What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-09 · 310 added, 225 removed, 481 unchanged (53% of the section changed)

3 unchanged sentences

Dollars in thousands, except per share amounts

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Three Months Ended Nine Months Ended

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

Net sales $ 620,265 $ 605,968 $ 1,929,353 $ 1,803,900

25 unchanged sentences

Dollars in thousands

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Three Months Ended

Nine Months Ended

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

Net income $ 53,316 $ 61,432 $ 165,743 $ 198,078

2 unchanged sentences

( 98,792 ) ( 35,901 ) ( 245,868 ) ( 62,493 )

Amounts reclassified from Accumulated other comprehensive loss:

Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $ 234 , $ 0 , $ 475 and $ 0

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 —

Other comprehensive (loss) income ( 101,118 ) 3,654 ( 145,521 ) ( 26,164 )

Defined benefit pension and other post-retirement plan activity, net of tax expense of $ 235 , $ 0 , $ 710 and $ 0

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

5 unchanged sentences

Dollars in thousands, except share and per share amounts

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

CURRENT ASSETS:

20 unchanged sentences

Total liabilities 2,292,378 959,534

Common stock - $ 0.001 par value - Authorized 600,000,000 , 60,043,543 and 100 shares outstanding as of July 1, 2022 and December 31, 2021, respectively

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

Additional paid-in capital 1,857,918 —

13 unchanged sentences

Balance at December 31, 2021

— $ — $ — $ — $ 2,921,623 $ ( 460,888 ) $ 40,993 $ 2,501,728

Net income — — — — 55,437 — 966 56,403

7 unchanged sentences

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

Dividends on common stock ($ 0.05 per share)

Dividends declared ($ 0.05 per share)

— — — ( 3,025 ) — — — ( 3,025 )

7 unchanged sentences

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 — — — — — — ( 1,019 ) ( 1,019 )

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

— — — — — ( 86,923 ) ( 1,143 ) ( 88,066 )

Common stock-based award activity 33,016 — 4,920 — — — — 4,920

Balance at September 30, 2022

60,076,559 $ 60 $ 1,857,918 $ 101,549 $ — $ ( 750,342 ) $ 38,340 $ 1,247,525

See Notes to Consolidated and Combined Condensed Financial Statements.

5 unchanged sentences

Balance at December 31, 2020

— $ — $ — $ — $ 2,898,831 $ ( 396,203 ) $ 42,139 $ 2,544,767

Net income — — — — 57,658 — 876 58,534

13 unchanged sentences

— $ — $ — $ — $ 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

Six Months Ended

July 1, 2022 July 2, 2021

Nine Months Ended

September 30, 2022 October 1, 2021

Cash flows from operating activities:

19 unchanged sentences

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

Proceeds from borrowings on revolving credit facility 265,000 —

Repayments of borrowings on revolving credit facility and other ( 79,639 ) —

Payment of deferred financing fees ( 5,641 ) —

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 ) —

Payment of deferred consideration ( 1,500 ) —

Payment of dividends ( 3,025 ) —

Distributions to noncontrolling interest holders ( 1,960 ) ( 2,550 )

10 unchanged sentences

Organization and Basis of Presentation

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

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.

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”, “Enovis”) Fabrication Technologies reportable segment.

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 second quarter results for 2022 and 2021 refer to the 13-week periods ended July 1, 2022 and July 2, 2021, respectively.

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.

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 period ending April 1, 2022:

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 rmer Parent’s, leg al, human resources, tax and other finance functions that served the entirety of the Former Parent.

• 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.

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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.

Refer to Note 10 “Debt” for additional information on the Credit Agreement.

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

The dividend of $ 3.0 million is included in Accrued liabilities in the Consolidated and Combined Condensed Balance Sheet at July 1, 2022.

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.

Russia and Ukraine Conflict

2 unchanged sentences

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

For the three and six months ended July 1, 2022, Russia represented approximately 4 % and 5 % of the Company’s total revenue, and $ 4 million and $ 9 million in Net Income, respectively.

These amounts do not include any related corporate costs.

Russia also has approximately 6 % of the Company’s total net assets excluding any goodwill allocation as of July 1, 2022.

In case of disposition a portion of goodwill will need to be allocated and written off based on the relative fair value attributable to the Russia business.

Russia has a cumulative translation loss of approximately $ 30 million as of July 1, 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 six months ended July 1, 2022.

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.

8 unchanged sentences

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 Consolidated Balance Sheet as of July 1, 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 six months ended July 1, 2022 consists of the consolidated results of ESAB for the three months ended July 1, 2022

ESAB CORPORATION

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

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 six months ended July 2, 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 six months ended July 1, 2022 consists of the consolidated activities of ESAB for the three months ended July 1, 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 six months ended July 2, 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 six months ended July 1, 2022 consists of the consolidated activities of ESAB for the three months ended July 1, 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 six months ended July 2, 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 six months ended July 2, 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.

• 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.

6 unchanged sentences

Intercompany transactions and accounts are eliminated in consolidation.

The Company makes certain estimates and assumptions in preparing its Consolidated and Combined Condensed Financial Statements in accordance with U.S.

generally accepted accounting principles, or “GAAP”.

The Company makes certain estimates and assumptions in preparing its Consolidated and Combined Condensed Financial Statements in accordance with GAAP.

These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the Consolidated and Combined Condensed Financial Statements and the reported amounts of revenues and expenses for the periods presented.

1 unchanged sentence

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 $ 9.6 million and $ 19.1 million during the three and six months ended July 1, 2022, respectively, and $ 10.3 million and $ 19.8 million during the three and six months ended July 2, 2021, respectively.

In addition to the factors discussed elsewhere in this Form 10-Q, the results of operations for the three and six month period ended July 1, 2022, 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

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

ESAB CORPORATION

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

a slowdown during the July, August and December holiday seasons.

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.

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”).

4 unchanged sentences

The Company holds certain asbestos-related contingencies and insurance coverages from divested businesses for which it does not have an interest in the ongoing operations.

The entities which hold these assets and liabilities became subsidiaries of the Company during the six months ended July 1, 2022 in connection with the Separation.

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.

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.

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

Cash used in operating activities related to discontinued operations for the three months and six months ended July 1, 2022 was $ 9.1 million and $ 13.7 million, respectively .

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.

2 unchanged sentences

The Company disaggregates its revenue into the following product groups:

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Three Months Ended

Nine Months Ended

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

(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 July 1, 2022 is immaterial.

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

As of December 31, 2021 and December 31, 2020, total contract liabilities were $ 22.3 million and $ 21.6 million, respectively, and were included in Accrued liabilities on the Consolidated and Combined Condensed Balance Sheets.

During the three and six months ended July 1, 2022, revenue recognized that was included in the contract liability balance at the beginning of the year was $ 5.3 million and $ 14.4 million, respectively.

During the three and six months ended July 2, 2021, revenue recognized that was included in the contract liability balance at the beginning of the year was $ 2.8 million and $ 16.3 million, respectively.

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)

of July 1, 2022 and July 2, 2021 total contract liabilities were $ 21.5 million and $ 19.9 million, respectively, and were included in Accrued liabilities on the Company’s Consolidated and Combined Condensed Balance Sheets.

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

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.

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:

Six months ended July 1, 2022

Nine Months Ended September 30, 2022

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

3 unchanged sentences

Earnings per Share from Continuing Operations

The Company has unvested share-based payment awards with a right to receive nonforfeitable dividends which are considered participating securities.

The Company has unvested share-based payment awards with a right to receive non-forfeitable dividends, which are considered participating securities.

The Company allocates earnings to participating securities and computed earnings per share using the two-class method as follows:

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Three Months Ended

Nine Months Ended

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

(In thousands, except share and per share data)

5 unchanged sentences

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

60,038,053 60,034,311 60,036,182 60,034,311

Income per share from continuing operations – basic $ 0.88 $ 1.01 $ 2.78 $ 3.26

$ 0.95 $ 1.29 $ 1.90 $ 2.25

Computation of earnings (loss) per share from continuing operations - diluted:

Computation of earnings per share from continuing operations – diluted:

Income from continuing operations attributable to common stockholders $ 52,924 $ 60,614 $ 166,786 $ 195,679

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

60,038,053 60,034,311 60,036,182 60,034,311

Net effect of potentially dilutive securities 99,668 — 82,378 —

Weighted-average shares of Common stock outstanding – dilution 60,163,221 60,034,311 60,127,684 60,034,311

60,185,520 60,034,311 60,109,916 60,034,311

Net income per share from continuing operations – diluted $ 0.88 $ 1.01 $ 2.77 $ 3.26

$ 0.94 $ 1.29 $ 1.89 $ 2.25

(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 $ 0.8 million and $ 1.7 million for the three and six months ended July 1, 2022, respectively, and $ 0.7 million and $ 1.6 million for the three and six months ended July 2, 2021, 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 $ 1.0 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 six months ended July 1, 2022, Income from continuing operations before income taxes was $ 78.0 million and $ 162.1 million, respectively, while Income tax expense was $ 20.0 million and $ 45.8 million, respectively.

The effective tax rate w as 25.7 % and 28.2 % for the three and six months ended July 1, 2022, respectively.

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.

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

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

During the three and six months ended July 2, 2021, Income from continuing operations before income taxes was $ 93.7 million and $ 166.2 million, respectively, while Income tax expense was $ 15.6 million and $ 29.6 million, respectively.

The effective tax rate was 16.7 % and 17.8 % for the three and six months ended July 2, 2021, respectively.

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.

The effective tax rates differed from the 2021 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 six months of 2021.

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

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.

Inventories, Net

Inventories, net consisted of the following:

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In thousands)

6 unchanged sentences

$ 446,531 $ 420,062

At July 1, 2022 and December 31, 2021, 32 % and 34 % of total inventories, respectively, were valued using the LIFO method.

ESAB CORPORATION

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

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 six months ended July 1, 2022 and July 2, 2021.

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 Total

(In thousands)

Balance at December 31, 2021

$ ( 21,196 ) $ ( 439,692 ) $ ( 460,888 )

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)

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)

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

Balance at July 1, 2022

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

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

See Note 9, “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.

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

ESAB CORPORATION

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

Accumulated Other Comprehensive Loss Components

Net Unrecognized Pension And Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Total

(In thousands)

Balance at December 31, 2020 $ ( 29,378 ) $ ( 366,825 ) $ ( 396,203 )

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment 712 ( 30,438 ) ( 29,726 )

Other comprehensive income (loss) before reclassifications 712 ( 30,438 ) ( 29,726 )

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

$ ( 28,364 ) $ ( 393,081 ) $ ( 421,445 )

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

See Note 9, “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 is 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 to be recorded as a result of this equity award conversion will be $ 2.6 million and will be recognized over the remaining service period.

Stock-based compensation expenses incurred by the Company were $ 3.6 million and $ 5.4 million during the three and six months ended July 1, 2022, respectively, and $ 1.7 million and $ 3.2 million during the three and six months ended July 2, 2021, respectively.

ESAB CORPORATION

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

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

Accrued and Other Liabilities

1 unchanged sentence

Current Noncurrent Current Noncurrent

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In thousands)

9 unchanged sentences

$ 290,403 $ 549,381 $ 251,109 $ 362,945

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:

Six Months Ended

July 1, 2022 July 2, 2021

Nine Months Ended

September 30, 2022 October 1, 2021

(In thousands)

5 unchanged sentences

Warranty liability, end of period $ 13,721 $ 15,202

ESAB CORPORATION

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

Accrued Restructuring Liability

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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:

Six Months Ended July 1, 2022

Nine Months Ended September 30, 2022

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

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(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

2 unchanged sentences

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 $ 7.2 million are included within the Company’s Consolidated and Combined Condensed Balance Sheet at July 1, 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 8.

“Accrued and Other Liabilities”.

ESAB CORPORATION

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

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.

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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.

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 six months ended July 2, 2021.

Net periodic benefit cost of the Company’s defined benefit pension plan wa s $ 0.1 million and $ 0.5 million for the three and six months ended July 1, 2022, respectively, and was $ 0.4 million and $ 0.7 million for the three and six months ended July 2, 2021, respectively, and is reflected within Interest expense (income) and other, net, in the Consolidated and Combined Condensed Statements of Operations for both the three and six months ended July 1, 2022, and July 2, 2021.

In the six months ended July 1, 2022, contributions of $ 0.5 million to U.S.

pension plans and $ 2.4 million to foreign pension plans have been made.

During the three months ended July 2, 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.

This amount is reflected in Pension settlement gain in the Consolidated and Combined Condensed Statements of Operations.

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.

Long-term debt consisted of the following:

September 30, 2022

(In thousands)

3 unchanged sentences

Term Loans and Revolving Credit Facility

ESAB CORPORATION

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

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.

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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.

ESAB CORPORATION

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

On June 28, 2022, the Company amended and restated the Credit Agreement by entering into Amendment No.

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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.

Initially, the applicable interest rate margin will be 1.5 % or, in the case of base rate loans, 0.5 %, and in future quarters it may change 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 %).

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.

As of July 1, 2022, the weighted-average interest rate of borrowings under the Credit Agreement was 2.39 %, excluding accretion of deferred financing fees, and there wa s $ 565 million available on the Revolving Facility.

On July 14, 2022, ESAB entered into two interest rate swaps with an aggregate notional amount of $ 600 million.

The interest rate swaps will convert the term SOFR interest rate on a portion of the Company’s borrowings to a fixed interest rate of 3.293 %, plus a spread, through the date of termination.

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

Additionally, on July 22, 2022, ESAB entered into two fixed-to-fixed cross-currency swaps with an aggregate notional Euro amount of approximately € 270 million and an aggregate U.S.

dollar notional amount of $ 275 million.

See additional discussion within Note 15.

Subsequent Events.

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.

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 which 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 o f $ 108.2 million.

Total letters of credit of $ 32.9 million were outstanding as of July 1, 2022.

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.

Deferred Financing Fees

In total, the Company had deferred financing fees of $ 4.1 million included in its Consolidated and Combined Condensed Balance Sheet as of July 1, 2022, which will be charged to Interest expense (income) and other, net, using the straight-line method, over the life of the Credit Agreement for the costs associated with entering into the Revolving Facility.

The costs associated with the Term Facilities will be amortized over the contractual term of the Term Facilities.

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.

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 $ 3.9 million, $ 1.3 million of deferred financing fees relating to the Revolving Facility are included in Other assets and $ 2.6 million of deferred financing fees relating to the Term Facilities are recorded as a contra-liability within Long-term debt.

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.

The Company has established policies and procedures that govern the risk management of these exposures.

Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable.

The Company is subject to the credit risk of counterparties to derivative instruments.

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.

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.

Cash Flow Hedges

On July 14, 2022, the Company entered into two interest rate swap agreements to manage interest rate risk exposure.

The aggregate notional amount of these contracts is $ 600 million and they mature in April 2025.

These interest rate swap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate of 3.293 %, plus a spread, thus reducing the impact of interest-rate changes on future interest expense.

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.

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.

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 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 $ 4.2 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.

ESAB CORPORATION

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

Financial Instruments and Fair Value Measurements

The effects of designated cash flow hedges on the Company’s Consolidated and Combined Condensed Statements of Operations consisted of the following:

Three Months Ended

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

September 30, 2022

(In thousands)

Interest rate swap agreements Interest expense (income) and other, net $ 1,045

Net Investment Hedges

On July 22, 2022 the Company entered into two cross-currency swap agreements to partially hedge its net investment in its Euro-denominated subsidiaries against adverse movements in exchange rates between the U.S.

Dollar and the Euro.

In addition, the cross-currency swap agreements are agreements 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.

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.

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

Designated as hedging instruments:

Other Assets Total gain recognized in AOCI, net of tax

(In thousands)

Cross currency swap agreements $ 9,578 $ 7,421

Interest rate swap agreements 12,855 9,960

Total $ 22,433 $ 17,381

Derivatives Not Designated as Hedging Instruments

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.

ESAB CORPORATION

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

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

(In thousands)

Change in unrealized gains (losses) $ 279 $ ( 2,374 ) $ 469 $ ( 6,108 )

Realized loss (1)

( 740 ) ( 1,383 ) ( 17,235 ) ( 1,472 )

(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.

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

These realized losses are offset by unrealized gains which are also 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.

Fair Value Measurements

The carrying values of financial instruments, including Trade receivables and Accounts payable, approximate their fair values due to their short-term maturities.

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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

(In thousands)

1 unchanged sentence

Foreign currency contracts - not designated as hedges (1)

— 2,432 — 2,432

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

Interest rate swap agreements — 12,855 — 12,855

Deferred compensation plans — 2,189 — 2,189

1 unchanged sentence

Foreign currency contracts - not designated as hedges (2)

$ — $ 2,153 $ — $ 2,153

Deferred compensation plans — 2,189 — 2,189

$ — $ 4,342 $ — $ 4,342

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

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

December 31, 2021

3 unchanged sentences

— 2,487 — 2,487

$ 8,133 $ 2,487 $ — $ 10,620

Foreign currency contracts - not designated as hedges (2)

There were no transfers in or out of Level One, Two or Three during the six months ended July 1, 2022.

Foreign Currency Contracts

As of July 1, 2022 and December 31, 2021, the Company had foreign currency contracts related to purchases and sales with notional values of $ 167.2 million and $ 180.8 million, respectively.

ESAB CORPORATION

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

The Company recognized the following in its Consolidated and Combined Condensed Financial Statements related to its derivative instruments:

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

$ — $ 2,309 $ — $ 2,309

(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.

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.

Accumulated Other Comprehensive Loss

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

(In thousands)

Contracts Not Designated in a Hedge Relationship:

Foreign Currency Contracts

Change in unrealized loss $ 1,376 $ ( 1,785 ) $ 190 $ ( 3,635 )

Realized loss (1)

Balance at December 31, 2021

$ ( 21,196 ) $ ( 439,692 ) $ — $ — $ ( 460,888 )

(1) The six months ended July 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 during the three months ended April 1, 2022.

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

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:

Foreign currency translation adjustment 3,685 ( 108,755 ) 7,421 — ( 97,649 )

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 )

Amounts reclassified from Accumulated other comprehensive loss (1)(3)

766 — — 810 1,576

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

Balance at September 30, 2022

$ ( 66,557 ) $ ( 701,166 ) $ 7,421 $ 9,960 $ ( 750,342 )

(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.

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.

See Note 10, “Derivatives”, for additional details.

Accumulated Other Comprehensive Loss Components

Net Unrecognized Pension And Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Total

(In thousands)

Balance at December 31, 2020

$ ( 29,378 ) $ ( 366,825 ) $ ( 396,203 )

Other comprehensive income (loss) before reclassifications:

Foreign currency translation adjustment 712 ( 30,438 ) ( 29,726 )

Other comprehensive income (loss) before reclassifications 712 ( 30,438 ) ( 29,726 )

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

$ ( 28,364 ) $ ( 393,081 ) $ ( 421,445 )

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) 778 ( 36,639 ) ( 35,861 )

Balance at October 1, 2021

( 27,586 ) ( 429,720 ) ( 457,306 )

(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.

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.

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.

Commitments and Contingencies

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Defense costs associated with asbestos-related liabilities as well as costs incurred related to efforts to recover insurance from the subsidiaries’ insurers are expensed as incurred.

ESAB CORPORATION

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

Each subsidiary has separate insurance coverage acquired prior to Company ownership.

1 unchanged sentence

Asbestos-related claims activity since December 31, 2021 is as follows:

Six Months Ended

Nine Months Ended

September 30, 2022

(Number of claims)

6 unchanged sentences

upon agreements or understandings in place with counsel for the claimants.

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

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

September 30, 2022

(In thousands)

3 unchanged sentences

Long-term asbestos liability (3)

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

(2) Represents current accruals for probable and reasonably estimable asbestos-related liability costs that the Company believes the subsidiaries will pay, and unpaid legal costs related to defending themselves against asbestos-related liability claims and legal action against the Company’s insurers, which is included in Accrued liabilities in the Consolidated and Combined Condensed Balance Sheet.

(3) Included in Other liabilities in the Consolidated and Combined Condensed Balance Sheet.

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

(3) Included in Other liabilities in the Consolidated Balance Sheet.

Management’s analyses are based on currently known facts and assumptions.

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There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company.

ESAB CORPORATION

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

Segment Information

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

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.

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, and separation costs.

The Company’s segment results were as follows:

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

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

(In thousands)

7 unchanged sentences

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

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Three Months Ended

Nine Months Ended

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

(In thousands)

11 unchanged sentences

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 (“EBS”) license agreement.

ESAB CORPORATION

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

The Separation and Distribution Agreement

11 unchanged sentences

Stockholders and Registration Rights Agreement

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

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

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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.

EBS License Agreement

The EBS 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 EBS, solely in support of its businesses.

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 EBS during the first two years of the term period of the EBS license agreement.

ESAB CORPORATION

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

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.

Allocated Expenses

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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 $ 8.1 million and $ 14.6 million for the three and six months ended July 2, 2021, respectively.

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.

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 three months ended July 1, 2022.

Refer to Note 9, “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 six months ended July 2, 2021.

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.

Subsequent Events

The dividend of $ 3.0 million included in Accrued liabilities in the Consolidated and Combined Condensed Balance Sheet as at July 1, 2022 was paid on July 18, 2022, to stockholders of record as of July 1, 2022.

On July 14, 2022, ESAB entered into two interest rate swaps with an aggregate notional amount of $ 600 million.

The risk management objective in using interest rate swaps is to add stability to interest expense and to manage the Company’s exposure to interest rate movements.

The swaps mature on April 3, 2025 and require periodic interest rate settlements.

Under these interest rate swaps, ESAB receives a floating rate based on the greater of the term SOFR interest rate or 0.00 %, and pays a fixed rate of 3.293 %, plus a spread, on the outstanding notional amount.

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

The interest rate swaps have been designated as cash flow hedges.

On July 22, 2022, ESAB entered into two fixed-to-fixed cross-currency swaps to hedge its net investment in its Euro denominated subsidiaries.

The cross-currency swaps are designated as a net investment hedge.

Under the terms of the cross-currency swap agreement, ESAB will exchange monthly interest payments based on a weighted-average interest rate of 1.480 % and a Euro aggregate notional amount of approximately € 270 million for monthly fixed-rate interest payments based on an interest rate of 3.293 % and a U.S.

dollar aggregate notional amount of $ 275 million through the maturity date of April 3, 2025.

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.

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