: Actual Asset Allocation December 31, Target 2021 2020 Allocation U.S. Plans: Equity securities: U.S. 45 % 44 % 25 %- 45 % International 15 % 16 % 10 %- 20 % Fixed income 38 % 39 % 40 %- 60 % Other — % — % 0 %- 20 % Cash and cash equivalents 1 % 1 % 0 %- 5 % Foreign Plans: Equity securities 28 % 27 % 25 %- 43 % Fixed income securities 27 % 10 % 24 %- 43 % Cash and cash equivalents 2 % — % 0 %- 10 % Other 43 % 63 % 18 %- 33 % A summary of the Company’s pension plan assets for each fair value hierarchy level for the periods presented follows (see Note 17, “Financial Instruments and Fair Value Measurements”, for further description of the levels within the fair value hierarchy): 100 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2021 Measured at Net Asset Value (1) Level One Level Two Level Three Total (In thousands) U.S. Plans: Cash and cash equivalents (2) $ — $ 1,699 $ — $ — $ 1,699 Equity securities: U.S. large cap 52,810 — — — 52,810 U.S. small/mid cap 21,983 15,501 — — 37,484 International 31,094 — — — 31,094 Fixed income mutual funds: U.S. government and corporate 77,084 — — — 77,084 Other (3) — 1,088 — — 1,088 Foreign Plans: Cash and cash equivalents — 3,029 — — 3,029 Equity securities — 46,475 — — 46,475 Non-U.S. government and corporate bonds — 45,480 — — 45,480 Other (3) — — 70,577 — 70,577 $ 182,971 $ 113,272 $ 70,577 $ — $ 366,820 (1) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient (the “NAV”) have not been classified in the fair value hierarchy. These investments, consisting of common/collective trusts, are valued using the NAV provided by the Trustee. The NAV is based on the underlying investments held by the fund, that are traded in an active market, less its liabilities. These investments are able to be redeemed in the near-term. (2) The weighted-average interest crediting rates received in Cash and cash equivalents of U.S plans are immaterial relative to total plan assets. (3) Represents diversified portfolio funds, reinsurance contracts and money market funds. December 31, 2020 Measured at Net Asset Value (1) Level One Level Two Level Three Total (In thousands) U.S. Plans: Cash and cash equivalents (2) $ — $ 1,752 $ — $ — $ 1,752 Equity securities: U.S. large cap 51,728 — — — 51,728 U.S. small/mid cap 21,175 12,895 — — 34,070 International 30,552 — — — 30,552 Fixed income mutual funds: U.S. government and corporate 74,978 — — — 74,978 Other (3) — 1,060 — — 1,060 Foreign Plans: Cash and cash equivalents — 239 — — 239 Equity securities — 19,513 — — 19,513 Non-U.S. government and corporate bonds — 5,331 1,922 — 7,253 Other (3) — — 46,109 — 46,109 $ 178,433 $ 40,790 $ 48,031 $ — $ 267,254 101 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (1) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient (the “NAV”) have not been classified in the fair value hierarchy. These investments, consisting primarily of common/collective trusts, are valued using the NAV provided by the Trustee. The NAV is based on the underlying investments held by the fund, that are traded in an active market, less its liabilities. These investments are able to be redeemed in the near-term. (2) The weighted-average interest crediting rates received in Cash and cash equivalents of U.S plans are immaterial relative to total plan assets. (3) Represents diversified portfolio funds, reinsurance contracts and money market funds. The following table sets forth the components of Net periodic benefit (income) cost and Other comprehensive (gain) loss of the Company’s defined benefit pension plans and other post-retirement employee benefit plans: Pension Benefits Other Post-Retirement Benefits Year Ended December 31, Year Ended December 31, 2021 2020 2019 2021 2020 2019 (In thousands) Components of Net Periodic Benefit (Income) Cost: Service cost $ 3,719 $ 1,933 $ 2,462 $ 14 $ 8 $ 5 Interest cost 4,642 7,454 16,556 189 313 445 Amortization 5,953 4,960 3,385 ( 109 ) ( 231 ) ( 255 ) Settlement (gain) loss ( 11,157 ) 99 77,390 — — — Divestitures gain — — ( 4,354 ) — — — Other 2 143 79 — — — Expected return on plan assets ( 12,819 ) ( 12,773 ) ( 19,774 ) — — — Net periodic benefit (income) cost $ ( 9,660 ) $ 1,816 $ 75,744 $ 94 $ 90 $ 195 Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Gain) Loss: Current year net actuarial (gain) loss $ ( 27,385 ) $ 10,379 $ 113,995 $ ( 651 ) $ 1,143 $ ( 380 ) Current year prior service cost — 74 464 — — 15 Less amounts included in net periodic benefit (income) cost: Amortization of net (gain) loss ( 5,899 ) ( 4,914 ) ( 3,285 ) 109 231 270 Settlement/divestiture/other gain ( 51 ) ( 177 ) ( 83,602 ) — — — Amortization of prior service cost ( 65 ) ( 46 ) ( 100 ) — — ( 15 ) Total recognized in Other comprehensive (gain) loss $ ( 33,400 ) $ 5,316 $ 27,472 $ ( 542 ) $ 1,374 $ ( 110 ) Net periodic benefit income of $ 11.2 million for the year ended December 31, 2021 is recorded in Pension settlement (gain) loss on the Company’s Consolidated Statements of Operations. Net periodic benefit cost of $ 44.4 million for the year ended December 31, 2019 is included in Loss from discontinued operations, net of taxes. Net periodic benefit cost included in loss from discontinued operations for the year ended December 31, 2019 includes $ 43.8 million in settlement loss related to the Air and Gas Handling business. Each component of Net periodic benefit (income) cost from continuing operations, with the exception of Pension settlement (gain) loss, is included in Selling, general and administrative expense. The following table sets forth the components of Net periodic benefit (income) cost and Other comprehensive (gain) loss of the foreign defined benefit pension plans, included in the table above: 102 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Foreign Pension Benefits Year Ended December 31, 2021 2020 2019 (In thousands) Components of Net Periodic Benefit (Income) Cost: Service cost $ 3,719 $ 1,933 $ 2,340 Interest cost 1,741 2,315 9,376 Amortization 1,223 747 334 Settlement (gain) loss ( 11,157 ) 99 77,390 Divestitures gain — — ( 4,354 ) Other 2 143 79 Expected return on plan assets ( 3,015 ) ( 2,397 ) ( 9,092 ) Net periodic benefit (income) cost $ ( 7,487 ) $ 2,840 $ 76,073 Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Gain) Loss: Current year net actuarial (gain) loss $ ( 7,577 ) $ 6,226 $ 122,667 Current year prior service cost — 74 464 Less amounts included in net periodic benefit (income) cost: Amortization of net (gain) loss ( 1,169 ) ( 701 ) ( 234 ) Settlement/divestiture/other gain ( 51 ) ( 177 ) ( 83,602 ) Amortization of prior service cost ( 65 ) ( 46 ) ( 100 ) Total recognized in Other comprehensive (gain) loss $ ( 8,862 ) $ 5,376 $ 39,195 The components of net unrecognized pension and other post-retirement benefit cost included in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets that have not been recognized as a component of Net periodic benefit (income) cost are as follows: Pension Benefits Other Post-Retirement Benefits December 31, December 31, 2021 2020 2021 2020 (In thousands) Net actuarial loss (gain) $ 72,612 $ 105,947 $ ( 2,573 ) $ ( 2,031 ) Prior service cost 412 477 — — Total $ 73,024 $ 106,424 $ ( 2,573 ) $ ( 2,031 ) 103 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The key economic assumptions used in the measurement of the Company’s pension and other post-retirement benefit obligations are as follows: Pension Benefits Other Post-Retirement Benefits December 31, December 31, 2021 2020 2021 2020 Weighted-average discount rate: All plans 1.7 % 1.7 % 2.6 % 2.1 % Foreign plans 1.2 % 1.4 % — % — % Weighted-average rate of increase in compensation levels for active foreign plans 0.9 % 0.6 % — % — % The key economic assumptions used in the computation of Net periodic benefit (income) cost are as follows: Pension Benefits Other Post-Retirement Benefits Year Ended December 31, Year Ended December 31, 2021 2020 2019 2021 2020 2019 Weighted-average discount rate: All plans 1.7 % 2.5 % 3.0 % 2.1 % 3.0 % 4.0 % Foreign plans 1.4 % 1.9 % 2.7 % — % — % — % Weighted-average expected return on plan assets: All plans 5.2 % 5.7 % 3.1 % — % — % — % Foreign plans 3.6 % 4.1 % 2.4 % — % — % — % Weighted-average rate of increase in compensation levels for active foreign plans 0.6 % 0.8 % 1.8 % — % — % — % In determining discount rates, the Company utilizes the single discount rate equivalent to discounting the expected future cash flows from each plan using the yields at each duration from a published yield curve as of the measurement date. For measurement purposes, a weighted-average annual rate of increase in the per capita cost of covered health care benefits of 7.5 % was assumed. The rate was assumed to decrease gradually to 4.5 % by 2034 and remain at that level thereafter for benefits covered under the plans. The expected long-term rate of return on plan assets was based on the Company’s investment policy target allocation of the asset portfolio between various asset classes and the expected real returns of each asset class over various periods of time that are consistent with the long-term nature of the underlying obligations of these plans. 104 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company maintains defined contribution plans covering certain union and non-union employees. The Company’s expense for the years ended December 31, 2021, 2020 and 2019 was $ 8.5 million, $ 10.2 million and $ 6.9 million, respectively. 17. Financial Instruments and Fair Value Measurements The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level One: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level Two: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying values of financial instruments, including Trade receivables, other receivables and Accounts payable, approximate their fair values due to their short-term maturities. The estimated fair value of the Company’s debt of $ 2.1 billion $ 2.3 billion as of December 31, 2021 and 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 on a recurring basis for each fair value hierarchy level for the periods presented is as follows: December 31, 2021 Level One Level Two Level Three Total (In thousands) Assets: Cash equivalents $ 8,133 $ — $ — $ 8,133 Foreign currency contracts - not designated as hedges — 2,607 — 2,607 Deferred compensation plans — 11,213 — 11,213 $ 8,133 $ 13,820 $ — $ 21,953 Liabilities: Foreign currency contracts - not designated as hedges $ — $ 3,044 $ — $ 3,044 Deferred compensation plans — 11,213 — 11,213 $ — $ 14,257 $ — $ 14,257 105 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 years ended December 31, 2021 and 2020. Cash Equivalents The Company’s cash equivalents consist of investments in interest-bearing deposit accounts and money market mutual funds which are valued based on quoted market prices. The fair value of these investments approximate cost due to their short-term maturities and the high credit quality of the issuers of the underlying securities. Derivatives The Company periodically enters into foreign currency derivative contracts. As the Company has manufacturing sites throughout the world and sells its products globally, the Company is exposed to movements in the exchange rates of various currencies. As a result, the Company enters into foreign currency swaps and forward contracts to mitigate this exchange rate risk. Additionally, to mitigate a portion of the foreign exchange risk associated with the translation of the net assets of foreign subsidiaries, the Company has senior unsecured notes denominated in Euro which have been designated as net investment hedges. See Note 13, “Debt”, for details. As the Company’s borrowings under the Credit Facility include variable interest rates, the Company may periodically enter into interest rate swap or collar agreements to mitigate interest rate risk. Commodity derivative contracts can be used to manage costs of raw materials used in the Company’s production processes. There were no changes during the periods presented in the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. Foreign Currency Contracts Foreign currency contracts are measured using broker quotations or observable market transactions in either listed or over-the-counter markets. The Company primarily uses foreign currency contracts to mitigate the risk associated with customer forward sale agreements denominated in currencies other than the applicable local currency, and to match costs and expected revenues where production facilities have a different currency than the selling currency. As of December 31, 2021 and 2020, the Company had foreign currency contracts related to purchases and sales with notional values of $ 273.2 million and $ 250.4 million, respectively. 106 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company recognized the following in its Consolidated Financial Statements related to its derivative instruments: Year Ended 2021 2020 2019 (In thousands) Contracts Designated as Hedges: Unrealized gain (loss) on net investment hedges (1) $ 23,247 $ ( 26,268 ) $ 6,215 Contracts Not Designated in a Hedge Relationship: Foreign Currency Contracts: Unrealized gain (loss) ( 438 ) 1,411 ( 611 ) Realized gain (loss) ( 2,916 ) 5 ( 1,042 ) (1) The unrealized gain (loss) on net investment hedges is attributable to the change in valuation of Euro denominated debt. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. Concentrations of credit risk are considered to exist when there are amounts collectible from multiple counterparties with similar characteristics, which could cause their ability to meet contractual obligations to be similarly impacted by economic or other conditions. The Company performs credit evaluations of its customers prior to delivery or commencement of servic es and normally does not require collateral. Letters of credit are occasionally required when the Company deems necessary. There are no customers which represent more than 10% of the Company’s Accounts receivable, net as of December 31, 2021 and 2020. 18. Commitments and Contingencies Asbestos and Other Product Liability Contingencies Certain subsidiaries are each one of many defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured or used with components that are alleged to have contained asbestos. Such components were acquired from third-party suppliers, and were not manufactured by any of the Company’s subsidiaries nor were the subsidiaries producers or direct suppliers of asbestos. The manufactured products that are alleged to have contained or used asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the U.S. Navy. The subsidiaries settle asbestos claims for amounts the Company considers reasonable given the facts and circumstances of each claim. The annual average settlement payment per asbestos claimant has fluctuated during the past several years. The Company expects such fluctuations to continue in the future based upon, among other things, the number and type of claims settled in a particular period and the jurisdictions in which such claims arise. To date, the majority of settled claims have been dismissed for no payment. Pursuant to the purchase agreement from the Fluid Handling business divestiture, the Company retained its asbestos-related contingencies and insurance coverages. However, as the Company does not retain an interest in the ongoing operations of the business subject to the contingencies, asbestos-related activity is classified as part of Loss from discontinued operations, net of taxes in its Consolidated Statements of Operations. 107 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Claims activity since December 31 related to asbestos claims is as follows: Year Ended 2021 2020 2019 (Number of claims) Claims unresolved, beginning of period 14,809 16,299 16,417 Claims filed (1) 4,393 4,014 4,486 Claims resolved (2) ( 4,643 ) ( 5,504 ) ( 4,604 ) Claims unresolved, end of period 14,559 14,809 16,299 (In dollars) Average cost of resolved claims (3) $ 8,421 $ 12,055 $ 9,455 (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. (3) Excludes claims settled in Mississippi for which the majority of claims have historically been resolved for no payment and insurance recoveries. The Company has projected each subsidiary’s future asbestos-related liability costs with regard to pending and future unasserted claims based upon the Nicholson methodology. The Nicholson methodology is a standard approach used by experts and has been accepted by numerous courts. It is Colfax’s policy to record a liability for asbestos-related liability costs for the longest period of time that Colfax management can reasonably estimate. The Company believes that it can reasonably estimate the asbestos-related liability for pending and future claims that will be resolved in the next 15 years and has recorded that liability as its best estimate. While it is reasonably possible that the subsidiaries will incur costs after this period, the Company does not believe the reasonably possible loss or a range of reasonably possible losses is estimable at the current time. Accordingly, no accrual has been recorded for any costs which may be paid after the next 15 years. Defense costs associated with asbestos-related liabilities as well as costs incurred related to efforts to recover insurance from the subsidiaries’ insurers are expensed as incurred. Each subsidiary has separate insurance coverage acquired prior to Company ownership of each independent entity. The Company has evaluated the insurance assets for each subsidiary based upon the applicable policy language and allocation methodologies, and law pertaining to the affected subsidiary’s insurance policies. One of the subsidiaries was notified in 2010 by the primary and umbrella carrier who had been fully defending and indemnifying the subsidiary for 20 years th at the limits of liability of its primary and umbrella layer policies had been exhausted. The subsidiary has sought coverage from certain excess layer insurers whose coverage obligations were disputed in Delaware state court, and were the subject of various rulings, including a September 12, 2016 ruling on certain appealed issues by the Delaware Supreme Court. This litigation confirmed that asbestos-related costs should be allocated among excess insurers using an “all sums” allocation (which allows an insured to collect all sums paid in connection with a claim from any insurer whose policy is triggered, up to the policy’s applicable limits), that the subsidiary has the right to access coverage available under excess insurance policies purchased by a former owner of the business, and that, the subsidiary has a right to immediately access the excess layer policies. Further, the Delaware Supreme Court ruled in the subsidiary’s favor on a “trigger of coverage” issue, holding that every policy in place during or after the date of a claimant’s first significant exposure to asbestos was “triggered” and potentially could be accessed to cover that claimant’s claim. The Court also largely affirmed but reversed in part some of the prior lower court rulings on defense obligations and whether payment of defense costs erode policy limits or are payable in addition to policy limits. Final judgment in the case was entered in May 2021. Based upon the final judgment, the Company currently estimates that the subsidiary’s future expected recovery percentage is 90.4 % of asbestos-related costs, with the subsidiary expected to be responsible for 9.6 % of its future asbestos-related costs. Since approximately mid-2011, the Company had funded $ 174.8 million of the subsidiary’s asbestos-related defense and indemnity costs through December 31, 2021, which it has recovered or expects to recover from insurers. Based on the above-referenced court rulings, the Company requested that its insurers reimburse all of the $ 94.9 million that remained outstanding at the time of the ruling, and the Company currently has received substantially all of that amount. The subsidiary has requested 108 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) that certain excess insurers provide ongoing coverage for future asbestos-related defense and/or indemnity costs. In the interim, and while not impacting the results of operations, the Company’s cash funding for future asbestos-related defense and indemnity costs for which it expects reimbursement from insurers could range up to $ 10 million per quarter. In 2003, another subsidiary filed a lawsuit against a large number of its insurers and its former parent to resolve a variety of disputes concerning insurance for asbestos-related bodily injury claims asserted against it. Court rulings in 2007 and 2009 clarified the insurers allocation methodology as mandated by the New Jersey courts, the allocation calculation related to amounts currently due from insurers, and amounts the Company expects to be reimbursed for asbestos-related costs incurred in future periods. A final judgment at the trial court level was rendered in 2011 and confirmed by the Appellate Division in 2014. In 2015, the New Jersey Supreme Court refused to grant certification of the appeals, effectively ending the matter. The subsidiary expects to be responsible for 26.8 % of all future projected asbestos-related costs. During the year ended December 31, 2021, the Company recorded a $ 9.5 million increase in asbestos-related liabilities due to a revision in forecast assumptions for filing rates and resolution values. Th e related insurance asset was accordingly increased $ 4.6 million, resul ting in a net pre-tax cha rge of $ 4.9 million. During the year ended December 31, 2020, the Company recorded a $ 11.6 million increase in asbestos-related liabilities due to a revision in forecast assumptions for filing rates and resolution values. The related insurance asset was accordingly increased $ 3.9 million, resulting in a net pre-tax charge of $ 7.7 million. During the year ended December 31, 2019, the Company recorded a $ 28.4 million increase in asbestos-related liabilities due to a revision in forecast assumptions for filing rates and resolution values. The related insurance asset was accordingly increased $ 15.1 million, resulting in a net pre-tax charge of $ 13.3 million. Fo r all periods, the net pre-tax charge is included in Loss from discontinued operations, net of taxes in the Consolidated Statements of Operations. The Company’s Consolidated Balance Sheets included the following amounts related to asbestos-related litigation: December 31, 2021 2020 (In thousands) Current asbestos insurance receivable (1) $ — $ — Long-term asbestos insurance asset (2) 231,900 232,712 Long-term asbestos insurance receivable (2) 15,421 31,815 Accrued asbestos liability (3) 30,572 41,626 Long-term asbestos liability (4) 261,779 253,144 (1) Included in Other current assets in the Consolidated Balance Sheets. (2) Included in Other assets in the Consolidated Balance Sheets. (3) 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 Consolidated Balance Sheets. (4) Included in Other liabilities in the Consolidated Balance Sheets. Management’s analyses are based on currently known facts and a number of assumptions. However, projecting future events, such as new claims to be filed each year, the average cost of resolving each claim, coverage issues among layers of insurers, the method in which losses will be allocated to the various insurance policies, interpretation of the effect on coverage of various policy terms and limits and their interrelationships, the continuing solvency of various insurance companies and the collectability of claims tendered, the amount of remaining insurance available, as well as the numerous uncertainties inherent in asbestos litigation could cause the actual liabilities and insurance recoveries to be higher or lower than those projected or recorded which could materially affect the Company’s financial condition, results of operations or cash flow. 109 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) General Litigation The Company is also involved in various 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. Legal costs related to proceedings or claims are recorded when incurred. Other costs that management estimates may be paid related to the 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. Off-Balance Sheet Arrangements As of December 31, 2021, the Company had $ 280.0 million of unconditional purchase obligations with suppliers, the majority of which is expected to be paid by December 31, 2022. 110 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 19. 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 certain other charges. The Company’s segment results were as follows: Year Ended December 31, 2021 2020 2019 (In thousands) Net sales: Fabrication Technology $ 2,428,115 $ 1,950,069 $ 2,247,026 Medical Technology 1,426,188 1,120,700 1,080,432 Total Net sales $ 3,854,303 $ 3,070,769 $ 3,327,458 Segment operating income (loss) (1) : Fabrication Technology $ 356,315 $ 246,011 $ 302,601 Medical Technology 53,148 29,079 96,170 Corporate and other ( 112,003 ) ( 60,840 ) ( 121,412 ) Total segment operating income $ 297,460 $ 214,250 $ 277,359 Depreciation, amortization and other impairment charges: Fabrication Technology $ 75,899 $ 76,644 $ 80,072 Medical Technology 185,786 168,227 134,001 Corporate and other 1,234 1,358 1,534 Total depreciation, amortization and other impairment charges $ 262,919 $ 246,229 $ 215,607 Capital expenditures: Fabrication Technology $ 35,584 $ 40,137 $ 44,454 Medical Technology 68,591 74,624 57,326 Corporate and other 62 24 59 Total capital expenditures $ 104,237 $ 114,785 $ 101,839 (1) The following is a reconciliation of Income from continuing operations before income taxes to segment operating income: Year Ended December 31, 2021 2020 2019 Income from continuing operations before income taxes $ 165,388 $ 58,029 $ 50,493 Pension settlement loss (gain) ( 11,208 ) — 33,616 Interest expense, net 72,593 104,262 119,503 Debt extinguishment charges 29,870 — — Restructuring and other related charges (1) 32,868 45,027 73,747 MDR and other costs (2) 7,949 6,932 — Segment operating income $ 297,460 $ 214,250 $ 277,359 111 COLFAX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (1) Restructuring and other related charges includes $ 5.2 million, $ 6.6 million and $ 8.5 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019, respectively. (2) Primarily related to costs specific to compliance with medical device reporting regulations and other requirements of the European Union MDR. These costs are classified as Selling, general and administrative expense on our Consolidated Statements of Operations. December 31, 2021 2020 (In thousands) Investments in Equity Method Investees: Fabrication Technology $ 28,180 $ 32,409 Medical Technology — — $ 28,180 $ 32,409 Total Assets: Fabrication Technology $ 3,459,301 $ 3,390,747 Medical Technology 4,077,403 3,575,644 Corporate and other 978,641 385,158 Total $ 8,515,345 $ 7,351,549 The detail of the Company’s operations by geography is as follows: Year Ended December 31, 2021 2020 2019 (In thousands) Net Sales by Origin (1) : United States $ 1,563,970 $ 1,283,651 $ 1,464,152 Foreign locations 2,290,333 1,787,118 1,863,306 Total $ 3,854,303 $ 3,070,769 $ 3,327,458 (1) The Company attributes revenues from external customers to individual countries based upon the country in which the sale was originated. December 31, 2021 2020 (In thousands) Property, Plant and Equipment, Net (1) : United States $ 217,209 $ 221,549 Switzerland 65,683 664 Czech Republic 63,273 65,188 India 37,349 39,612 Mexico 18,805 18,468 Other foreign locations 119,072 141,479 Total $ 521,391 $ 486,960 (1) As the Company does not allocate all long-lived assets (specifically intangible assets) to each individual country, evaluation of long-lived assets in total is impracticable. 112 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.