What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-04 · 184 added, 265 removed, 223 unchanged (67% of the section changed)

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of Colfax Corporation (“Colfax,” “the Company,” “we,” “our,” and “us”) should be read in conjunction with the Condensed Consolidated Financial Statements and related footnotes included in Part I.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2021 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in Part II.

The following discussion of the financial condition and results of operations of Enovis Corporation (“Enovis,” “the Company,” “we,” “our,” and “us”) should be read in conjunction with the Condensed Consolidated Financial Statements and related footnotes included in Part I.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2022 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in Part II.

“Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2022.

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We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC.

All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including statements regarding:

the intended separation of our fabrication and medical technology businesses into two differentiated, independent publicly traded companies (the “Separation”;

See the section below entitled “The Separation” under “Results of Operations – Items Affecting Comparability of Reported Results” for further description);

the timing and method of the Separation;

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the Securities and Exchange Commission (the “SEC”).

All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding:

the separation of our fabrication and medical technology businesses into two differentiated, independent publicly traded companies (the “Separation”);

the anticipated benefits of the Separation;

the expected financial and operating performance of, and future opportunities for, each company following the Separation;

the tax treatment of the Separation;

the leadership of each company following the Separation;

the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, the actions by governments, businesses and individuals in response to the situation, on the global and regional economies, financial markets, and overall demand for our products;

projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, pension and benefit obligations and funding requirements, synergies or other financial items;

plans, strategies and objectives of our management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments;

developments, performance or industry or market rankings relating to products or services;

projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, synergies or other financial items;

plans, strategies and objectives of management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments;

developments, performance, industry or market rankings relating to products or services;

future economic conditions or performance;

the outcome of outstanding claims or legal proceedings including asbestos-related liabilities and insurance coverage litigation;

the outcome of outstanding claims or legal proceedings;

potential gains and recoveries of costs;

assumptions underlying any of the foregoing;

and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future (see Part II.

“Risk Factors” in this form 10-Q for further discussion of risks related to the Separation).

Forward-looking statements may be, but not always, characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions.

These statements are based on assumptions and assessments made by our management as of the filing date of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate.

and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.

Forward-looking statements may be characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions.

These statements are based on assumptions and assessments made by our management as of the filing of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate.

These forward-looking statements are subject to a number of risks and uncertainties and actual results could differ materially due to numerous factors, including but not limited to the following:

• risks related to the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, actions by governments, businesses and individuals in response to the situation, such as the scope and duration of the outbreak, the nature and effectiveness of government actions and restrictive measures implemented in response, delays and cancellations of medical procedures, supply chain disruptions, the impact on creditworthiness and financial viability of customers, and other impacts on our business and ability to execute business continuity plans;

• risks related to the proposed Separation, targeted for the first quarter of 2022, including the uncertainty of obtaining regulatory approvals and a favorable tax opinion and/or U.S.

Internal Revenue Service (“IRS”) ruling, our ability to satisfactorily complete steps necessary for the Separation and related transactions for the Separation to be generally tax-free for U.S.

federal income tax purposes, the ability to satisfy the necessary conditions to complete the Separation on a timely basis, or at all, our ability to realize the anticipated benefits of the Separation, developments related to the impact of the COVID-19 pandemic on the Separation and the financial and operating performance of each company following the Separation, and final approval of the Separation by our board of directors;

• risks related to the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, actions by governments, businesses and individuals in response to the situation, such as the scope and duration of the outbreak, the nature and effectiveness of government actions and restrictive measures implemented in response, delays and cancellations of medical procedures, supply chain disruptions, the impact on creditworthiness and financial viability of customers, and other impacts on the Company’s business and ability to execute business continuity plans;

• risks related to the Separation, including our ability to realize the anticipated benefits of the Separation;

the potential to incur significant liability if the separation and distribution of ESAB Corp is determined to be a taxable transaction;

potential indemnification liabilities to ESAB Corp pursuant to the separation and distribution agreement and related agreements entered into in connection with the Separation;

developments related to the impact of the COVID-19 pandemic on the Separation, and the financial and operating performance of each company following the Separation;

• volatility in the commodity markets and certain commodity prices due to economic disruptions from the COVID-19 pandemic and various geopolitical events;

• changes in the general economy, as well as the cyclical nature of the markets we serve;

• supply chain constraints and backlogs, including risks affecting raw material, part and component availability, labor shortages and inefficiencies, freight and logistical challenges, and inflation in raw material, part, component, freight and delivery costs;

• volatility in the commodity markets and certain commodity prices, including oil and steel, due to economic disruptions from the COVID-19 pandemic and various geopolitical events;

• our ability to identify, finance, acquire and successfully integrate attractive acquisition targets;

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• our ability to accurately estimate the cost of or realize savings from our restructuring programs;

• the amount of and our ability to estimate our asbestos-related liabilities;

• the solvency of our insurers and the likelihood of their payment for asbestos-related costs;

• disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine (including any political or economic responses and counter-responses);

• material disruptions at any of our manufacturing facilities;

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• failure to maintain, protect and defend our intellectual property rights;

• the loss of key members of our leadership team;

• the loss of key members of our leadership team, or the inability to attract, develop, engage, and retain qualified employees;

• restrictions in our principal credit facility that may limit our flexibility in operating our business;

• impairment in the value of intangible assets;

• the funding requirements or obligations of our defined benefit pension plans and other postretirement benefit plans;

• significant movements in foreign currency exchange rates;

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• risks arising from changes in technology;

• the competitive environment in our industries;

• changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the COVID-19 global pandemic and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”);

• the competitive environment in our industry;

• changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the COVID-19 global pandemic;

• our ability to manage and grow our business and execution of our business and growth strategies;

• the level of capital investment and expenditures by our customers in our strategic markets;

• our financial performance;

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Please see Part I, Item 1.

“Business” in our 2020 Form 10-K for a discussion of Colfax’s objectives and methodologies for delivering shareholder value.

Colfax conducts its operations through two operating segments:

“Business” in our 2021 Form 10-K for a discussion of the Company’s objectives and methodologies for delivering shareholder value.

Prior to the Separation on April 4, 2022, the Company conducted its operations through two operating segments:

Fabrication Technology and Medical Technology.

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

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

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

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

Integral to our operations is Colfax Business System (“CBS”), our business management system.

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

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

Prior to the Separation, we had a global footprint, with production facilities in Europe, North America, South America, Asia, Australia and Africa, serving a global customer base across multiple markets through a combination of direct sales and third-party distribution channels.

Prior to our Separation, our customer base was highly diversified in the medical and industrial end markets.

Enovis, after the Separation, now serves two primary end markets in medical devices, prevention & recovery products and reconstructive surgical products, and it generates approximately 68% of its revenues in the United States and the majority of the remaining balance in Europe.

In conjunction with the Separation, we rebranded our business management system as Enovis Growth Excellence (“EGX”).

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

EGX leverages our culture of continuous improvement to rapidly uncover and execute growth opportunities.

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

Results of Operations

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Items Affecting Comparability of Reported Results

The comparability of our operating results for the three and nine months ended October 1, 2021 to the comparable periods in 2020 is affected by the number of selling days for each region and the following other significant items:

Recent Events

During the second quarter of 2021, we used the proceeds from our March 2021 equity offering to redeem all $600 million of our 2024 senior notes and $100 million of outstanding principal on our 2026 senior notes.

We paid an early redemption premium of $24.4 million and recorded a loss on the extinguishment of debt of $29.9 million.

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

The comparability of our operating results for the three months ended April 1, 2022 to the comparable period in 2021 is affected by the following significant items:

The Separation

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

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

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

On April 4, 2022 (the “Distribution Date”), we completed the Separation through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corp to Enovis stockholders.

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

We intend to divest the 10% retained shares in ESAB Corp in a tax-efficient exchange for outstanding debt no later than 12 months after the Distribution Date.

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

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

Rales, is also serving as Chairman of the board of directors of ESAB Corp.

Since the disposition occurred in the second quarter of 2022, we will classify our fabrication technology business as a discontinued operation in our financial statements beginning in the second quarter of 2022;

the results of our fabrication technology businesses are included in continuing operations in the accompanying financials for the three months ended April 1, 2022 and April 2, 2021.

We expect that the Separation will allow each company to:

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

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

We continue to make progress on the Separation and are targeting its completion in the first quarter of 2022.

Completion of the Separation is subject to, among other things, completion of financing and other transactions on satisfactory terms, other steps necessary to qualify the Separation as a tax-free transaction, receipt of regulatory approvals, a favorable tax opinion and/or IRS ruling and final approval from our board of directors.

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

Details regarding the Separation will be included in our future filings with the SEC.

Please see Part II.

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

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

Refer to Note 10, “Debt” and Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information regarding the Separation.

The COVID-19 Pandemic

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

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

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

In an effort to contain COVID-19 or slow its spread, governments around the world have enacted measures throughout 2020 and into 2021, including periodically closing businesses not deemed “essential,”

isolating residents to their homes, limiting access to healthcare, curtailing activities including sporting events, and practicing social distancing.

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

However, the emergence and subsequent spread of COVID-19 variants has led to the reinstatement of certain restrictions, which slowed the pace of recovery during the third quarter of 2021.

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

As sales volumes have improved in 2021, these measures have been removed.

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

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

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

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

Recovery of sales volumes slowed in the third quarter of 2021 due to increased restrictions in certain jurisdictions as a result of the spread of COVID-19 variants.

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

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

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

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

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

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

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

As reflected in the discussions that follow, the pandemic and actions taken in response to it had a variety of impacts on our results of operations during 2021 and 2022, including sales levels, inflation and supply chain challenges.

There may be developments outside our control that require us to further adjust our operations.

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

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

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

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

We are taking actions in an effort to mitigate impacts to our supply chain, however, we expect these pressures to continue.

Please see Part II.

Please see Part I.

“Risk Factors” in our 2021 Form 10-K for a further discussion of some of the risks related to the COVID-19 pandemic.

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

The change in Net sales due to acquisitions for the three and nine months ended October 1, 2021 presented in this filing represents the incremental sales subsequent to the beginning of the prior year periods.

We completed one acquisition in our Fabrication Technology segment and five acquisitions in our Medical Technology segment during the nine months ended October 1, 2021 for net cash consideration of $208.1 million and equity consideration of $285.7 million.

The largest of these acquisitions were in our Medical Technology segment, which includes Trilliant Surgical, a national provider of foot and ankle orthopedic implants;

The change in Net sales due to acquisitions for the three months ended April 1, 2022 presented in this filing represents the incremental sales subsequent to the beginning of the prior year periods.

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

The largest of these acquisitions were in our Medical Technology segment, including Trilliant Surgical, a national provider of foot and ankle orthopedic implants;

MedShape, Inc., a provider of innovative surgical solutions for foot and ankle surgeons;

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Foreign Currency Fluctuations

A significant portion of our Net sales, approximately 59% for both the three and nine months ended October 1, 2021, were derived from operations outside the U.S., with the majority of those sales denominated in currencies other than the U.S.

A significant portion of our Net sales, approximately 61% for both the three months ended April 1, 2022 and April 2, 2021, were derived from operations outside the U.S., with the majority of those sales denominated in currencies other than the U.S.

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

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

For the nine months ended October 1, 2021 compared to the nine months ended October 2, 2020, fluctuations in foreign currencies had a favorable impact on the change in Net sales of approximately 2% and affected Gross profit and Selling, general and administrative expenses by less than 2%.

For the third quarter of 2021 compared to the

third quarter of 2020, fluctuations in foreign currencies had a favorable impact on the change in Net sales of approximately 1%, and affected Gross profit and Selling, general and administrative expenses by less than 1%.

The changes in foreign exchange rates since December 31, 2020 also decreased net assets by approximately 2% as of October 1, 2021.

For the three months ended April 1, 2022 compared to the three months ended April 2, 2021, fluctuations in foreign currencies had an unfavorable impact on the change in Net sales and Gross profit of approximately 3% and reduced Selling, general and administrative expenses by 2%.

The changes in foreign exchange rates since December 31, 2021 also decreased net assets by approximately 1% as of April 1, 2022.

European operations in our Fabrication Technology segment typically experience a slowdown during the July, August and December vacation seasons.

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

However, the business impact caused by the COVID-19 pandemic has distorted the effects of historical seasonality patterns in 2020 and 2021.

However, the business impact caused by the COVID-19 pandemic has distorted the effects of historical seasonality patterns.

Non-GAAP Measures

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

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

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

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

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

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

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

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

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

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

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

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The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITA.

Three Months Ended Nine Months Ended

October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended

April 1, 2022 April 2, 2021

(Dollars in millions)

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Income tax expense 18.7 7.9

Pension settlement gain — — (11.2) —

Interest expense, net 15.1 25.7

Debt extinguishment charges — — 29.9 —

Restructuring and other related charges (1)

6.5 6.3 16.0 28.5

MDR and other costs (2)

1.9 2.6 5.6 4.5

MDR and related costs (2)

Strategic transaction costs (3)

17.9 0.6 27.3 3.2

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

41.3 36.2 118.8 108.1

Adjusted EBITA (non-GAAP) $ 129.0 $ 107.1

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Adjusted EBITA margin (non-GAAP) 12.6 % 12.2 %

(1) Restructuring and other related charges includes $2.2 million and $4.9 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations for the three and nine months ended October 2, 2020, respectively.

(1) Restructuring and other related charges includes $0.5 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations for the three months ended April 1, 2022.

(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 Condensed Consolidated Statements of Operations.

(3) For the three and nine months ended October 1, 2021, Strategic transaction costs includes costs related to the Separation and certain transaction and integration costs related to recent acquisitions.

For the three and nine months ended October 2, 2020, Strategic transaction costs includes costs incurred for the acquisition of DJO.

(3) For the three months ended April 1, 2022, Strategic transaction costs includes costs related to the Separation and certain transaction and integration costs related to recent acquisitions.

For the three months ended April 2, 2021, Strategic transaction costs includes costs related to the Separation.

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

The following tables set forth a reconciliation of operating income (loss), the most directly comparable financial statement measure, to Adjusted EBITA by segment for the three and nine months ended October 1, 2021 and October 2, 2020.

Three Months Ended October 1, 2021 Nine Months Ended October 1, 2021

Fabrication Technology Medical Technology Corporate and other Total Fabrication Technology Medical Technology Corporate and other Total

The following tables set forth a reconciliation of operating income (loss), the most directly comparable financial statement measure, to Adjusted EBITA by segment for the three months ended April 1, 2022 and April 2, 2021, respectively.

Three Months Ended April 1, 2022

Fabrication Technology Medical Technology Corporate and other Total

(Dollars in millions)

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Adjusted EBITA margin (non-GAAP) 16.5 % 10.1 % — % 12.6 %

Three Months Ended October 2, 2020 Nine Months Ended October 2, 2020

Fabrication Technology Medical Technology Corporate and other Total Fabrication Technology Medical Technology Corporate and other Total

Three Months Ended April 2, 2021

Fabrication Technology Medical Technology Corporate and other Total

(Dollars in millions)

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Adjusted EBITA (non-GAAP) $ 91.4 $ 31.6 $ (15.9) $ 107.1

Segment operating income (loss) margin (non-GAAP) 12.8 % 7.3 % — % 8.8 % 12.3 % 0.7 % — % 6.1 %

Segment operating income margin (non-GAAP) 14.5 % 0.7 % — % 7.6 %

Adjusted EBITA margin (non-GAAP) 16.1 % 10.2 % — % 12.2 %

Total Company

Net sales for the three and nine months ended October 1, 2021 increased as compared with the three and nine months ended October 2, 2020.

Net sales for the three months ended April 1, 2022 increased from the three months ended April 2, 2021.

The following table presents the components of changes in our consolidated Net sales.

Three Months Ended Nine Months Ended

Net Sales Change % Net Sales Change %

Three Months Ended

Net Sales Change %

(Dollars in millions)

For the three and nine months ended October 2, 2020 $ 805.9 $ 2,242.6

For the three months ended April 2, 2021 $ 879.2

Components of Change:

Existing Businesses (1)

110.2 13.7 % 462.3 20.6 %

Acquisitions (2)

46.0 5.7 % 84.0 3.7 %

Foreign Currency Translation (3)

(25.9) (2.9) %

160.0 19.9 % 588.4 26.2 %

For the three and nine months ended October 1, 2021 $ 965.9 $ 2,831.0

For the three months ended April 1, 2022 $ 1,023.4

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

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

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

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

The increase in Net sales during the three and nine months ended October 1, 2021 compared to the prior year periods was primarily attributable to the recovery from the COVID-related sales downturn in 2020, as well as acquisition-related sales and inflation-related pricing increases.

During the three and nine months ended October 1, 2021, the existing business sales of our Fabrication Technology segment increased $111.5 million and $342.5 million, respectively, while our Medical Technology segment increased $119.8 million during the nine months ended October 1, 2021.

Existing business sales in our Fabrication Technology segment increased in the three months ended October 1, 2021 primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives and improved sales volume.

During the nine months ended October 1, 2021, existing business sales in our Fabrication Technology segment increased due to strong sales volume, inflation-related pricing increases and new product initiatives.

Net sales from acquisitions increased during the three and nine months ended October 1, 2021 primarily due to acquisitions in our Medical Technology segment that closed in 2021 and in the fourth quarter of 2020.

The weakening of the U.S.

dollar relative to other currencies resulted in $3.9 million and $42.1 million favorable foreign currency translation impacts during the three and nine months ended October 1, 2021, respectively.

The increase in Net sales during the first quarter ended April 1, 2022 compared to the prior year period was primarily attributable to acquisition-related sales, inflation-related pricing increases and organic volume increases.

Both current year and prior year periods sales volumes were negatively impacted by COVID-19.

Existing business sales in our Fabrication Technology segment increased $101.2 million in the three months ended April 1, 2022 primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives and improved sales volume.

During the three months ended April 1, 2022, existing business sales in our Medical Technology segment increased $23.3 million due to higher sales volumes compared to the prior year period.

Net sales from acquisitions for the three months ended April 1, 2022 are due to acquisitions in our Medical Technology segment that closed since the beginning of 2021.

The strengthening of the U.S.

dollar relative to other currencies, most notably the Euro, resulted in a $25.9 million unfavorable foreign currency translation impact.

Operating Results

The following table summarizes our results of continuing operations for the comparable periods.

Three Months Ended Nine Months Ended

October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended

April 1, 2022 April 2, 2021

(Dollars in millions)

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Restructuring and other related charges (1)

$ 6.5 $ 6.3 $ 16.0 $ 28.5

MDR and other costs $ 1.9 $ 2.6 $ 5.6 $ 4.5

MDR and related costs $ 2.6 $ 1.8

Strategic transaction costs $ 21.4 $ 1.4

Acquisition-related amortization and other non-cash charges $ 43.6 $ 38.5

Pension settlement gain $ — $ — $ (11.2) $ —

Interest expense, net $ 15.1 $ 25.7

Debt extinguishment charges $ — $ — $ 29.9 $ —

Income tax expense $ 18.7 $ 7.9

Third Quarter of 2021 Compared to Third Quarter of 2020

Gross profit increased in the third quarter of 2021 compared with the prior year period due to a $33.0 million increase in our Fabrication Technology segment and a $27.7 million increase in our Medical Technology segment.

The Gross profit increase in our Fabrication Technology segment was primarily attributable to a rebound from lower sales volumes in the third quarter of 2020 caused by the COVID-19 impact.

The Gross profit increase in our Medical Technology segment was due to acquisition growth.

First Quarter of 2022 Compared to First Quarter of 2021

Gross profit increased in the first quarter of 2022 compared with the prior year period due to a $24.5 million increase in our Fabrication Technology segment and a $34.6 million increase in our Medical Technology segment.

The Gross profit increase was primarily attributable to business acquisition-related increases, favorable sales mix, and improved volumes.

Increased Gross profit in our Medical Technology segment was also due to acquisition growth primarily in Reconstructive product lines.

Improved Gross profit in both segments was partially offset by increased supply chain and logistic costs.

Gross profit margin was impacted by the same drivers as Gross profit, but decreased slightly due to inflation-related pricing and cost increases in our Fabrication Technology segment.

Selling, general and administrative expense increased $56.3 million in the third quarter of 2021 compared to the prior year period due to $36.1 million of costs related to acquired businesses, the cessation of prior year temporary cost reduction measures that were taken in response to COVID-19, and a $17.3 million increase in strategic transaction costs due to Separation-related costs.

Interest expense, net decreased in the third quarter of 2021 compared to the prior year period due to a reduction in debt balances, primarily as a result of the redemption of senior notes in the second quarter of 2021.

The effective tax rate for Net income from continuing operations during the third quarter of 2021 was 44.3%, which was higher than the 2021 U.S.

federal statutory tax rate of 21%, mainly due to the relative unfavorable increase in U.S.

tax on international operations due to lower U.S.

forecasted income and increased taxable foreign exchange gains as compared to the three months ended July 2, 2021 and nine months ended October 1, 2021.

The effective tax rate for the third quarter of 2020 was 53.7%, which was higher than the 2020 U.S.

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

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

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

tax credits, a benefit from U.S.

state tax losses, and the realization of tax benefits associated with effective settlements of uncertain tax positions.

Net income from continuing operations increased in the third quarter of 2021 compared with the prior year period primarily due to the strong recovery from the prior year COVID-related sales downturn and related cost impacts.

The sales-related benefits from this recovery were partially offset by increases in expenses attributable to the cessation of aforementioned temporary cost reductions in place during the third quarter of 2020 in reaction to COVID-driven sales reductions, as well as increased supply chain and logistic costs and higher Selling, general and administrative expenses associated with the Separation.

Net income margin from continuing operations increased by 80 basis points due to the aforementioned factors.

Adjusted EBITA increased due to the improved sales volumes, partially offset by higher supply chain and logistic costs and the cessation of third quarter 2020 temporary cost reductions.

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

Nine months ended October 1, 2021 Compared to Nine months ended October 2, 2020

Gross profit increased in the nine months ended October 1, 2021 compared with the prior year period due to a $122.5 million increase in our Fabrication Technology segment and a $139.1 million increase in our Medical Technology segment.

The Gross profit increase was primarily attributable to higher sales volumes and the related improved production variances compared to the nine months ended October 2, 2020, during which sales volumes were negatively impacted by the COVID-19 pandemic.

During the nine months ended October 1, 2021, Gross profit also improved due to acquisition growth, new product initiatives and favorable foreign currency impacts, partially offset by increased supply chain and logistic costs in both segments.

Gross profit margin increased for the same reasons, partially offset by inflation-related pricing and cost increases in our Fabrication Technology segment.

Selling, general and administrative expense increased $171.7 million in the nine months ended October 1, 2021 compared to the prior year period, primarily due to a $69.9 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses, primarily within our Medical Technology segment, the cessation of prior year temporary cost reduction measures that were taken in response to COVID-19, and increased sales commissions from increased sales levels.

A $24.1 million increase in strategic transaction costs related to the Separation also increased Selling, general and administrative expense during the nine months ended October 1, 2021.

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

Additionally, during the nine months ended October 1, 2021, a pension settlement gain of $11.2 million was recognized when the independent trustees of a company pension plan agreed to merge that plan with another company pension plan and contribute its surplus assets.

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

Interest expense, net decreased in the nine months ended October 1, 2021 compared to the same period in the prior year, primarily due to an overall reduction in debt balances during the current year period as a result of the aforementioned redemption of senior notes.

The effective tax rate for Net income from continuing operations during the nine months ended October 1, 2021 was 30.6%, which was higher than the 2021 U.S.

federal statutory tax rate of 21%, mainly due to withholding taxes, U.S.

tax on international operations, and other non-deductible expenses, offset in part by the effective settlements of uncertain tax positions, a benefit from U.S.

state tax losses, and U.S.

The effective tax rate for the nine months ended October 2, 2020 was 10.5%, which was lower than the 2020 U.S.

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

tax credits, a benefit from U.S.

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

Federal tax returns to credit rather than to deduct foreign taxes, the impact of an enacted law change in India, and the realization of tax benefits associated with effective settlements of uncertain tax positions.

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

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

Net income from continuing operations increased in the nine months ended October 1, 2021 compared with the prior year period primarily due to the strong recovery from the prior year COVID-related sales downturn.

The sales-related benefits from this recovery in the nine months ended October 1, 2021 were partially offset by increases in expenses attributable to the

cessation of aforementioned temporary cost reductions implemented during the nine months ended October 2, 2020 in reaction to COVID-driven sales reductions, as well as increased supply chain and logistic costs.

In the nine months ended October 1, 2021, we incurred higher sales commissions related to greater sales and debt extinguishment charges.

Net income margin from continuing operations increased by 210 basis points due to the aforementioned factors.

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

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

Gross profit margin was impacted by the same drivers as Gross profit, but decreased slightly due to inflation-related customer pricing and cost increases in our Fabrication Technology segment.

Selling, general and administrative expense increased $63.7 million in the first quarter of 2022 compared to the prior year period due to business acquisition-related increases of $26.7 million in our Medical Technology segment, a $20.0 million increase in strategic transaction costs driven by higher Separation-related costs, and, to a lesser extent, increases in compensation and travel costs.

Interest expense, net decreased in the first quarter of 2022 compared to the prior year period due to a reduction in debt balances, primarily as a result of the redemption of senior notes in the second quarter of 2021.

The effective tax rate for Net income from continuing operations during the first quarter of 2022 was 49.1%, which was higher than the 2022 U.S.

federal statutory tax rate of 21%, mainly due to withholding taxes, taxable foreign exchange gains, U.S.

taxation of international operations, other non-deductible expenses, and various items expensed discretely to the quarter.

The effective tax rate for the first quarter of 2021 was 22.2%, which was higher than the 2021 U.S.

federal statutory tax rate of 21% mainly due to withholding taxes, taxable foreign exchange gains and other non-deductible expenses partially offset by the benefit of U.S.

Net income from continuing operations decreased in the first quarter of 2022 compared with the prior year period primarily due to costs associated with the Separation, increased income tax expense and acquisition-related costs, partially offset by improved sales volumes.

Net income margin from continuing operations decreased by 130 basis points due to the aforementioned factors.

Adjusted EBITA increased due to the improved sales volumes, partially offset by higher supply chain and logistic costs.

Adjusted EBITA margin increased 40 basis points for the same reasons Adjusted EBITA increased, partially offset by inflation-related customer pricing and cost increases in our Fabrication Technology segment, as well as recent acquisitions in our Medical Technology segment which were dilutive to the margin, but are expected to be accretive in future years.

Business Segments

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Fabrication Technology

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

Our fabrication technology business formulates, develops, manufactures and supplies consumable products and equipment, including cutting, joining, and automated welding products, as well as gas control equipment.

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

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

Products are sold into a wide range of end markets, including infrastructure, wind power, marine, medical/life sciences, pipelines, mobile/off-highway equipment, oil, gas, and mining.

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

As part of the Separation described elsewhere in this report, on April 4, 2022, we spun-off our fabrication technology business.

Refer to Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information regarding the Separation.

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

Three Months Ended Nine Months Ended

October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended

April 1, 2022 April 2, 2021

(Dollars in millions)

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Acquisition-related amortization and other non-cash charges $ 7.7 $ 9.1

Third Quarter of 2021 Compared to Third Quarter of 2020

Net sales in our Fabrication Technology segment increased $114.5 million in the third quarter of 2021 compared with the prior year period driven by inflation-related pricing impacts, which comprised approximately 15% of the increase, as well as new product initiatives and improved sales volumes due to continued market recovery from COVID-19.

Gross profit increased $33.0 million due to the higher sales volumes compared to the prior year period.

Gross profit margin decreased 120 basis points due to inflation-related pricing and cost increases, which compressed the margin.

Selling, general and administrative expense increased primarily due to the cessation of temporary cost reductions in place during the third quarter of 2020, partially offset by favorable resolutions of certain trade receivables and other risks.

Segment operating income and Adjusted EBITA improved

due to increased sales volumes, partially offset by increased Selling, general and administrative expenses.

The related margins increased for the same reasons, partially offset by inflation-related pricing and cost increases during the third quarter of 2021.

Nine months ended October 1, 2021 Compared to Nine months ended October 2, 2020

Net sales increased $372.5 million in the nine months ended October 1, 2021 compared with the prior year period due to the strong recovery from the COVID-19 effects in the nine months ended October 2, 2020, as well as new product initiatives, inflation-related pricing impacts, and a $28.4 million favorable foreign currency translation impact.

Gross profit increased $122.5 million during the nine months ended October 1, 2021 as a result of improved sales volumes and production efficiencies, while Gross profit margin decreased 40 basis points due to inflation-related pricing and cost increases, which compressed the margin.

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

Segment operating income and Adjusted EBITA increased in the nine months ended October 1, 2021 compared to the prior year period due to the improved sales volumes, partially offset by increased Selling, general and administrative costs.

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

First Quarter of 2022 Compared to First Quarter of 2021

Net sales in our Fabrication Technology segment increased $79.8 million, or 14%, in the first quarter of 2022 compared with the prior year period driven primarily by inflation-related customer pricing impacts, as well as new product initiatives and improved sales volumes, partially offset by unfavorable foreign currency translation.

Gross profit increased $24.5 million due to the improved sales volumes, driven by new product initiatives, and favorable product mix.

Gross profit margin decreased 60 basis points due to inflation-related customer pricing and cost increases, which compressed the margin.

Selling, general and administrative expense increased primarily due to increased costs related to the Separation, as well as increased allowances on receivables in certain regions and increased compensation costs.

Segment operating income and Segment operating income margin improved due to increased sales and favorable product mix, partially offset by increased Selling, general and

administrative expenses.

Adjusted EBITA and Adjusted EBITA margin increased for the same reasons, partially offset by inflation-related customer pricing and cost increases during the first quarter of 2022.

Medical Technology

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

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

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

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

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

Three Months Ended Nine Months Ended

October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended

April 1, 2022 April 2, 2021

(Dollars in millions)

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Restructuring and other related charges (1)

$ 2.2 $ 3.8 $ 5.2 $ 17.1

MDR and other costs $ 1.9 $ 2.6 $ 5.6 $ 4.5

MDR and related costs (2)

Strategic transaction costs $ 2.1 $ —

Acquisition-related amortization and other non-cash charges $ 35.9 $ 29.4

Third Quarter of 2021 Compared to Third Quarter of 2020

Net sales increased in our Medical Technology segment in the third quarter of 2021 compared with the prior year period primarily due to acquisition-related sales growth of $45.5 million in the current year period.

Sales from existing business were relatively flat and were unfavorably impacted by approximately $7 million of non-recurring sales of personal protective equipment in the prior year period.

As a result of the surge in cases of COVID-19 variants, certain jurisdictions put further

COVID-19-related restrictions in place during the third quarter of 2021, which decelerated the recovery in elective surgical procedure volumes.

Gross profit and gross profit margins increased in the third quarter of 2021 compared to the third quarter of 2020 primarily due to acquisition-related growth and favorable product mix, partially offset by increased supply chain and logistic costs.

Selling, general and administrative expense increased over the same period primarily due to the cessation of temporary employee cost reductions in place during the third quarter of 2020 and costs associated with acquisitions, including integration costs for the newly-acquired businesses.

Segment operating income and Adjusted EBITA decreased primarily due to the aforementioned cessation of temporary employee cost reductions and increased supply chain and logistic costs.

The related margins decreased for the same reasons, as well as a result of the dilutive impact of recent acquisitions.

Restructuring and other related charges decreased by $1.6 million due to the completion of certain projects in earlier periods.

Nine months ended October 1, 2021 Compared to Nine months ended October 2, 2020

Net sales increased in our Medical Technology segment in the nine months ended October 1, 2021 compared with the prior year period due to a recovery in sales volumes from the decline related to COVID-19 during the nine months ended October 2, 2020, as well as continued expansion in the reconstructive product group from key products launched in 2020, acquisition-related sales growth of $82.4 million and a favorable foreign currency translation impact of $13.7 million.

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

However, as a result of the aforementioned surge in cases of COVID-19 variants, recovery slowed during the third quarter of 2021, primarily due to a deceleration in elective surgical procedure volumes.

Gross profit and Gross profit margins increased during the nine months ended October 1, 2021 compared to the prior year period due to improved sales volumes and acquisition-related growth, partially offset by increased supply chain and logistic costs.

Selling, general and administrative expense also increased primarily due to costs associated with acquisitions and the related integration costs for the newly-acquired businesses, the cessation of temporary employee cost reductions implemented during the nine months ended October 2, 2020, and higher sales commissions in the current year period.

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

Restructuring and other related charges decreased by $11.9 million due to the completion of certain projects.

First Quarter of 2022 Compared to First Quarter of 2021

Net sales increased in our Medical Technology segment in the first quarter of 2022 compared with the prior year period primarily due to acquisition-related sales growth of $45.6 million in the current year period.

Sales from existing business increased $23.3 million primarily due to higher sales volumes in the current year period compared to the prior year period, both of which were impacted by COVID-19.

The benefit from acquisition-related sales and increased existing business sales was partially offset by unfavorable foreign currency translation.

Gross profit increased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to acquisition-related growth and favorable product mix, partially offset by increased supply chain and logistic costs and acquisition-related inventory valuation step-up charges, which also led to a slight decrease in Gross profit margin.

Selling, general and administrative expense increased over the same period primarily due to costs associated with acquisitions, including integration costs for the newly-acquired businesses and increased commissions as a result of improved sales volumes.

Segment operating income and Segment operating income margin decreased primarily due to increased acquisition-related costs and costs related to the Separation, partially offset by improved sales volumes.

Adjusted EBITA increased primarily due to improved sales volumes in the current year, partially offset by increased supply chain and logistic costs and increased Selling, general and administrative costs, while adjusted EBITA margin decreased slightly primarily due to the dilutive impact of recent acquisitions.

Restructuring and other related charges increased by $2.0 million due to the implementation of new restructuring initiatives.

Liquidity and Capital Resources

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

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

We expect that our primary ongoing requirements for cash after the Separation will be for working capital, funding of acquisitions, near-term Separation costs, capital expenditures, restructuring, and debt service and principal repayments.

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

On April 4, 2022, we completed the separation of our fabrication technology business through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corp to Enovis stockholders.

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

We intend to divest the 10% retained shares in ESAB Corp in a tax-efficient exchange for our outstanding debt no later than 12 months after the Distribution date.

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

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

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

Refer to Note 15, “Subsequent Events” for further information including detail of ongoing financing arrangements.

Equity Capital

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

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

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

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

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

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

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

As of October 1, 2021, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million.

As of April 1, 2022, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million.

The timing, amount, and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors.

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Term Loan and Revolving Credit Facility

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

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

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

Refer to Note 10, “Debt” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information.

As of October 1, 2021, we are in compliance with the covenants under the Credit Facility.

As of October 1, 2021, the weighted-average interest rate of borrowings under the Credit Facility was 1.59%, excluding accretion of original issue discount and deferred financing fees, and there was $850 million available on the Revolver.

Our credit agreement (the “Credit Facility”), which was legally extinguished in conjunction with the Separation on April 4, 2022, consisted of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan in an initial aggregate principal amount of $825 million, each with a maturity date of December 6, 2024.

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

Refer to Note 10, “Debt” and Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information.

As of April 1, 2022, the Company was in compliance with the covenants under the Credit Facility.

As of April 1, 2022, the weighted-average interest rate of borrowings under the Credit Facility was 1.74%, excluding accretion of original issue discount and deferred financing fees, and there was $375 million available on the Revolver.

Euro Senior Notes

Our senior unsecured notes with an aggregate principal amount of €350 million (the “Euro Notes”) are due in April 2025, have an interest rate of 3.25%, and are guaranteed by certain of our domestic subsidiaries (the “Guarantees”).

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

Our senior unsecured notes with an aggregate principal amount of €350 million were due in May 2025 and had an interest rate of 3.25%.

The Euro Senior Notes were redeemed on April 7, 2022 after the completion of the Separation.

TEU Amortizing Notes

Our TEU amortizing notes with an initial principal amount of $15.6099 per unit, bear interest at a rate of 6.50% per annum, and have equal quarterly cash installments of $1.4375 per TEU amortizing note with a final installment payment date of January 15, 2022.

The quarterly cash installment constitutes a payment of interest and a partial repayment of principal.

We paid $18.6 million and $17.4 million of principal on the TEU amortizing notes in the nine months ended October 1, 2021 and October 2, 2020, respectively.

The TEU amortizing notes are the direct, unsecured and unsubordinated obligations of the Company and rank equally with all of the existing and future other unsecured and unsubordinated indebtedness of the Company.

Refer to Note 10, “Debt” in the accompanying Notes to Condensed Consolidated Financial Statements for more information.

2024 Notes and 2026 Notes

We had senior notes with an aggregate principal amount of $600 million (the “2024 Notes”), which were due on February 15, 2024 and had an interest rate of 6.0%.

We have senior notes with an initial aggregate principal amount of $400 million (the “2026 Notes”), which are due on February 15, 2026 and have an interest rate of 6.375%.

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

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

Refer to Note 10, “Debt”, in the accompanying Notes to Condensed Consolidated Financial Statements for more information.

On January 15, 2022, we made the final installment payment on our TEU amortizing notes, which had an initial principal amount of $15.6099 per unit and an interest rate of 6.50% per annum.

We paid $6.5 million and $6.1 million of principal on the TEU amortizing notes in the three months ended April 1, 2022 and April 2, 2021, respectively.

We had senior notes with an initial aggregate principal amount of $300 million, which were due on February 15, 2026 and had an interest rate of 6.375%.

The 2026 Notes were redeemed on April 7, 2022 after the completion of the Separation.

Other Indebtedness

In addition, we are party to various bilateral credit facilities with a borrowing capacity of $168.2 million.

As of October 1, 2021, there were no outstanding borrowings under these facilities.

As of April 1, 2022, there were no outstanding borrowings under these facilities.

Subsequent to the end of the first quarter of 2022, the bilateral credit facilities are no longer available to Enovis due to the completion of the Separation as they relate to ESAB Corp or expired.

We are also party to letter of credit facilities with an aggregate capacity of $211.9 million.

Total letters of credit of $34.6 million were outstanding as of October 1, 2021.

Total letters of credit of $40.2 million were outstanding as of April 1, 2022.

Substantially all of the letter of credit facilities relate to central banking entities and operations of ESAB Corp which was spun-off with the fabrication technology business on April 4, 2022.

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

As of October 1, 2021, we had $177.5 million of Cash and cash equivalents, an increase of $76.4 million from the balance as of December 31, 2020 of $101.1 million, which included $4.0 million of Restricted cash.

As of April 1, 2022, we had $661.5 million of Cash and cash equivalents, a decrease of $57.9 million from the balance as of December 31, 2021 of $719.4 million.

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

Nine Months Ended

October 1, 2021 October 2, 2020

Three Months Ended

April 1, 2022 April 2, 2021

(Dollars in millions)

Net cash provided by operating activities $ 259.9 $ 173.1

Net cash provided by (used in) operating activities $ (14.4) $ 84.4

Purchases of property, plant and equipment (24.1) (24.5)

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Net cash used in investing activities (35.2) (128.0)

Repayments from borrowings, net (594.3) (116.1)

Repayments of borrowings, net (7.4) (6.3)

Proceeds from issuance of common stock, net 1.2 716.6

Payment of debt extinguishment costs (24.4) —

Other (7.7) (12.4)

Deferred consideration payments and other (4.6) (2.7)

Net cash provided by (used in) financing activities (10.8) 707.7

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Increase (decrease) in Cash and cash equivalents $ (57.9) $ 662.6

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

Changes in significant operating cash flow items are discussed below.

• During the nine months ended October 1, 2021 and October 2, 2020, cash payments of $15.1 million and $31.4 million, respectively, were made related to our restructuring initiatives.

• During the nine months ended October 1, 2021, cash payments of $6.3 million were made related to the Separation.

• Year-to-date 2021 results include $69.0 million of outflows from working capital as a result of business growth and supply chain challenges, which have caused certain increases in inventory levels.

Results in the comparable prior year

period provided cash of $44.6 million due to decreases in receivables and inventories, partially offset by a decrease in accounts payable due to COVID-related declines.

• Year-to-date 2021 net cash provided by operating activities also included a cash inflow from a $36.0 million U.S.

• During the three months ended April 1, 2022 and April 2, 2021, cash payments of $9.1 million and $4.7 million, respectively, were made related to our restructuring initiatives.

• During the three months ended April 1, 2022, cash payments of $7.9 million were made related to the Separation.

• Year-to-date 2022 results include $61.9 million of outflows from working capital business growth, which have caused certain increases in accounts receivable and inventory levels, offset by an increase in accounts payable.

Results in the comparable prior year period provided cash of $8.3 million due to an increase in accounts payable, offset by increases in accounts receivable and inventory levels due to COVID-19 recovery.

• Prior year net cash provided by operating activities included a one-time cash inflow from a $36.0 million U.S.

federal tax refund received in the first quarter of 2021.

• Cash used in operating activities related to discontinued operations for the nine months ended October 1, 2021 was $7.2 million, primarily due to a settlement related to a disposed business, partially offset by net asbestos inflows.

Cash used in operating activities related to discontinued operations for the nine months ended October 2, 2020 was $18.4 million, which included $11.2 million of asbestos outflows and $7.2 million related to our divested air and gas handling business.

Cash flows used in investing activities during the nine months ended October 1, 2021 increased due to cash paid for acquisitions and investments in our Medical Technology segment of $218.0 million, as well as an acquisition outlay in our Fabrication Technology segment of $5.0 million.

Cash flows provided by financing activities for the nine months ended October 1, 2021 included the $711.3 million net proceeds from the public offering of 16.1 million shares of Colfax Common stock on March 19, 2021.

The net proceeds were used in the $600 million full redemption of our 2024 Notes and the $100 million partial redemption of our 2026 Notes.

Cash flows from financing activities includes net borrowings on our Revolver of $125 million in 2021 and net repayments of $50.0 million and $40.0 million on our Revolver and Term A-1 loan, respectively, in 2020.

Our Cash and cash equivalents as of October 1, 2021 include $44.6 million held in jurisdictions outside the U.S., a decrease of $6.0 million in the third quarter of 2021.

• Cash used in operating activities related to discontinued operations for the three months ended April 1, 2022 was $5.8 million.

Cash used in operating activities related to discontinued operations for the three months ended April 2, 2021 was $7.3 million, primarily due to a settlement related to a disposed business.

Cash flows used in investing activities during the three months ended April 1, 2022 decreased due to lower acquisition and investment activity in the current year period.

Cash paid for acquisitions and investments in our Medical Technology segment was $13.8 million and $98.5 million during the three months ended April 1, 2022 and April 2, 2021, respectively.

During the three months ended April 2, 2021, we also had an acquisition outlay in our Fabrication Technology segment of $5.0 million.

Cash flows used in financing activities during the three months ended April 1, 2022 include $7.4 million repayment of borrowings.

Cash flows provided by financing activities for the three months ended April 2, 2021 included the $711.3 million net proceeds from the public offering of our Common stock on March 19, 2021.

The net proceeds were used for the $600 million full redemption of our 2024 Notes and the $100 million partial redemption of our 2026 Notes in the second quarter of 2021.

Our Cash and cash equivalents as of April 1, 2022 include $59.9 million held in jurisdictions outside the U.S.

Cash repatriation of non-U.S.

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may be subject to taxes, other local statutory restrictions and minority owner distributions.

The majority of the cash and cash equivalents held in jurisdictions outside the U.S.

relate to central banking entities and operations of ESAB Corp which was spun-off with the Fabrication Technology business on April 4, 2022.

Critical Accounting Policies

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What changed 10-Q

Item 2. Management’s Discussion and Analysis