What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-03 · 206 added, 343 removed, 448 unchanged (55% of the section changed)

3 unchanged sentences

Dollars in thousands, except per share amounts

Three Months Ended Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Three Months Ended

March 31, 2023 April 1, 2022

Net sales $ 684,000 $ 647,911

4 unchanged sentences

Operating income 90,663 83,614

Pension settlement gain ( 3,300 ) — ( 3,300 ) ( 11,208 )

Interest expense (income) and other, net 19,510 ( 556 )

16 unchanged sentences

ESAB CORPORATION

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

Dollars in thousands

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

March 31, 2023 April 1, 2022

Net income $ 33,216 $ 56,403

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation, net of tax expense of $ 45 and $ 338

42,084 ( 45,189 )

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax expense of $ 2,895 and $ 2,895

9,960 — 9,960 —

Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax benefit of $ 1,045

Defined benefit pension and other post-retirement plan activity, net of tax expense of $ 66 and $ 241

766 270 2,322 698

Other comprehensive loss ( 88,066 ) ( 35,631 ) ( 233,586 ) ( 61,795 )

Comprehensive (loss) income ( 34,750 ) 25,801 ( 67,843 ) 136,283

comprehensive (loss) income attributable to noncontrolling interest ( 181 ) 1,048 ( 693 ) 1,707

Comprehensive (loss) income attributable to ESAB Corporation $ ( 34,569 ) $ 24,753 $ ( 67,150 ) $ 134,576

Other comprehensive income (loss) 38,780 ( 44,403 )

Comprehensive income 71,996 12,000

comprehensive income attributable to noncontrolling interest 1,814 458

Comprehensive income attributable to ESAB Corporation $ 70,182 $ 11,542

See Notes to Consolidated and Combined Condensed Financial Statements.

ESAB CORPORATION

CONSOLIDATED AND COMBINED CONDENSED BALANCE SHEETS

CONSOLIDATED AND CONDENSED BALANCE SHEETS

Dollars in thousands, except share and per share amounts

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

CURRENT ASSETS:

Cash and cash equivalents $ 82,064 $ 72,024

Trade receivables, less allowance for credit losses of $ 23,564 and $ 23,912

Trade receivables, less allowance for credit l osses of $ 24,587 and $ 23,471

404,128 374,329

17 unchanged sentences

Total liabilities 2,390,854 2,365,557

Common stock - $ 0.001 par value - Authorized 600,000,000 , 60,076,559 and 100 shares outstanding as of September 30, 2022 and December 31, 2021, respectively

Common stock - $ 0.001 par value - Authorized 600,000,000 , 60,222,263 and 60,094,725 shares outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,868,133 1,865,904

Retained earnings 188,101 159,231

Former Parent’s investment — 2,921,623

Accumulated other comprehensive loss ( 636,709 ) ( 674,988 )

12 unchanged sentences

Net income — — — 31,903 — — 1,313 33,216

Distributions to noncontrolling owners — — — — — — ( 941 ) ( 941 )

Other comprehensive loss, net of tax expense of $ 579

— — — — — ( 43,895 ) ( 508 ) ( 44,403 )

Former Parent common stock-based award activity — — — — 1,728 — — 1,728

Transfers from (to) Former Parent, net — — — — 62,110 ( 59,263 ) — 2,847

Balance at April 1, 2022

— $ — $ — $ — $ 3,040,898 $ ( 564,046 ) $ 40,510 $ 2,517,362

Net income — — — 55,249 — — 775 56,024

Dividends declared ($ 0.05 per share)

— — — ( 3,033 ) — — — ( 3,033 )

Other comprehensive loss, net of tax expense of $ 594

— — — — — ( 99,373 ) ( 1,745 ) ( 101,118 )

Net transfers from Former Parent, including Separation Adjustments — — — — 8,533 — — 8,533

Net consideration paid to Former Parent in connection with the Separation — — — — ( 1,200,000 ) — — ( 1,200,000 )

Issuance of common stock in connection with the Separation and reclassification of Net Investment from Former Parent 60,034,311 60 1,849,371 — ( 1,849,431 ) — — —

Common stock-based award activity 9,232 — 3,627 — — — — 3,627

Balance at July 1, 2022

60,043,543 $ 60 $ 1,852,998 $ 52,224 $ — $ ( 663,419 ) $ 39,540 $ 1,281,403

Net income — — — 52,354 — — 962 53,316

Dividends declared ($ 0.05 per share)

— — — ( 3,029 ) — — — ( 3,029 )

Distributions to noncontrolling owners — — — — — — ( 1,359 ) ( 1,359 )

Other comprehensive loss, net of tax expense of $ 4,760

Other comprehensive gain, net of tax benefit of $ 934

— — — — — 38,279 501 38,780

Common stock-based award activity 127,538 — 2,229 — — — — 2,229

Balance at September 30, 2022

Balance at March 31, 2023

60,222,263 $ 60 $ 1,868,133 $ 188,101 $ — $ ( 636,709 ) $ 38,706 $ 1,458,291

See Notes to Consolidated and Combined Condensed Financial Statements.

ESAB CORPORATION

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF EQUITY

Dollars in thousands

Common Stock Additional Paid in Capital Retained Earnings Former Parent’s Investment Accumulated Other Comprehensive Loss Noncontrolling Interest Total

10 unchanged sentences

— $ — $ — $ — $ 3,040,898 $ ( 564,046 ) $ 40,510 $ 2,517,362

Net income — — — — 77,407 — 705 78,112

Other comprehensive income (loss), net of tax expense of $ 0

— — — — — 4,264 ( 610 ) 3,654

Former Parent common stock-based award activity — — — — 1,663 — — 1,663

Transfers to Former Parent, net — — — — ( 56,038 ) — — ( 56,038 )

Balance at July 2, 2021

— $ — $ — $ — $ 2,926,038 $ ( 421,445 ) $ 41,744 $ 2,546,337

Net income — — — — 60,614 — 818 61,432

Distributions to noncontrolling owners — — — — — — ( 1,496 ) ( 1,496 )

Other comprehensive (loss) income, net of tax benefit of $ 0

— — — — — ( 35,861 ) 230 ( 35,631 )

Former Parent common stock-based award activity — — — — 1,702 — — 1,702

Transfers to Former Parent, net — — — — ( 62,305 ) — — ( 62,305 )

Balance at October 1, 2021

— $ — $ — $ — $ 2,926,049 $ ( 457,306 ) $ 41,296 $ 2,510,039

See Notes to Consolidated and Combined Condensed Financial Statements.

2 unchanged sentences

Dollars in thousands

Nine Months Ended

September 30, 2022 October 1, 2021

Three Months Ended

March 31, 2023 April 1, 2022

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 48,699 57,305

Depreciation, amortization, and other impairment charges 21,871 16,689

Stock-based compensation expense 2,994 1,728

Non-cash interest expense 1,673 —

Deferred income tax 2,290 3,509

Pension settlement gain ( 3,300 ) ( 11,208 )

Non-cash interest expense 299 —

Changes in operating assets and liabilities:

10 unchanged sentences

Cash flows from financing activities:

Proceeds from borrowings on term credit facility 1,000,000 —

Proceeds from borrowings on revolving credit facility and other 495,881 244

Repayments of borrowings on revolving credit facility ( 360,000 ) —

Payment of deferred financing fees and other ( 4,904 ) —

Proceeds from borrowings on revolving credit facility 187,000 —

Repayments of borrowings on revolving credit facility and other ( 189,765 ) ( 511 )

Payment of deferred consideration — ( 1,500 )

1 unchanged sentence

Distributions to noncontrolling interest holders ( 1,249 ) ( 941 )

Consideration to Former Parent in connection with the Separation ( 1,200,000 ) —

Transfers from (to) Former Parent, net 2,847 ( 173,412 )

Transfers from Former Parent, net — 2,847

Net cash (used in) financing activities ( 7,047 ) ( 105 )

7 unchanged sentences

Organization and Basis of Presentation

ESAB Corporation (“ESAB” or the “Company”) is a world leader in fabrication and gas control technology, providing our partners with advanced equipment, consumables, gas control equipment, robotics, and digital solutions, which enable the everyday and extraordinary work that shapes our world.

Founded in 1904, ESAB Corporation (“ESAB” or the “Company”) is a world leader in connected fabrication technology and gas control solutions.

ESAB provides its partners with advanced equipment, consumables, gas control equipment, robotics, and digital solutions.

The Company’s rich history of innovative products and workflow solutions and its business system ESAB Business Excellence (“EBX”) allows the Company to realize its purpose of “Shaping the World we Imagine”.

The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding.

1 unchanged sentence

These segments consist of the “Americas,” which includes operations in North America and South America, and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific.

Historically, these businesses had operated as part of Enovis Corporation’s (“Former Parent” or “Enovis”) Fabrication Technologies reportable segment.

The Company’s fiscal year ends December 31.

The Company’s first three quarters end on the last business day of the 13 th week after the end of the prior quarter.

As used herein, the third quarter results for 2022 and 2021 refer to the 13-week periods ended September 30, 2022 and October 1, 2021, respectively.

The Company’s first quarter ends on the last business day of the 13 th week after the end of the prior quarter.

As used herein, the first quarter results for 2023 and 2022 refer to the 13-week periods ended March 31, 2023 and April 1, 2022, respectively.

Separation from Enovis

On January 31, 2022, all remaining legal entities which were part of the Fabrication Technology segment of the Former Parent along with certain entities that were part of the Corporate segment of the Former Parent became subsidiaries of ESAB through a legal entity restructuring.

This reorganization resulted in the inclusion of the following items in ESAB for the three months ending April 1, 2022:

• Certain operating entities that form the historical Fabrication Technology business.

• Certain entities which historically have been a part of the Former Parent’s Corporate reportable segment, including components of the Fo rm er Parent’s legal, human resources, tax and other finance functions that served the entirety of the Former Parent.

• Certain entities relating to the Former Parent’s previously divested Fluid Handling businesses which hold certain asbestos assets, liabilities, costs and insurance recoveries related to the asbestos obligations of these legacy industrial businesses.

Refer to Note 2, “Discontinued Operations” and Note 13, “Commitments and Contingencies” for additional information.

• Certain pension plan assets and liabilities due to transfer of sponsorship of two U.S.

defined benefit plans and a U.S.

other post-retirement benefit plan from the Former Parent to ESAB as of March 21, 2022.

Refer to Note 8, “Benefit Plans” for additional information on the benefit plans transferred to ESAB.

The above items, with the exception of the operating entities that form the Fabrication Technology business, were not previously included in the Company’s 2019 to 2021 historical carve-out financial statements.

These historical carve-out financial statements in ESAB’s Registration Statement on Form 10-12B/A filed with the SEC on March 17, 2022 (the “Form 10”), were presented on a combined basis.

Such basis of accountin g differences before and after the legal entity contributions may impact the comparability between periods in these Consolidated and Combined Condensed Financial Statements.

ESAB Corporation, which was incorporated on May 19, 2021, became the new ultimate parent company for the Former Parent’s Fabrication Technology business during the three months ended April 1, 2022.

On April 4, 2022 (the “Distribution Date”), Colfax Corporation (“Colfax” or the “Former Parent”) completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities as described above, through a tax-free, pro rata distribution (the “Distribution”) of 90 % of the outstanding common stock of ESAB to Colfax stockholders (the “Separation”).

On April 4, 2022, Colfax Corporation (“Colfax”, “Enovis” or the “Former Parent”) completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities, through a tax-free, pro rata distribution (the “Distribution”) of 90 % of the outstanding common stock of ESAB to Colfax stockholders (the “Separation”).

To effect the Separation, each Colfax stockholder of record as of close of business on March 23, 2022 received one share of ESAB common stock for every three shares of Colfax common stock held on the record date.

Upon completion of the Distribution, Colfax changed its name to Enovis Corporation and continued to hold 10 % of the outstanding common stock of ESAB.

Enovis is expected to divest the 10 % retained shares in ESAB within 12 months after the Distribution Date.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

In connection with the Separation, on April 4, 2022, ESAB and Enovis entered into a separation and distribution agreement as well as various other related agreements (collectively the “Agreements”) that govern the Separation and the relationships between the parties going forward, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, and license agreement for the ESAB Business Excellence System (“EBX”).

In conjunction with the Separation on April 4, 2022, the Company entered into a credit agreement (the “Credit Agreement”).

The Company drew down $ 1.2 billion under the Credit Agreement and used these proceeds to make payments to Enovis of $ 1.2 billion, which was used as part of the consideration for the contribution of certain assets and liabilities to the Company by Enovis in connection with the Separation.

The Company entered into interest rate swap agreements and cross-currency swap agreements to manage exposures to currency exchange rates and interest rates arising from these credit facilities;

refer to Note 9 “Debt” and Note 10 “Derivatives” for additional information.

On May 12, 2022, ESAB declared a quarterly cash dividend of $ 0.05 per share of the Company’s common stock.

The dividend of $ 3.0 million was paid to stockholders of record on July 1, 2022.

On September 15, 2022 ESAB announced that the Board of Directors had declared a quarterly cash dividend of $ 0.05 per share of the Company’s common stock to stockholders of record on September 30, 2022, payable on October 14, 2022.

The dividend of $ 3.0 million is included in Accrued liabilities in the Consolidated Balance Sheet at September 30, 2022.

Upon completion of the Distribution, Colfax changed its name to Enovis Corporation and continued to hold 10 % of the outstanding common stock of ESA B.

In November 2022, Enovis sold a total of 6.0 million shares of the Company’s common stock as part of a secondary offering.

After the secondary offering, Enovis no longer owned any of the Company’s outstanding common stock.

Russia and Ukraine Conflict

The invasion of Ukraine by Russia and the sanctions imposed in response to this crisis have increased the level of economic and political uncertainty.

On April 25, 2022, ESAB announced that the Company may be required to transition out of its business in Russia and are evaluating options and possible timing for this transition.

ESAB continues to fulfill current contractual obligations while addressing applicable laws and regulations.

For the three and nine months ended September 30, 2022, Russia represented approximately 7 % and 6 % of the Company’s total revenue, and approximately $ 7 million and $ 14 million of its Net Income, respectively.

Russia also has approximately 6 % of the Company’s total net assets excluding any goodwill allocation as of September 30, 2022.

In case of the disposition of the Russia business, a portion of goodwill will need to be allocated and disposed of in the relative fair value attributable to the Russia business.

Russia has a cumulative translation loss of approximately $ 50 million as of September 30, 2022, which could be realized upon a transition.

To cover credit risks related to Russian and Ukrainian operations, ESAB increased the allowance on receivables by approximately $ 4 million during the nine months ended September 30, 2022.

The Company is closely monitoring the developments in Ukraine and Russia.

The invasion of Ukraine by Russia and the sanctions imposed in response have increased the level of economic and political uncertainty.

While ESAB continues to closely monitor the situation and evaluate options, the Company is meeting current contractual obligations while addressing applicable laws and regulations.

For the three months ended March 31, 2023, Russia represented approximate ly 5 % of the Company’s total revenue, and approximately $ 2 million of its Net income.

Russia also has approximately 4 % of the Company’s total net assets excluding any goodwill allocation as of March 31, 2023.

In case of the disposition of the Russia business, a portion of goodwill would need to be allocated and disposed of in the relative fair value attributable to the Russia business.

Russia has a cumulative translation loss of approximately $ 100 million as of March 31, 2023, which could be realized upon a transition out.

The Company is closely monitoring developments in Ukraine and Russia.

Changes in laws and regulations or other factors impacting the Company’s ability to fulfill contractual obligations could have an adverse effect on the results of operations.

Basis of Presentation

The accompanying Consolidated and Combined Condensed Financial Statements present the Company’s historical financial position, results of operations, changes in equity and cash flows in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

The combined condensed financial statements for periods prior to the Separation were derived from Enovis’s consolidated financial statements and accounting records and prepared in accordance with GAAP for the preparation of carved-out combined financial statements.

Prior to the Separation on April 4, 2022, the historical financial statements were prepared on a combined basis and were derived from the consolidated financial statements of Enovis.

For the periods subsequent to April 4, 2022, the financial statements are presented on a consolidated basis as the Company became a standalone public company as of that date.

Through the date of the Separation, all revenues and costs as well as assets and liabilities directly associated with ESAB have been included in the combined financial statements.

1 unchanged sentence

The allocations were determined on a reasonable basis, however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Enovis during the applicable periods.

Re lated party a llocations prior to the Separation, including the method for such allocation, are discussed further in Note 15, “Related Party Transactions.”

Following the Separation, the consolidated financial statements include ESAB and its wholly-owned subsidiaries and no longer include any allocations of expenses from Enovis.

The Company’s allocated expenses from the Former Parent were $ 6.0 million for the three months ended April 1, 2022.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

• The Consolidated Balance Sheet as of September 30, 2022, consists of the consolidated balances of ESAB, while the Combined Condensed Balance Sheet as of December 31, 2021, consists of the combined balances of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Operations and Statement of Comprehensive Income for the nine months ended September 30, 2022 consist of the consolidated results of ESAB for the six months ended September 30, 2022 and the combined results of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section above for the three months ended April 1, 2022.

The Combined Condensed Statement of Operations and Statement of Comprehensive Income for the three and nine months ended October 1, 2021 consist of the combined results of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Changes in Equity for the nine months ended September 30, 2022 consists of the consolidated activities of ESAB for the six months ended September 30, 2022 and the combined activity of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section above for the three months ended April 1, 2022.

The Combined Condensed Statements of Changes in Equity for the three and nine months ended October 1, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Cash Flows for the nine months ended September 30, 2022 consists of the consolidated activities of ESAB for the six months ended September 30, 2022 and the combined activity of ESAB and the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section above for the three months ended April 1, 2022.

The Combined Condensed Statement of Cash Flows for the three and nine months ended October 1, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis.

The Consolidated and Combined Condensed Financial Statements of ESAB for the three and nine months ended October 1, 2021 and the three months ended April 1, 2022 may not be indicative of the Company's results had it been a separate stand-alone entity throughout the periods presented, nor are the results stated herein indicative of what the Company's financial position, results of operations and cash flows may be in the future.

Prior to the Separation, the Company was dependent on the Former Parent for all of its working capital and financing requirements under Enovis’s centralized approach to cash management and financing of its operations.

3 unchanged sentences

All significant transactions between the Company and the Former Parent prior to the Separation have been included in the accompanying Financial Statements.

Transactions with the Former Parent are reflected in the accompanying Consolidated and Combined Condensed Statements of Equity as “Transfers from Former Parent, net” and in the accompanying Consolidated and Combined Condensed Balance Sheets within “Former Parent’s investment”.

Transactions with the Former Parent are reflected in the accompanying Consolidated and Combined Condensed Statements of Equity as “Transfers to Former Parent, net.”

The Consolidated and Combined Condensed Financial Statements of ESAB for the three months ended April 1, 2022 may not be indicative of the Company's results had it been a separate stand-alone entity throughout the periods presented, nor are the results stated herein indicative of what the Company's financial position, results of operations and cash flows may be in subsequent periods.

The Consolidated and Combined Condensed Financial Statements reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated.

4 unchanged sentences

In the normal course of business, the Company incurs research and development costs related to new product development which are expensed as incurred and included in Selling, general and administrative expenses on the Company’s Consolidated and Combined Condensed Statements of Operations.

Research and development costs were $ 8.0 million and $ 27.1 million

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

during the three and nine months ended September 30, 2022, respectively, a nd $ 9.1 million and $ 28.9 million d uring the three and nine months ended October 1, 2021, respectively.

In addition to the factors discussed elsewhere in this Form 10-Q, the results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results of operations that may be achieved for the full year.

Research and development costs were $ 9.6 million and $ 9.5 million during the three months ended March 31, 2023 and April 1, 2022, respectively.

T hese amounts do not include development and application engineering costs incurred in conjunction with fulfilling customer orders and executing customer projects, nor do they include costs related to securing third party product rights.

We expect to continue making significant expenditures for research and development to maintain and improve our competitive positions.

In addition to the factors discussed elsewhere in this Form 10-Q, the results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results of operations that may be achieved for the full year.

Quarterly results are affected by seasonal variations in the Company’s businesses, and European operations typically experience a slowdown during the July, August and December holiday seasons.

Since 2020, these historical seasonality trends have been impacted by the worldwide spread of a novel coronavirus disease (“COVID-19”).

These Consolidated and Combined Condensed Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) in conformity with GAAP, for the preparation of the Consolidated and Combined Condensed Financial Statements and are unaudited.

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.

The accompanying interim Consolidated and Combined Condensed Financial Statements and the related notes should be read in conjunction with the Company’s Combined Financial Statements and related notes included in the Company’s Form 10.

The accompanying interim Consolidated and Combined Condensed Financial Statements and the related notes should be read in conjunction with the Company’s Consolidated and Combined Financial Statements and related notes included in the Company’s Form 10-K.

Discontinued Operations

1 unchanged sentence

The entities that hold these assets and liabilities became subsidiaries of the Company during the three months ended April 1, 2022 in connection with the Separation.

These assets and liabilities were not included in the Company’s historical Combined Financial Statements for 2021 as the Company did not have legal title to these assets, nor was the Company the legal obligor of these liabilities.

The 2022 amounts reflect income, expenses, assets and liabilities historically recorded within the Former Parent’s divested businesses that were not part of Former Parent’s Fabrication Technology segment.

Refer to “Note 1, Organization and Basis of Presentation” for additional information.

The Company has classified asbestos-related activity in its Consolidated and Combined Condensed Statements of Operations as part of Loss from discontinued operations, net of taxes.

The Company has classified asbestos-related activity included in its Consolidated and Combined Condensed Statements of Operations as part of Loss from discontinued operations, net of taxes.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Loss from discontinued operations, net of taxes consists of Selling, general and administrative expenses of $ 0.9 million and $ 2.6 million , net of an immaterial tax benefit for the three months ended March 31, 2023 and $ 0.6 million for the three months ended April 1, 2022, respectively.

See Note 13, “Commitments and Contingencies” for further information.

Cas h used in operating activities related to discontinued operations for the three and nine months ended September 30, 2022 was $ 5.6 million and $ 19.3 million, respectively.

The Company develops, manufactures and supplies consumable welding and cutting products and equipment, as well as gas control equipment.

The Company provides a wide range of products with innovative technologies to solve challenges in a range of industries, including cutting, joining and automated welding.

Cas h used in operating activities related to discontinued operations for the three months ended March 31, 2023 and April 1, 2022 was $ 5.4 million and $ 4.6 million, respectively.

On January 11, 2023, the Company completed the acquisition of Therapy Equipment Limited, a regional leader in oxygen regulators, for approximately $ 19 million, net of cash received.

The Company provides advanced equipment, consumables, gas control equipment, robotics and digital solutions.

The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding.

Substantially all revenue is recognized at a point in time.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

March 31, 2023 April 1, 2022

(In thousands)

4 unchanged sentences

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

Given the nature of the business, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of September 30, 2022 is immaterial.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Given the nature of the business, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of March 31, 2023 is immaterial.

In some circumstances, customers are billed in advance of revenue recognition, resulting in contract liabilities.

As of December 31, 2022 and December 31, 2021, total contract liabilities were $ 25.9 million and $ 22.3 million, respectively, and were included in Accrued liabilities on the Consolidated and Combined Condensed Balance Sheets.

During the three and nine months ended September 30, 2022, revenue recognized that was included in the contract liability balance at the beginning of the year w as $ 4.6 million and $ 19.0 million, res pectively.

During the three and nine months ended October 1, 2021, revenue recognized that was included in the contract liability balance at the beginning of the year was $ 3.1 million and $ 19.4 million, respectively.

As of September 30, 2022 and October 1, 2021 total contract liabilities were $ 22.5 million and $ 19.9 million, respectively, and were included in Accrued liabilities on the Company’s Consolidated and Combined Condensed Balance Sheets.

During the three months ended March 31, 2023 and April 1, 2022 revenue recognized that was included in the contract liability balance at the beginning of the year w as $ 11.1 million and $ 9.1 million, res pectively.

As of March 31, 2023 and April 1, 2022 total contract liabilities were $ 28.3 million and $ 25.9 million, respectively, and were included in Accrued liabilities on the Company’s Consolidated and Condensed Balance Sheets.

Allowance for Credit Losses

A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Consolidated and Combined Condensed Balance Sheets is as follows:

Nine Months Ended September 30, 2022

A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Consolidated and Condensed Balance Sheets is as follows:

Three Months Ended March 31, 2023

of Period Charged to Expense, net Write-Offs and Deductions Foreign

2 unchanged sentences

Allowance for credit losses $ 23,471 $ 1,591 $ ( 732 ) $ 257 $ 24,587

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Earnings per Share from Continuing Operations

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

March 31, 2023 April 1, 2022

(In thousands, except share and per share data)

5 unchanged sentences

Weighted-average shares of Common stock outstanding – basic (3)

60,146,348 60,034,311

Income per share from continuing operations – basic $ 0.54 $ 0.96

1 unchanged sentence

Income from continuing operations attributable to common stockholders $ 32,579 $ 57,458

Weighted-average shares of Common stock outstanding – diluted 60,063,553 60,034,311 60,045,306 60,034,311

Weighted-average shares of Common stock outstanding – basic (3)

60,146,348 60,034,311

Net effect of potentially dilutive securities (2)

1 unchanged sentence

Net income per share from continuing operations – diluted $ 0.54 $ 0.96

(1) Net income from continuing operations attributable to ESAB Corporation for the respective periods is calculated using Net income from continuing operations, less Income attributable to noncontrolling interest, net of taxes, of $ 1.0 million and $ 2.7 million for the three and nine months ended September 30, 2022, respectively, and $ 0.8 million and $ 2.4 million for the three and nine months ended October 1, 2021, respectively.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

During the three and nine months ended September 30, 2022, Income from continuing operations before income taxes was $ 72.1 million and $ 234.3 million, respectively , while Income tax expense was $ 17.8 million and $ 63.6 million , respectively.

The effective tax rat e was 24.7 % and 27.2 % for the three and nine months ended September 30, 2022, respectively.

(1) Net income from continuing operations attributable to ESAB Corporation for the respective periods is calculated using Net income from continuing operations, less Income attributable to noncontrolling interest, net of taxes, of $ 1.3 million for the three months ended March 31, 2023, and $ 1.0 million for the three months ended April 1, 2022, respectively.

(2) Potentially dilutive securities include stock options, performance-based restricted stock units, and non-performance-based restricted stock units.

(3) Prior to the Separation, the Company did not have any publicly-traded common stock or equivalents issued and outstanding.

Accordingly, the net income per share for the three months ended April 1, 2022 is calculated based on the 60.0 million shares distributed on the Separation Date.

During the three months ended March 31, 2023, Income from continuing operations before income taxes was $ 71.2 million , while Income tax expense was $ 37.0 million.

The effective tax rate was 52.0 % for the three months ended March 31, 2023.

The effective tax rates differed from the 2023 U.S.

federal statutory rate of 21% primarily due to the impact of withholding taxes and non-deductible expenses.

During the three and nine months ended October 1, 2021, Income from continuing operations before income taxes was $ 78.9 million and $ 245.1 million, respectively, while Income tax expense was $ 17.4 million and $ 47.0 million, respectively.

The effective tax rate was 22.1 % and 19.2 % for the three and nine months ended October 1, 2021, respectively.

federal statutory rate of 21.0% primarily due to discrete tax expenses for dividend withholding taxes and an increase in the liability for unrecognized tax as described below.

During the three months ended April 1, 2022, Income from continuing operations before income taxes was $ 84.2 million, while Income tax expense was $ 25.7 million.

The effective tax rate was 30.6 % for the three months ended April 1, 2022.

The effective tax rates differed from the 2022 U.S.

federal statutory rate of 21% primarily due to the recognition of discrete tax benefits as a result of audit settlements that occurred in first nine months of 2021.

Additionally, the Company’s foreign earnings in the first nine months of 2021 were taxed at lower rates than the U.S federal statutory rate.

federal statutory rate of 21.0% primarily due to the impact of withholding taxes, taxable foreign exchange gains, and other non-deductible expenses, partially offset by lower rates on earnings in foreign jurisdictions.

During the three months ended March 31, 2023 , the Company changed its indefinite reinvestment assertion on certain undistributed earnings of the Company’s foreign subsidiaries, resulting in a total tax expense of $ 10.9 million as of March 31, 2023 on such earnings that have not been indefinitely reinvested.

The Company records a liability for certain unrecognized income tax benefits for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority (“uncertain tax positions”).

During the three months ended March 31, 2023, due to an adverse court ruling in a tax case in a foreign jurisdiction the Company increased the related liability for uncertain tax positions by $ 9.4 million partially offset by changes in other positions.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Inventories, Net

Inventories, net consisted of the following:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In thousands)

6 unchanged sentences

$ 448,342 $ 416,829

At September 30, 2022 and December 31, 2021 , 33 % and 34 % of total inventories, respectively, were valued using the LIFO method.

At March 31, 2023 and December 31, 2022 , 28.0 % a nd 31.5 % of total inventories, respectively, were valued using the LIFO method.

Accrued and Other Liabilities

Accrued and Other liabilities in the Consolidated and Combined Condensed Balance Sheets consisted of the following:

Accrued and Other liabilities in the Consolidated and Condensed Balance Sheets consisted of the following:

March 31, 2023 December 31, 2022

Current Noncurrent Current Noncurrent

September 30, 2022 December 31, 2021

(In thousands)

9 unchanged sentences

$ 275,089 $ 543,560 $ 285,310 $ 545,339

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Accrued Warranty Liability

A summary of the activity in the Company’s warranty liability included in Accrued liabilities in the Company’s Consolidated and Combined Condensed Balance Sheets is as follows:

Nine Months Ended

September 30, 2022 October 1, 2021

A summary of the activity in the Company’s warranty liability included in Accrued liabilities in the Company’s Consolidated and Condensed Balance Sheets is as follows:

Three Months Ended

March 31, 2023 April 1, 2022

(In thousands)

5 unchanged sentences

Warranty liability, end of period $ 13,297 $ 15,254

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED 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 and Combined Condensed Balance Sheets is as follows:

Nine Months Ended September 30, 2022

A summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Consolidated and Condensed Balance Sheets is as follows:

Three Months Ended March 31, 2023

Balance at Beginning of Period Charges Payments Foreign Currency Translation Balance at End of Period

20 unchanged sentences

(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.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Benefit Plans

The Company sponsors various defined benefit plans and other post-retirement benefits plans, including health and life insurance, for certain eligible employees or former employees.

As part of the Separation, certain U.S.

defined benefit and other post-retirement plans, formerly sponsored by the Former Parent, were transferred to the Company as of March 21, 2022.

As a result of the transfer, the related net plan obligations of approximate ly $ 10.6 million are included within the Company’s Consolidated Balance Sheet at September 30, 2022.

The transferred plans include a defined benefit pension plan with assets of $ 201.2 million and projected benefit liabilities of $ 200.6 million and two unfunded defined benefit and other post-retirement benefit plans with liabilities of $ 11.7 million, all of which were recorded in the financial statements of the Former Parent at December 31, 2021.

The pretax net unrecognized pension and other post-retirement benefit cost included in Accumulated other comprehensive loss at April 1, 2022 for the transferred plans was approximately $ 50 million.

The net plan assets and obligations are presented within Compensation and related benefits in Note 7, “Accrued and Other Liabilities”.

The Former Parent offered both funded and unfunded noncontributory defined benefit pension plans in the U.S.

that are shared amongst its businesses, including the Company prior to becoming plan sponsor.

The participation of the Company’s employees and retirees in this plan is reflected in the Company’s historical Combined Financial Statements as though it participated in a multiemployer plan with the Former Parent.

As a result, a proportionate share of the cost associated with this defined benefit plan is reflected in the Company’s historical Combined Financial Statements, while any assets and liabilities associated with this defined benefit plan were retained by the Former Parent and were not recorded on the Company’s historical Combined Financial Statements, prior to the Separation.

Net periodic pension benefit income related to this Former Parent-sponsored plan was allocated to the Company based on the Company’s share of total Former Parent headcount and is reflected within Interest expense (income) and other, net, in the Consolidated and Combined Condensed Statements of Operations for the three months ended April 1, 2022 and nine months ended October 1, 2021.

Net periodic benefit cost of the Company’s defined benefit pension plan was $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2022, respectively, and was $ 0.7 million and $ 1.4 million for the three and nine months ended October 1, 2021, respectively.

In the nine months ended September 30, 2022, contributions of $ 0.8 million to U.S.

pension plans and $ 3.5 million to foreign pension plans were made.

In the three months ended September 30, 2022, the Company recognized a pension settlement gain of $ 3.3 million related to the completed buy-out of a foreign defined benefit plan by a third party.

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

These amounts are reflected in Pension settlement gain in the Consolidated and Combined Condensed Statements of Operations.

(3) Includes impairment of long-lived assets in connection with the closure and optimization of facilities and product lines.

Long-term debt consisted of the following:

September 30, 2022

March 31, 2023 December 31, 2022

(In thousands)

1 unchanged sentence

Revolving credit facilities 219,000 221,000

Total debt 1,219,000 1,221,000

Unamortized deferred financing fees ( 2,128 ) ( 2,357 )

Long-term debt $ 1,216,872 $ 1,218,643

Term Loans and Revolving Credit Facility

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Term Loans and Revolving Credit Facility

On April 4, 2022, the Company entered into a credit agreement (as amended and restated from time-to-time, the “Credit Agreement”) in connection with the Separation.

4 unchanged sentences

The Revolving Facility contains a $ 300 million letter of credit foreign currency sublimit and a $ 50 million swing line loan sub-facility.

On April 4, 2022, the Company drew down $ 1.2 billion available under the credit facilities made up of (i) $ 200 million under the Revolving Facility, (ii) $ 400 million under the Term Loan A-1 Facility and (iii) $ 600 million under the Term Loan A-2 Facility.

On April 4, 2022, the Company drew down $ 1.2 billion available under the credit facilities consisting of (i) $ 200 million under the Revolving Facility, (ii) $ 400 million under the Term Loan A-1 Facility and (iii) $ 600 million under the Term Loan A-2 Facility.

The Company used these proceeds to make payments to Enovis of $ 1.2 billion, which was used as part of the consideration for the contribution of certain assets and liabilities to the Company by Enovis in connection with the Separation.

3 unchanged sentences

Also on June 28, 2022, the Company borrowed the entire $ 600 million under Term Loan A-3 Facility to fund the repayment of the Term Loan A-2 Facility.

The Company’s total borrowing capacity under the Credit Agreement remains unchanged.

The Company’s total borrowing capacity under the Credit Agreement remained unchanged.

The draw-down and repayment related to these term facilities are presented net within the Consolidated and Combined Condensed Statements of Cash Flows.

4 unchanged sentences

Loans made under the Term Facilities will bear interest, at the election of the Company, at either the base rate (as defined in the Credit Agreement) or at the term Secured Overnight Financing Rate (“SOFR”) rate plus an adjustment (as defined in the Credit Agreement), in each case, plus the applicable interest rate margin.

Loans made under the Revolving Facility will bear interest, at the election of the Company, at either the base rate or, (i) in the case of loans denominated in dollars, the term SOFR rate plus an adjustment or the daily simple SOFR plus an adjustment, (ii) in the case of loans denominated in euros, the adjusted Euro Interbank Offered Rate (“EURIBOR”) rate and, (iii) in the case of loans denominated in sterling, Sterling Overnight Index Average (“SONIA”) plus an adjustment (as all such rates are defined in the Second Credit Agreement), in each case, plus the applicable interest rate margin.

Loans made under the Revolving Facility will bear interest, at the election of the Company, at either the base rate or, (i) in the case of loans denominated in dollars, the term SOFR rate plus an adjustment or the daily simple SOFR plus an adjustment, (ii) in the case of loans denominated in euros, the adjusted Euro Interbank Offered Rate (“EURIBOR”) rate and, (iii) in the case of loans denominated in sterling, Sterling Overnight Index Average (“SONIA”) plus an adjustment (as all such rates are defined in the Credit Agreement Amendment), in each case, plus the applicable interest rate margin.

The applicable interest rate margin changes based upon the Company’s total leverage ratio (ranging from 1.125 % to 1.750 % or in the case of the base rate margin, 0.125 % to 0.750 %).

Each swing line loan denominated in dollars will bear interest at the base rate plus the applicable interest rate margin.

To manage exposures to currency exchange rates and interest rates arising in Long-term debt, the Company entered into interest rate and cross currency swap agreements during the three months ended September 30, 2022, refer to Note 10, “Derivatives” for additional information.

As of September 30, 2022, the weighted-average interest rate of borrowings under the Credit Agreement was 3.82 % , including the net impact from the interest rate swaps and excluding accretion of deferred financing fees, and there was $ 615 million available on the Revolving Facility.

Refer to Note 10 “Derivatives” for additional information.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

Other Indebtedness

In addition to the debt agreements discussed above, the Company also has the ability to incur $ 50 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that the Company currently has in place that the Company has used from time to time in the past for short-term working capital needs.

The Company is party to letter of credit facilities with an aggregate capacity of $ 107.5 million.

Total letters of credit of $ 29.4 million were outstanding as of September 30, 2022.

As of March 31, 2023, the weighted-average interest rate of borrowings under the Credit Agreement wa s 4.93 %, in cluding the net impact from the interest rate and cross currency swaps and excluding accretion of deferred financing fees, and there was $ 531 million of borrowing capacity available on the Revolving Facility.

Deferred Financing Fees

In total, the Company had deferred financing fees of $ 3.9 million included in its Consolidated Balance Sheet as of September 30, 2022, which will be charged to Interest expense (income) and other, net, using the straight-line method.

In total, the Company had deferred financing fees of $ 3.2 million included in its Consolidated Balance Sheet as of March 31, 2023, which will be charged to Interest expense (income) and other, net, using the straight-line method.

The costs associated with the Term Facilities will be amortized over the contractual term of the Term Facilities and the costs associated with the Revolving Facility will be amortized over the life of the Credit Agreement.

Of the $ 3.2 million, $ 1.1 million of deferred financing fees relating to the Revolving Facility are included in Other assets and $ 2.1 million of deferred financing fees relating to the Term Facilities are recorded as a contra-liability within Long-term debt.

Other Indebtedness

In addition to the debt agreements discussed above, the Company also has the ability to incur approximately $ 77 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that the Company currently has in place that the Company has used from time to time in the past for short-term working capital needs.

The Company is party to letter of credit facilities with an aggregate capacity of $ 110.5 million.

Total letters of credit of $ 26.2 million were outstanding as of March 31, 2023.

The Company uses derivative instruments to manage exposures to currency exchange rates and interest rates arising in connection with Long-term debt and the normal course of business.

3 unchanged sentences

Counterparties include a number of major banks and financial institutions.

None of the concentrations of risk with an individual counterparty was considered significant as of September 30, 2022.

None of the concentrations of risk with an individual counterparty was considered significant as of March 31, 2023.

The Company does not expect any counterparties to fail to meet their obligations.

The Company records derivatives in the Consolidated and Combined Condensed Balance Sheets at fair value.

The Company records derivatives in the Consolidated and Condensed Balance Sheets at fair value.

Cash Flow Hedges

3 unchanged sentences

The applicable spread may vary between 1.125 % to 1.750 %, depending on the total leverage ratio of the Company.

The spread is 1.500 % as of September 30, 2022.

The spread is 1.250 % as of March 31, 2023.

These agreements involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the life of the agreement without an exchange of the underlying principal amount.

The above interest rate swap agreements are designated and qualify as a cash flow hedge and as such, the gain or loss on the derivative instrument due to the change in fair value is reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

The above interest rate swap agreements are designated and qualify as a cash flow hedge and as such, the gain or loss on the derivative instrument due to the change in fair value is reported as a component of accumulated other comprehensive income (loss) (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

If a derivative is deemed to be ineffective, the change in fair value of the derivative is recognized directly in earnings.

As of September 30, 2022 the cash flow hedges were perfectly effective.

The Company did not have any ineffectiveness related to cash flow hedges during the three months ended March 31, 2023.

The cash inflows and outflows associated with the Company’s interest rate swap agreements designated as cash flow hedges are classified in cash flows from operating activities in the accompanying Consolidated and Combined Condensed Statements of Cash Flows.

The Company expects a gain of $ 6.6 million, net of tax, related to interest rate swap agreements to be reclassified from AOCI to earnings over the next 12 months as the hedged transactions are realized.

The expected gain to be reclassified is based on current forward rates in active markets as of September 30, 2022.

The expected gain to be reclassified is based on current forward rates in active markets as of March 31, 2023.

ESAB CORPORATION

3 unchanged sentences

Derivative type Loss recognized in the Consolidated and Combined Condensed Statements of Operations:

September 30, 2022

March 31, 2023

(In thousands)

3 unchanged sentences

Dollar and the Euro.

In addition, the cross-currency swap agreements are agreements to exchange fixed-rate payments in U.S.

In addition, the cross-currency swap agreements include provisions to exchange fixed-rate payments in U.S.

Dollar for fixed-rate payments in Euro and are designated and qualify as a net investment hedge.

These contracts have a Euro aggregate notional amount of approximately € 270 million and a U.S.

Dollar aggregate notional amount of $ 275 million at September 30, 2022, and they mature in April 2025.

Dollar aggregate notional amount of $ 275 million at March 31, 2023, and they mature in April 2025.

The changes in the spot rate of these instruments are recorded in AOCI in equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in AOCI.

The Company uses the spot method of assessing hedge effectiveness and as such, the initial value of the hedge components excluded from the assessment of effectiveness is recognized in the Interest expense (income) and other, net line item in the Consolidated and Combined Condensed Statement of Operations under a systematic and rational method over the life of the cross-currency swap agreements.

Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change.

As of September 30, 2022 the net investment hedges were perfectly effective.

Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change.

The Company did not have any ineffectiveness related to net investment hedges during the three months ended March 31, 2023.

The cash inflows and outflows associated with the excluded components of the Company’s cross-currency swap agreements designated as net investment hedges are classified in operating activities in the accompanying Consolidated and Combined Condensed Statements of Cash Flows.

The table below shows the fair value of the derivatives recognized in the Consolidated Balance Sheet and also the effects of designated hedges on AOCI:

September 30, 2022

The effects of the excluded components of designated net investment hedges on the Company’s Consolidated and

Combined Statements of Operations consisted of the following:

Three Months Ended

Derivative type Gain recognized in the Consolidated and Combined Condensed Statements of Operations:

March 31, 2023

(In thousands)

Cross currency swap agreements Interest expense (income) and other, net $ ( 1,201 )

The table below shows the fair value of the derivatives recognized in the Consolidated Balance Sheet:

March 31, 2023

December 31, 2022

Designated as hedging instruments:

Other Assets Total gain recognized in AOCI, net of tax

Other Liabilities Other Assets Other Liabilities Other Assets

(In thousands)

4 unchanged sentences

The Company has certain foreign currency contracts that are not designated as hedges.

As of September 30, 2022 and December 31, 2021, the Company had foreign currency contracts related to purchases and sales with notional values of $ 183.1 million and $ 180.8 million, respectively.

As of March 31, 2023 and December 31, 2022, the Company had foreign currency contracts related to purchases and sales with notional values of $ 271.2 million and $ 260.0 million, respectively.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

The table below shows the fair value of derivative instruments not designated in a hedging relationship recognized in the Consolidated Balance Sheet:

March 31, 2023

December 31, 2022

Not designated as hedging instruments Accrued Liabilities Other Current Assets Accrued Liabilities Other Current Assets

(In thousands)

Foreign currency contracts $ 96 $ 1,754 $ 2,166 $ 3,682

The amounts in the table above as of March 31, 2023 reflect the fair value of the Company’s foreign currency contracts on a net basis where allowable under master netting agreements.

Had these amounts been recognized on a gross basis, the impact would have been a $ 2.6 million increase in Other current assets with a corresponding increase in Accrued liabilities.

The Company recognized the following in its Consolidated and Combined Condensed Financial Statements related to its derivative instruments not designated in a hedging relationship:

Three Months Ended

Nine Months Ended

Foreign currency contracts September 30, 2022

October 1, 2021

September 30, 2022

October 1, 2021

Foreign currency contracts March 31, 2023

April 1, 2022

(In thousands)

Change in unrealized gains (losses) $ 143 $ ( 1,186 )

Realized loss (1)

Realized gain (loss) (1)

1,027 ( 14,479 )

(1) The nine months ended September 30, 2022 includes realized losses relating to certain corporate entities contributed to ESAB Corporation which are reflected within Interest expense (income) and other, net, in the Consolidated and Combined Condensed Statements of Operations during the three months ended April 1, 2022.

(1) The three months ended April 1, 2022 includes realized losses relating to certain corporate entities contributed to ESAB Corporation which are reflected within Interest expense (income) and other, net, in the Consolidated and Combined Condensed Statements of Operations.

See Note 1 “Organization and Basis of Presentation” for additional details.

4 unchanged sentences

A summary of the Company’s assets and liabilities that are measured at fair value for each fair value hierarchy level for the periods presented is as follows:

September 30, 2022

March 31, 2023

(In thousands)

1 unchanged sentence

Foreign currency contracts - not designated as hedges — 4,364 — 4,364

— 2,432 — 2,432

Cross currency swap agreements — 9,578 — 9,578

Interest rate swap agreements — 9,716 — 9,716

2 unchanged sentences

Foreign currency contracts - not designated as hedges $ — $ 2,706 $ — $ 2,706

$ — $ 2,153 $ — $ 2,153

Cross currency swap agreements — 13,462 — 13,462

Deferred compensation plans — 2,962 — 2,962

$ — $ 19,130 $ — $ 19,130

(1) Included within Other Current Assets in the Consolidated Balance Sheet.

(2) Included within Accrued Liabilities in the Consolidated Balance Sheet.

December 31, 2022

2 unchanged sentences

Foreign currency contracts - not designated as hedges — 3,682 — 3,682

— 2,487 — 2,487

Interest rate swap agreements — 14,342 — 14,342

Deferred compensation plans — 2,501 — 2,501

$ 8,195 $ 20,525 $ — $ 28,720

Foreign currency contracts - not designated as hedges $ — $ 2,166 $ — $ 2,166

Cross currency swap agreements — 10,769 — 10,769

Deferred compensation plans — 2,501 — 2,501

$ — $ 15,436 $ — $ 15,436

(1) Included within Other Current Assets in the Consolidated and Combined Condensed Balance Sheet.

(2) Included within Accrued Liabilities in the Consolidated and Combined Condensed Balance Sheet.

The Company measures the fair value of foreign currency contracts, cross currency swap agreements and interest rate swap agreements using Level Two inputs based on observable spot and forward rates in active markets.

Additionally, the fair value of derivatives designated in hedging relationships includes a credit valuation adjustment to appropriately incorporate nonperformance risk for the Company and the respective counterparty.

For the three months ended September 30, 2022, the impact of the credit valuation adjustment on the Company’s derivatives is immaterial.

For the three months ended March 31, 2023, the impact of the credit valuation adjustment on the Company’s derivatives is immaterial.

Refer to Note 10 “Derivatives” for additional information.

There were no transfers in or out of Level One, Two or Three during the nine months ended September 30, 2022.

There were no transfers in or out of Level One, Two or Three during the three months ended March 31, 2023.

Accumulated Other Comprehensive Loss

The following tables present the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the nine months ended September 30, 2022 and October 1, 2021.

The following tables present the changes in the balances of each component of AOCI including reclassifications out of AOCI for the three months ended March 31, 2023 and April 1, 2022.

All amounts are net of tax and noncontrolling interest, if any.

Accumulated Other Comprehensive Loss Components

Net Unrecognized Pension And Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Gains on Net Investment Hedges Gains on Cash Flow Hedges Total

Net Unrecognized Pension and Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Net Investment Hedges Cash Flow Hedges Total

(In thousands)

2 unchanged sentences

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment 490 ( 45,171 ) — — ( 44,681 )

Other comprehensive income (loss) before reclassifications 490 ( 45,171 ) — — ( 44,681 )

Amounts reclassified from Accumulated other comprehensive loss (1)

786 — — — 786

Amounts contributed by Former Parent (2)

( 50,504 ) ( 8,759 ) — — ( 59,263 )

Net current period Other comprehensive loss ( 49,228 ) ( 53,930 ) — — ( 103,158 )

Balance at April 1, 2022

$ ( 70,424 ) $ ( 493,622 ) $ — $ — $ ( 564,046 )

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment ( 1,354 ) ( 98,789 ) — — ( 100,143 )

Other comprehensive income (loss) before reclassifications ( 1,354 ) ( 98,789 ) — — ( 100,143 )

Amounts reclassified from Accumulated other comprehensive loss (1)

770 — — — 770

Net current period Other comprehensive loss ( 584 ) ( 98,789 ) — — ( 99,373 )

Balance at July 1, 2022

$ ( 71,008 ) $ ( 592,411 ) $ — $ — $ ( 663,419 )

Other comprehensive income (loss) before reclassifications:

Net actuarial loss ( 2 ) — — — ( 2 )

Foreign currency translation adjustment ( 108 ) 31,276 ( 2,086 ) — 29,082

Unrealized gain on cash flow hedges — — — 9,150 9,150

Other comprehensive income (loss) before reclassifications 3,685 ( 108,755 ) 7,421 9,150 ( 88,499 )

Gain on long-term intra-entity foreign currency transactions — 12,501 — — 12,501

Unrealized loss on cash flow hedges — — — ( 2,051 ) ( 2,051 )

Other comprehensive (loss) income before reclassifications ( 110 ) 43,777 ( 2,086 ) ( 2,051 ) 39,530

Amounts reclassified from Accumulated other comprehensive loss (1)(2)

279 — — ( 1,530 ) ( 1,251 )

Net current period Other comprehensive income (loss) 4,451 ( 108,755 ) 7,421 9,960 ( 86,923 )

Balance at September 30, 2022

Net current period Other comprehensive (loss) income 169 43,777 ( 2,086 ) ( 3,581 ) 38,279

Balance at March 31, 2023

$ ( 63,678 ) $ ( 570,130 ) $ ( 10,422 ) $ 7,521 $ ( 636,709 )

(1) The amounts on this line within the Net Unrecognized Pension And Other Post-Retirement Benefit Cost column are included in the computation of net periodic benefit cost.

See Note 8, “Benefit Plans” for additional details.

(2) Includes unrecognized pension and other post-retirement costs and accumulated currency translation adjustments of certain entities which were part of the Corporate segment of the Former Parent and were transferred to ESAB Corporation in anticipation of the Separation.

See Note 1, “Organization and Basis of Presentation” for more information on the entities contributed from the Former Parent.

(3) During the three months ended September 30, 2022, the amount on this line within the Gains on Cash Flow Hedge column, is a component of Interest expense (income) and other, net.

(2) During the three months ended March 31, 2023, the amount on this line within the Loss on Cash Flow Hedges column, is a component of Interest expense (income) and other, net.

See Note 10 “Derivatives” for additional details.

8 unchanged sentences

Amounts reclassified from Accumulated other comprehensive loss (1)

Net current period Other comprehensive income (loss) 932 ( 30,438 ) ( 29,506 )

Balance at April 2, 2021

$ ( 28,446 ) $ ( 397,263 ) $ ( 425,709 )

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment ( 126 ) 4,182 4,056

Other comprehensive income (loss) before reclassifications ( 126 ) 4,182 4,056

Amounts reclassified from Accumulated other comprehensive loss (1)

Net current period Other comprehensive income (loss) 82 4,182 4,264

Balance at July 2, 2021

Amounts contributed by Former Parent (2)

( 50,504 ) ( 8,759 ) ( 59,263 )

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment 508 ( 36,639 ) ( 36,131 )

Other comprehensive income (loss) before reclassifications 508 ( 36,639 ) ( 36,131 )

Amounts reclassified from Accumulated other comprehensive loss (1)

Net current period Other comprehensive income (loss) ( 49,228 ) ( 53,930 ) ( 103,158 )

Balance at October 1, 2021

Balance at April 1, 2022

$ ( 70,424 ) $ ( 493,622 ) $ ( 564,046 )

(1) Included in the computation of net periodic benefit cost.

See Note 8, “Benefit Plans” for additional details.

Share-Based Payments

Prior to the Separation, certain employees of the Company participated in the Former Parent’s stock-based compensation plans.

In connection with the Separation, the Company adopted the 2022 Omnibus Incentive Plan (the “Stock Plan”) and outstanding equity awards of the Former Parent held by ESAB employees were converted into or replaced with awards of ESAB common stock under the Stock Plan based on the “concentration method,” and as adjusted to maintain the economic value before and after the Distribution Date using the relative fair market value of the Former Parent and ESAB common stock.

For each equity award holder, the intent was to maintain the economic value of the equity awards immediately before and after the Distribution.

The terms of the equity awards, such as the award period, exercisability and vesting schedule, as applicable, generally continued unchanged.

Other than converted or replacement equity awards of ESAB issued in replacement of the Former Parent’s restricted stock units (“RSUs”) and stock options, the terms of the converted or replacement equity awards of ESAB (e.g., vesting date and expiration date) continued unchanged.

Incremental stock-based compensation expense recorded as a result of this equity award conversion was $ 2.6 million and is being recognized over the remaining service period.

Stock-based compensation expenses incurred by the Company were $ 4.2 million and $ 9.5 million during the three and nine months ended September 30, 2022, respectively, and $ 1.7 million and $ 5.0 million during the three and nine months ended October 1, 2021, respectively.

(1) The amounts on this line within the Net Unrecognized Pension And Other Post-Retirement Benefit Cost column are included in the computation of net periodic benefit cost.

See Note 1 “Organization and Basis of Presentation” for more information on the entities contributed from the Former Parent.

Commitments and Contingencies

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To date, the majority of settled claims have been dismissed for no payment.

The Company has classified asbestos-related activity in Loss from discontinued operations in the Consolidated and Combined Condensed Statements of Operations.

The Company has classified asbestos-related activity in Loss from discontinued operations, net of taxes in the Consolidated and Combined Condensed Statements of Operations.

This is consistent with the Former Parent’s classification on the basis that, pursuant to the purchase agreement from the Former Parent’s Fluid Handling business divestiture, the Former Parent retained its asbestos-related contingencies and insurance coverages.

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Asbestos-related claims activity since December 31 is as follows:

Nine Months Ended

September 30, 2022

Three Months Ended

March 31, 2023 April 1, 2022

(Number of claims)

2 unchanged sentences

Claims resolved (2)

( 749 ) ( 779 )

Claims unresolved, end of period 14,343 14,845

3 unchanged sentences

The Company’s Consolidated Balance Sheet included the following amounts related to asbestos-related litigation:

September 30, 2022

March 31, 2023 December 31, 2022

(In thousands)

Long-term asbestos insurance asset (1)

$ 202,318 $ 215,112

Long-term asbestos insurance receivable (1)

18,648 17,231

Accrued asbestos liability (2)

29,002 30,108

Long-term asbestos liability (3)

215,780 230,581

(1) Included in Other assets in the Consolidated Balance Sheet.

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Segment Information

ESAB is a world leader in fabrication and gas control technology, providing our partners with advanced equipment, consumables, gas control equipment, robotics, and digital solutions, which enable the everyday and extraordinary work that shapes our world.

ESAB is a world leader in connected fabrication technology and gas control solutions, ESAB provides its partners with advanced equipment, consumables, gas control equipment, robotics, and digital solutions.

The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding.

The Company’s management evaluates the operating results of each of its reportable segments based upon Net sales and segment Adjusted EBITA, which represents operating income excluding the impact of Restructuring and other related charges, acquisition-related intangible asset amortization, an d separation costs.

The Company conducts its operations through two reportable segments.

These segments consist of the “Americas,” which includes operations in North America and South America, and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific.

The Company’s management evaluates the operating results of each of its reportable segments based upon Net sales and Adjusted EBITDA, which represents Net income from continuing operations excluding the impact of Income tax expense, Interest expense (income) and other, net, Restructuring and other related charges, separation costs, acquisition - amortization and other related charges, and depreciation and other amortization .

The Com pany’s segment results were as follows:

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

March 31, 2023 April 1, 2022

(In thousands)

2 unchanged sentences

$ 684,000 $ 647,911

Adjusted EBITA (1) :

Adjusted EBITDA (1) :

Americas $ 49,442 $ 43,985

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$ 117,989 $ 109,267

(1) The following is a reconciliation of Operating income to Adjusted EBITA:

(1) The following is a reconciliation of Net income from continuing operations to Adjusted EBITDA.

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

March 31, 2023 April 1, 2022

(In thousands)

Operating income $ 80,994 $ 78,664 $ 250,486 $ 233,165

Net income from continuing operations $ 34,129 $ 58,424

Income tax expense 37,024 25,746

Interest expense (income) and other, net (1)

19,510 ( 488 )

Restructuring and other related charges 9,444 5,304

Separation costs (2)

1,834 713 8,923 819

Amortization of acquired intangibles (2)

7,216 8,934 22,523 27,130

Adjusted EBITA $ 96,720 $ 92,720 $ 298,629 $ 272,450

(1) Includes non-recurring professional fees incurred in the planning and execution of the Separation from Enovis within the Selling, general and administrative expense line within the Consolidated and Combined Condensed Statements of Operations.

(2) Included within the Selling, general and administrative expense line withing the Consolidated and Combined Condensed Statements of Operations.

(3) Relates to certain items included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statements of Operations.

Acquisition - amortization and other related charges (3)

Depreciation and other amortization 8,593 8,972

Adjusted EBITDA $ 117,989 $ 109,267

(1) Relates to removal of interest expense, net included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statements of Operations.

(2) Includes non-recurring charges and employee costs related to the planning and execution of the separation from Enovis within the Selling, general and administrative expense line within the Consolidated and Combined Condensed Statements of Operations.

(3) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses.

Related Party Transactions

Related Party Agreements

On April 4, 2022, in connection with the Separation, the Company entered into several agreements with Enovis that govern the Separation and provide a framework for the relationship between the parties going forward including a separation and distribution agreement, a transition services agreement, tax matters agreement, employee matters agreements, a stockholder’s and registration rights agreement, an intellectual property matters agreement and an Enovis Growth Excellence Business System (“EGX”) license agreement.

The Separation and Distribution Agreement

The Company entered into a separation and distribution agreement (the “Separation Agreement”) with Enovis immediately prior to the distribution of the Company’s common stock to Enovis stockholders.

The Separation Agreement sets forth the Company’s agreements with Enovis regarding the principal actions to be taken in connection with the Separation.

The Separation Agreement contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of ESAB and Enovis as part of the Separation, (ii) cash distribution made to Enovis in partial consideration of the transfer of ESAB Assets to the Company in connection with the Separation, and (iii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of ESAB’s business with ESAB and financial responsibility for the obligations and liabilities of Enovis’s remaining business with Enovis.

Transition Services Agreement

The transition services agreement ("TSA") sets forth the terms and conditions pursuant to which the Company and its subsidiaries and Enovis and its subsidiaries will provide to each other various services.

The services to be provided include human resources, payroll, certain information technology services, treasury services and financial reporting services.

The charges for the transition services generally are expected to allow the providing company to fully recover all internal and external costs and expenses it actually incurs in connection with providing the service (including a reasonable allocation of overhead) provided in the manner and at a level substantially consistent with that provided by the respective providing company immediately preceding the Distribution Date.

Tax Matters Agreement

The tax matters agreement governs the Company’s and Enovis’s respective rights, responsibilities and obligations after the Separation with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and certain other matters regarding taxes.

Employee Matters Agreement

The employee matters agreement sets forth, among other things, the allocation of assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the Separation, including the treatment of outstanding equity and other incentive awards and certain retirement and welfare benefit obligations.

Stockholders and Registration Rights Agreement

The stockholders and registration rights agreement sets forth the right of the stockholders when requiring the Company to facilitate the resale of shares.

Intellectual Property Matters Agreement

The intellectual property matters agreement sets forth the terms and conditions pursuant to which Enovis and the Company have mutually granted certain personal, generally irrevocable, non-exclusive, worldwide, and royalty-free rights to use certain intellectual property.

The Company and Enovis are able to sublicense their rights in connection with activities relating to their businesses, but not for independent use by third parties.

EGX License Agreement

The EGX License Agreement sets forth the terms and conditions pursuant to which Enovis has granted a royalty-free, non-exclusive, worldwide, and nontransferable license to the Company to use EGX, solely in support of its businesses.

The Company will be able to sublicense such license solely to direct and indirect wholly-owned subsidiaries.

In addition, each of Enovis and the Company each license to each other, improvements made by such party to EGX during the first two years of the term period of the EGX license agreement.

Such agreements are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 7, 2023 (the “Form 10-K”).

Allocated Expenses

The Company had historically operated as part of the Former Parent and not as a stand-alone company.

Prior to the Separation, the Company operated as part of the Former Parent and not as a stand-alone company.

Accordingly, the Former Parent allocated certain shared costs to the Company that are reflected as expenses in these financial statements.

These amounts included, but were not limited to, items such as general management and executive oversight, compliance, human resources, procurement, and legal functions and financial management, including public company reporting, consolidated tax filings and tax planning.

Management considered the allocation methodologies used by the Former Parent to be reasonable and to appropriately reflect the related expenses attributable to the Company for purposes of the carve-out financial statements;

however, the expenses reflected in these financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a separate stand-alone entity.

In addition, the expenses reflected in the financial statements may not be indicative of expenses the Company will incur in the future.

In addition, the expenses reflected in the financial statements may not be indicative of expenses the Company will incur

in the future.

Allocation methodologies utilized include the Company’s relative share of total Former Parent revenues and headcount.

All of the Company’s transactions with the Former Parent were considered to be financing transactions, which are presented as Transfers from (to) Former Parent, net in the accompanying Consolidated and Combined Condensed Statements of Cash Flows.

The Company had no stock-based compensation plans prior to the Separation;

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The expense associated with the Company's employees who participated in the plans of the Former Parent was allocated to the Company in the accompanying Consolidated and Combined Condensed Statements of Operations through the date of Separation.

The Company’s allocated expenses from the Former Parent were $ 6.0 million for the three months ended April 1, 2022 and $ 5.0 million and $ 19.6 million for the three and nine months ended October 1, 2021, respectively.

The Company’s allocated expenses from the Former Parent were $ 6.0 million for the three months ended April 1, 2022.

Following the Separation, the Company independently incurs expenses as a stand-alone company and corporate expenses from Enovis were no longer allocated to the Company;

therefore, no related amounts were reflected on the Company’s financial statements for the six months ended September 30, 2022.

Refer to Note 8, “Benefit Plans,” for allocations of net periodic benefit associated with a Former Parent sponsored benefit plan for the three months ended April 1, 2022 and nine months ended October 1, 2021.

therefore, no related amounts were reflected on the Company’s financial statements for three months ended March 31, 2023.

Net Parent Investment

All of the Company’s transactions with the Former Parent were considered to be financing transactions, which are presented as Transfers from Former Parent, net in the accompanying Consolidated and Combined Condensed Statements of Cash Flows.

Subsequent Events

The dividend of $ 3.0 million included in Accrued liabilities in the Consolidated Balance Sheet at September 30, 2022 was paid on October 14, 2022, to stockholders of record as of September 30, 2022.

On October 14, 2022, the Company completed the acquisition of Ohio Medical, LLC, a global leader in oxygen regulators and central gas systems, for approximately $ 127 million.

The Company expects an additional cash tax benefit with a net present value of $ 15 million.

During the twelve months ended August 31, 2022, Ohio Medical, LLC generated over $ 45 million of sales.

The dividend of $ 3.0 million included in Accrued liabilities in the Consolidated Balance Sheet at March 31, 2023 was paid on April 14, 2023 to stockholders of record as of March 31, 2023.

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

What changed 10-Q

Item 1. Financial Statements