ESAB Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of ESAB Corporation (“ESAB,” the “Company,” “we,” “our,” and “us”) should be read in conjunction with the Consolidated and Combined Condensed Financial Statements and related footnotes included in Part I. Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 (this “Form 10-Q”) and the Consolidated and Combined Financial Statements and related footnotes included in the Company’s Information Statement filed with the Company’s Registration Statement on Form 10-12B/A filed with the SEC on March 17, 2022 (the “Form 10”). You should review the discussion titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements. Our actual results could differ materially from those discussed in the forward looking statements. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including statements regarding: the anticipated benefits of the Company’s Separation from Enovis Corporation, formerly known as Colfax Corporation (the “Separation”); the expected financial and operating performance of, and future opportunities for, the Company following the Separation; the tax treatment of the Separation; the impact of the COVID-19 global pandemic, including the actions by governments, businesses and individuals in response to the situation, on the global and regional economies, financial markets, and overall demand for our products; projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, pension and benefit obligations and funding requirements, synergies or other financial items; plans, strategies and objectives of our management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments; developments, performance or industry or market rankings relating to products or services; future economic conditions or performance; the outcome of outstanding claims or legal proceedings including asbestos-related liabilities and insurance coverage litigation; potential gains and recoveries of costs; assumptions underlying any of the foregoing; and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Forward-looking statements may be, but not always, characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions. These statements are based on assumptions and assessments made by our management as of the filing date of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties and actual results or outcomes could differ materially due to numerous factors, including but not limited to the following: • our ability to operate as a stand-alone public company; • our ability to achieve the intended benefits from the Separation; • the war in Ukraine and escalating geopolitical tensions as a result of Russia’s invasion of Ukraine and the related impact on energy supplies and prices; • changes in the general economy, as well as the cyclical nature of the markets we serve; • supply chain constraints and backlogs, including risks affecting raw material, part and component availability, labor shortages and inefficiencies, freight and logistical challenges, and inflation in raw material, part, component, freight and delivery costs; • risks related to the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, actions by governments, businesses and individuals in response to the situation, such as the scope and 29 duration of the outbreak, the nature and effectiveness of government actions and restrictive measures implemented in response, supply chain disruptions, the impact on creditworthiness and financial viability of customers, and other impacts on our business and ability to execute business continuity plans; • volatility in the commodity markets and certain commodity prices, including oil and steel, due to economic disruptions from the COVID-19 pandemic and various geopolitical events; • our ability to identify, finance, acquire and successfully integrate attractive acquisition targets; • our exposure to unanticipated liabilities resulting from acquisitions; • our ability and the ability of our customers to access required capital at a reasonable cost; • our ability to accurately estimate the cost of or realize savings from our restructuring programs; • the amount of, a nd our ability to estimate our asbestos-related liabilities; • the solvency of our insurers and the likelihood of their payment for asbestos-related costs; • material disruptions at any of our manufacturing facilities; • noncompliance with various laws and regulations associated with our international operations, including anti-bribery laws, export control regulations and sanctions and embargoes; • risks associated with our international operations, including risks from trade protection measures and other changes in trade relations; • risks associated with the representation of our employees by trade unions and work councils; • our exposure to product liability claims; • potential costs and liabilities associated with environmental, health and safety laws and regulations; • failure to maintain, protect and defend our intellectual property rights; • the loss of key members of our leadership team; • restrictions in our financing arrangements that may limit our flexibility in operating our business; • impairment in the value of intangible assets; • the funding requirements or obligations of our defined benefit pension plans and other postretirement benefit plans; • significant movements in foreign currency exchange rates or inflation rates; • new regulations and customer preferences reflecting an increased focus on environmental, social and governance issues, including new regulations related to the use of conflict minerals; • service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure; • risks arising from changes in technology; • the competitive environment in our industries; 30 • changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the COVID-19 global pandemic and the Coronavirus Aid, Relief, and Economic Security Act; • our ability to manage and grow our business and execution of our business and growth strategies; • the level of capital investment and expenditures by our customers in our strategic markets; • our financial performance; • difficulties and delays in integrating or fully realizing projected cost savings and benefits of our acquisitions; and • other risks and factors set forth under “Risk Factors” in the Information Statement filed with the Form 10. The effects of the COVID-19 pandemic and the Russia and Ukraine conflict, including actions by governments, businesses and individuals in response to these situations, may give rise or contribute to or amplify the risks associated with many of these factors. See “Risk Factors” in the Information Statement filed with the Form 10 and “Part II -- Item 1.A Risk Factors” in this Form 10-Q for a further discussion regarding reasons that actual results and outcomes may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call materials or other communication in which they are made. We do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise. Separation from Enovis 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 discussed in the “Separation from Enovis” section within Note 1, “Organization and Basis of Presentation” in the accompanying notes to Consolidated and Combined Condensed Financial Statements (“Notes”) contained elsewhere in this Form 10-Q 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. In connection with the Separation, on April 4, 2022, ESAB and Enovis entered into the Separation Agreement as well as various other related 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 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 were 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 9, “Debt” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information on the Credit Agreement. 31 Basis of Presentation The accompanying Consolidated and Combined Condensed Financial Statements present our 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. Through the date of the Separation, all revenues and costs as well as assets and liabilities directly associated with ESAB and certain corporate entities have been included in the Consolidated and Combined Condensed financial statements. Prior to the Separation, the Combined Condensed financial statements also included allocations of certain general, administrative, sales and marketing expenses from Enovis’s corporate office and from other Enovis businesses to us and allocations of related assets, liabilities, and the Former Parent’s investment, as applicable. 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 we been an entity that operated independently of Enovis during the applicable periods. Certain factors could impact the nature and amount of these separate public company costs, including the finalization of our staffing and infrastructure needs. Following the Separation, pursuant to agreements with Enovis, Enovis continues to provide us with some of the services related to these functions on a transitional basis in exchange for agreed‑upon fees, and we incur other costs to replace the services and resources that are not provided by Enovis. Costs associated with services provided by Enovis on a transitional basis are immaterial. Related party allocations are discussed further in Note 15, “Related Party Transactions” in the accompanying Notes contained elsewhere in this Form 10-Q. We also incur additional costs as a separate public company. These additional costs are primarily for the following: • additional personnel costs, including salaries, benefits and potential bonuses and/or stock‑based compensation awards for staff additions to replace support provided by the Former Parent that is not covered by the transition services agreement; and • corporate governance costs, including board of director compensation and expenses, audit and other professional services fees, annual report and proxy statement costs, SEC filing fees, transfer agent fees, consulting and legal fees and stock exchange listing fees. Certain factors could impact the nature and amount of these separate public company costs, including the finalization of our staffing and infrastructure needs. We expect these separate public company costs to exceed the costs that have been historically allocated to us. We expect such separate public company costs to be approximately $35 million per year. During the three months ended April 1, 2022, the Former Parent allocated costs were $6.0 million included in the accompanying Notes contained elsewhere in this Form 10-Q. In addition to these separate public company costs, we expect to incur certain nonrecurring costs as a result of the Separation. Following the Separation, the Consolidated and Combined Condensed Financial Statements include the accounts of ESAB and its wholly-owned subsidiaries and no longer include any allocations of expenses from Enovis. Accordingly: • The Consolidated Balance Sheet as of September 30, 2022, consists of our consolidated balances, 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 our consolidated results 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 within Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q, for the three months ended April 1, 2022. The Combined Condensed Statement of Operations and Statement of Comprehensive Income for the 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 our combined activity and the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation 32 from Enovis” section within Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q, 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 our consolidated activities 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 within Note 1 for the three months ended April 1, 2022. The Combined Condensed Statement of Cash Flows for the nine months ended October 1, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis. Our Consolidated and Combined Condensed Financial Statements may not be indicative of our results had we been a separate stand-alone entity throughout the periods presented, nor are the results stated herein indicative of what our financial position, results of operations and cash flows may be in the future. Prior to the Separation, we were dependent on Enovis for all of our working capital and financing requirements under Enovis’s centralized approach to cash management and financing of its operations. With the exception of cash, cash equivalents and borrowings clearly associated with ESAB and related to the Separation, financing transactions relating to us during the period prior to the Separation were accounted for through our Former Parent’s investment account. Accordingly, none of Enovis’s cash, cash equivalents or debt at the corporate level has been assigned to us in these financial statements. As part of our new capital structure post Separation, we expect interest expense in 2022 to be in the range of $35 million to $40 million. Former Parent’s investment, which included retained earnings, represented Enovis’s interest in our recorded net assets. All significant transactions between us 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 (to) Former Parent, net” and in the accompanying Consolidated and Combined Condensed Balance Sheets within “Former Parent’s investment”. Overview Please see Part I, Item 1. “Business” in our Form 10, for a discussion of ESAB’s objectives and methodologies for deliver ing stockholder va lue. General 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. We conduct our 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. We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels. Our customer base is highly diversified in the industrial end markets. Integral to our operations is the ESAB Business Excellence system (“EBX”), our business management system, which was derived from the Colfax Business System. EBX is our culture and includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, stockholders and associates. We believe that our management team’s access to, and experience in, the application of the EBX methodology is one of our primary competitive strengths. Outlook We believe that we are well positioned to grow our businesses organically over the long term by enhancing our product offerings and expanding our customer base. Our business mix is well balanced between sales in emerging and developed 33 markets, and equipment and consumables. We intend to continue to utilize our strong global presence and worldwide network of salespeople and distributors to capitalize on growth opportunities by selling regionally-developed and/or marketed products and solutions throughout our served markets. Our geographic and end market diversity helps mitigate the effects from cyclical industrial market exposures. Given this balance, management does not use indices other than general economic trends and business initiatives to predict the overall outlook for the Company. Instead, our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and outlook for the future. We face a number of challenges and opportunities, including the successful integration of acquired businesses, the application and expansion of our EBX tools to improve business performance, the ability to realize the expected benefits of the Separation and operate as an independent, public company, and the rationalization of assets and costs. We expect strategic acquisitions to contribute to our growth. We believe that the extensive experience of our leadership team in acquiring and effectively integrating acquisition targets should enable us to capitalize on future opportunities. The recent acquisition of Ohio Medical, LLC, on October 14, 2022, is aligned with this strategic direction. Refer to Note 16, “Subsequent Events” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information. The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three and nine months ended September 30, 2022 and October 1, 2021. 34 Results of Operations The following discussion of Results of Operations addresses the comparison of the periods presented. Our management evaluates the operating results of each of its reportable segments based upon Net sales, Adjusted EBITA and Adjusted EBITDA as defined in the “Non-GAAP Measures” section. Items Affecting Comparability of Reported Results The comparability of our operating results for the three and nine months ended September 30, 2022 , and October 1, 2021 is affected by the following additional significant items: The COVID-19 Pandemic The Company continues to actively monitor the COVID-19 pandemic, including the rise, prevalence and severity of variants of the virus, the related government regulations, and the impacts on our results and operations. As reflected in the discussions that follow, the pandemic and actions taken in response to it have had a variety of impacts on our results of operations during 2021 and 2022, including sales levels, and together with other market dynamics has contributed to inflation and widespread supply chain challenges, including labor, raw material, and component shortages. For additional information on the risks of COVID-19 to the Company’s operations, refer to the “Part I. Item 1A. Risk Factors” section of the Company’s Form 10. 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. Refer to Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q as well as “Part I. Item 1A. Risk Factors” section of the Company’s Form 10 for additional information. Foreign Currency Fluctuations A significant portion of our Net sales, 77.5% and 77.6% for the three and nine months ended September 30, 2022, respectively, are outside the United States, with the majority of those sales denominated in currencies other than the U.S. Dollar. Because much of our manufacturing and employee costs are outside the United States, a significant portion of our costs are also denominated in currencies other than the U.S. Dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant. For the three months ended September 30, 2022 compared to the three months ended October 1, 2021, fluctuations in foreign currencies had reduced Net sales by 4.9%, Gross profit by 5.3% and Selling, general and administrative expenses by 6.7%. For the nine months ended September 30, 2022 compared to the nine months ended October 1, 2021, fluctuations in foreign currencies had reduced Net sales by 4.1%, Gross profit by 4.6% and Selling, general and administrative expenses by 5.2%. Seasonality Our European operations typically experience a slowdown during the July, August and December vacation seasons. However, the business impact caused by the COVID-19 pandemic distorted the effects of historical seasonality patterns. Please see “Part I. Item 1A. Risk Factors” in our Form 10 for a further discussion of some of the risks related to the COVID-19 pandemic. 35 Non-GAAP Measures Adjusted EBITA and Adjusted EBITDA are non-GAAP performance measures that we include in this report because they are key metrics used by our management to assess our operating performance. ESAB presents some of these non-GAAP financial measures including and excluding Russia due to economic and political volatility caused by the Russia and Ukraine conflict, which results in enhanced investor interest in this information. Core adjusted EBITDA is a non-GAAP financial measure that includes Russia for the three months ended April 1, 2022, and April 2, 2021, and due to the Russia and Ukraine conflict that started at the end of the first quarter, excludes Russia for the three and six months ended September 30, 2022 and October 1, 2021. Adjusted EBITA excludes from Net income from continuing operations the effect of Restructuring and other related charges, acquisition-related intangible asset amortization, pension settlement gains, separation costs, Income tax expense and Interest expense (income) and other, net. Adjusted EBITDA further excludes depreciation and other amortization from the Adjusted EBITA calculation. We also present Adjusted EBITA and Adjusted EBITDA margins, which are subject to the same adjustments as Adjusted EBITA and Adjusted EBITDA, respectively. Further, we present these non-GAAP performance measures on a segment basis, where we exclude the impact of Restructuring and other related charges, acquisition-related intangible asset amortization and separation costs from operating income for Adjusted EBITA and further exclude depreciation and other amortization for Adjusted EBITDA. We also present Core adjusted EBITDA and Core adjusted EBITDA margins which are subject to the same adjustments as Adjusted EBITDA and Adjusted EBITDA margins, respectively, further removing the impact of Russia for the three and six months ended September 30, 2022 and October 1, 2021, respectively. Adjusted EBITA and Adjusted EBITDA, assist management in comparing our operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements. Management also believes that presenting these measures allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with U.S. GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable U.S. GAAP financial measures. The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITA, Adjusted EBITDA, and Core adjusted EBITDA. Three Months Ended Nine Months Ended September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021 (Dollars in millions) (1) Net income from continuing operations (GAAP) $ 54.3 $ 61.4 $ 170.6 $ 198.1 Income tax expense 17.8 17.4 63.6 47.0 Interest expense (income) and other, net (2) 12.2 — 19.6 (0.2) Pension settlement gain (3.3) — (3.3) (11.2) Restructuring and other related charges (3) 6.7 4.2 16.6 10.8 Separation costs (4) 1.8 0.7 8.9 0.8 Acquisition-related amortization (5) 7.2 8.9 22.5 27.1 Adjusted EBITA (non-GAAP) 96.7 92.7 298.6 272.4 Depreciation and other amortization 8.3 9.8 26.2 29.0 Adjusted EBITDA (non-GAAP) $ 105.0 $ 102.5 $ 324.8 $ 301.4 Adjusted EBITDA attributable to Russia (non-GAAP) (6) 9.5 11.2 15.0 23.1 Core adjusted EBITDA (non-GAAP) $ 95.5 $ 91.3 $ 309.8 $ 278.3 Net income margin from continuing operations (GAAP) 8.8 % 10.1 % 8.8 % 11.0 % Adjusted EBITA margin (non-GAAP) 15.6 % 15.3 % 15.5 % 15.1 % Adjusted EBITDA margin (non-GAAP) 16.9 % 16.9 % 16.8 % 16.7 % Core adjusted EBITDA margin (non-GAAP) (7) 16.6 % 16.2 % 16.7 % 16.2 % 36 (1) Numbers may not sum due to rounding. (2) Mainly relates to the removal of interest expense and income included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statement of Operations. (3) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expenses, and other costs in connection with the closure and optimization of facilities and product lines. (4) 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. (5) Includes amortization of acquired intangibles. (6) Represents EBITDA attributable to Russia for the three and six months ended September 30, 2022 and October 1, 2021, respectively. (7) Net sales relating to Russia were $43.3 million and $72.7 million for the three and six months ended September 30, 2022, respectively, and $44.2 million and $88.2 million for the three and six months ended October 1, 2021, respectively. The following tables set forth a reconciliation of Operating income, the most directly comparable financial statement measure, to Adjusted EBITA and Adjusted EBITDA by segment for the three and nine months ended September 30, 2022 and October 1, 2021. Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Americas EMEA & APAC Total Americas EMEA & APAC Total (Dollars in millions) (1) Operating income (GAAP) $ 36.6 $ 44.4 $ 81.0 $ 102.6 $ 147.9 $ 250.5 Restructuring and other related charges 1.9 4.8 6.7 9.1 7.6 16.6 Separation costs 0.8 1.0 1.8 4.6 4.3 8.9 Acquisition-related amortization 4.0 3.3 7.2 12.3 10.2 22.5 Other (2) — — — 0.3 (0.2) 0.1 Adjusted EBITA (non-GAAP) 43.2 53.5 96.7 128.9 169.8 298.6 Depreciation and other amortization 3.2 5.1 8.3 10.1 16.1 26.2 Adjusted EBITDA (non-GAAP) $ 46.4 $ 58.6 $ 105.0 $ 138.9 $ 185.9 $ 324.8 Adjusted EBITDA attributable to Russia (non-GAAP) (3) — 9.5 9.5 — 15.0 15.0 Core adjusted EBITDA (non-GAAP) $ 46.4 $ 49.2 $ 95.5 $ 138.9 $ 170.8 $ 309.8 Adjusted EBITA margin (non-GAAP) 15.4 % 15.8 % 15.6 % 15.3 % 15.7 % 15.5 % Adjusted EBITDA margin (non-GAAP) 16.5 % 17.3 % 16.9 % 16.4 % 17.1 % 16.8 % Core adjusted EBITDA margin (non-GAAP) (4) 16.5 % 16.6 % 16.6 % 16.4 % 16.9 % 16.7 % (1) Numbers may not sum due to rounding. (2) Relates to the adjustment for certain items included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statements of Operations. (3) Represents EBITDA attributable to Russia for t he three and six months ended September 30, 2022, respectively. (4) Net sales relating to Russia included within the EMEA & APAC segment were $43.3 million and $72.7 million for the three and six months ended September 30, 2022, respectively. 37 Three Months Ended October 1, 2021 Nine Months Ended October 1, 2021 Americas EMEA & APAC Total Americas EMEA & APAC Total (Dollars in millions) (1) Operating income (GAAP) $ 31.6 $ 47.0 $ 78.7 $ 81.1 $ 152.1 $ 233.2 Restructuring and other related charges 1.8 2.4 4.2 6.3 4.5 10.8 Separation costs 0.2 0.5 0.7 0.3 0.5 0.8 Acquisition-related amortization 4.6 4.3 8.9 14.0 13.1 27.1 Other (2) 0.3 (0.1) 0.2 1.0 (0.4) 0.5 Adjusted EBITA (non-GAAP) 38.6 54.1 92.7 102.7 169.8 272.5 Depreciation and other amortization 3.9 5.8 9.8 11.1 17.8 29.0 Adjusted EBITDA (non-GAAP) $ 42.6 $ 59.9 $ 102.5 $ 113.8 $ 187.6 $ 301.4 Adjusted EBITDA attributable to Russia (non-GAAP) (3) — 11.2 11.2 — 23.1 23.1 Core adjusted EBITDA (non-GAAP) $ 42.6 $ 48.7 $ 91.3 $ 113.8 $ 164.5 $ 278.3 Adjusted EBITA margin (non-GAAP) 14.9 % 15.6 % 15.3 % 13.9 % 16.0 % 15.1 % Adjusted EBITDA margin (non-GAAP) 16.4 % 17.3 % 16.9 % 15.4 % 17.6 % 16.7 % Core adjusted EBITDA margin (non- GAAP) (4) 16.4 % 16.1 % 16.2 % 15.4 % 16.9 % 16.2 % (1) Numbers may not sum due to rounding. (2) Relates to the adjustment for certain items included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statements of Operations. (3) Represents EBITDA attributable to Russia for the three and six months ended October 1, 2021, respectively. (4) Net sales relating to Russia included within the EMEA & APAC segment were $44.2 million and $88.2 million for the three and six months ended October 1, 2021 respectively. Total Company Sales Net sales increased for the three and nine months ended September 30, 2022 as compared with the three and nine months ended October 1, 2021. The following table presents the components of changes in our consolidated and combined Net sales. Three Months Ended Nine Months Ended Net Sales Change % Net Sales Change % (Dollars in millions) For the three and nine months ended October 1, 2021 $ 606.0 $ 1,803.9 Components of Change: Existing businesses (organic sales growth) (1) 43.8 7.2 % 199.7 11.1 % Foreign Currency translation (2) (29.5) (4.9) % (74.2) (4.1) % Total sales growth 14.3 2.3 % 125.5 7.0 % For the three and nine months ended September 30, 2022 $ 620.3 $ 1,929.4 (1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to organic growth factors such as price, product mix and volume. (2) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates. 38 Net sales from existing businesses increased $43.8 million and $199.7 million during the three and nine months ended September 30, 2022 , respectively, compared to the prior year period primarily due to inflation-related customer pricing increases of approximately $57 million and $221 million , respectively, partially offset by reduced sales volumes mainly due to the Russia and Ukraine conflict. The strengthening of the U.S. Dollar relative to other currencies caused a $29.5 million and $74.2 million unfavorable currency translation impact during the three and nine months ended September 30, 2022, respectively. Sales excluding Russia Sales excluding Russia (“Core Sales”) for ESAB inc reased for the three and nine months ended September 30, 2022 as compared with the three and nine months ended October 1, 2021. The following table presents the components of changes in our consolidated and combined Net sales. Three Months Ended Nine Months Ended Core Sales (3) Change % Core Sales (3) Change % (Dollars in millions) For the three and nine months ended October 1, 2021 $ 561.8 $ 1,715.7 Components of Change: Existing businesses (organic core sales growth) (1) 54.0 9.6 % 230.0 13.4 % Foreign Currency translation (2) (38.8) (6.9) % (89.0) (5.2) % Total core sales growth 15.2 2.7 % 141.0 8.2 % For the three and nine months ended September 30, 2022 $ 577.0 $ 1,856.7 (1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to organic growth factors such as price, product mix and volume. (2) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates. (3) Represents sales excluding Russia for the three and six months ended September 30, 2022 and October 1, 2021, respectively. Core Sales from existing businesses for ESAB increased $54.0 million and $230.0 million during the three and nine months ended September 30, 2022, respectively, compared to the prior year period primarily due to inflation-related customer pricing increases of approximately $52 million and $210 million, during the three and nine months ended September 30, 2022, respectively. The strengthening of the U.S. Dollar relative to other currencies caused a $38.8 million and $89.0 million unfavorable currency translation impact during the three and nine months ended September 30, 2022, respectively. 39 Operating Results The following table summarizes our results for the comparable periods. Three Months Ended Nine Months Ended September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021 (Dollars in millions) Gross profit $ 209.3 $ 207.0 $ 661.1 $ 625.2 Gross profit margin 33.7 % 34.2 % 34.3 % 34.7 % Selling, general and administrative expense $ 121.7 $ 124.1 $ 394.0 $ 381.2 Net income from continuing operations $ 54.3 $ 61.4 $ 170.6 $ 198.1 Net income margin from continuing operations 8.8 % 10.1 % 8.8 % 11.0 % Adjusted EBITA (non-GAAP) $ 96.7 $ 92.7 $ 298.6 $ 272.4 Adjusted EBITA margin (non-GAAP) 15.6 % 15.3 % 15.5 % 15.1 % Adjusted EBITDA (non-GAAP) $ 105.0 $ 102.5 $ 324.8 $ 301.4 Adjusted EBITDA margin (non-GAAP) 16.9 % 16.9 % 16.8 % 16.7 % Core adjusted EBITDA (non-GAAP) $ 95.5 $ 91.3 $ 309.8 $ 278.3 Core adjusted EBITDA margin (non-GAAP) 16.6 % 16.2 % 16.7 % 16.2 % Items excluded from Adjusted EBITA: Restructuring and other related charges (1) $ 6.7 $ 4.2 $ 16.6 $ 10.8 Acquisition-related amortization (2) $ 7.2 $ 8.9 $ 22.5 $ 27.1 Separation costs $ 1.8 $ 0.7 $ 8.9 $ 0.8 Interest expense (income) and other, net (3) $ 12.2 $ — $ 19.6 $ (0.2) Income tax expense $ 17.8 $ 17.4 $ 63.6 $ 47.0 Pension settlement gain $ (3.3) $ — $ (3.3) $ (11.2) Items excluded from Adjusted EBITDA: Depreciation and other amortization $ 8.3 $ 9.8 $ 26.2 $ 29.0 Items excluded from Core adjusted EBITDA: Adjusted EBITDA attributable to Russia (non-GAAP) $ 9.5 $ 11.2 $ 15.0 $ 23.1 (1) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination and other costs in connection with the closure of and optimization of facilities and product lines. (2) Includes amortization of acquired intangibles. (3) Mainly relates to the removal of interest expense and income included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statement of Operations. Third Quarter of 2022 Compared to Third Quarter of 2021 Gross profit increased $2.3 million in the third quarter of 2022 compared with the prior year period. The increase in Gross profit was primarily attributable to benefit from price increases, new product initiatives and benefits from restructuring initiatives to reduce costs, partially offset by inflation-related cost increases, reduced sales volumes due to the Russia and Ukraine conflict and unfavorable product mix and currency translation. Gross profit margin declined primarily due to the dilution effect caused by customer inflation-related pricing and cost increases. Selling, general and administrative expense decrease d $2.4 million in the third quarter of 2022 compared to the prior year period. This decrease is primarily driven by favorable currency translation partially offset by increases in employee compensation and costs related to being an independent public company. The effective tax rate of 24.7% fo r t he quarter ended September 30, 2022 differed from the effective tax rate of 22.1% for the same period ending October 1, 2021 due to differences in non-deductible expenses. Net income from continuing operations decreased $7.1 million in the third quarter of 2022 compared with the prior year period primarily due to the interest expense related to our new Term Facility and Revolving Facility, partially offset by a pension settlement gain of $3.3 million. Net income margin from continuing operations decreased primarily due to the items discussed above. 40 Adjusted EBITA, Adjusted EBITDA and Adjusted EBITA margin increased primarily due to improved sales and lower Selling, general and administrative expenses, partially offset by inflation-related pricing and cost increases. Adjusted EBITDA margin remained largely consistent compared to the same period in 2021. Core adjusted EBITDA increased from $91.3 million to $95.5 million, and the related adjusted EBITDA margins e xpanded 40 basis points from 16.2% to 16.6%. Nine months ended September 30, 2022 Compared to Nine months ended October 1, 2021 Gross profit increased $35.9 million in the nine months ended September 30, 2022 compared with the prior year period. The increase in Gross profit was primarily attributable to benefit from price increases, new product initiatives, and favorable product mix partially offset by inflation-related cost increases and, to a lesser extent, reduced sales volumes due to the Russia and Ukraine conflict. Gross profit margin declined primarily due to dilution effect caused by customer inflation-related pricing and cost increases, which compressed the margin. Selling, general and administrative expense increased $12.8 million in the nine months ended September 30, 2022 compared to the prior year period. This increase is primarily driven by inflation-related cost increases, increased allowances on receivables of approximately $4.0 million relating to Russian and Ukrainian operations in the first quarter of 2022 and increased costs related to being an independent public company, partially offset by currency fluctuations. The effective tax rate of 27.2% for the nine months ended September 30, 2022 differed from the effective tax rate of 19.2% for the same period ending October 1, 2021 due to the change in discrete tax liabilities, net of any benefits, in the comparable periods and differences in the amount of non-deductible expenses. Net income from continuing operations decreased $27.5 million in the nine months ended September 30, 2022 compared with the prior year period due to changes discussed above as well as the interest expense related to our new Term Facility and Revolving Facility, higher income tax and a pension settlement gain recorded in the second quarter of 2021 offset by improved Gross profit. Net income margin from continuing operations decreased primarily due to the items discussed above and a change in the tax rate versus the prior period. Adjusted EBITA, Adjusted EBITDA, Core adjusted EBITDA and related margins increased primarily due to improved sales, partially offset by inflation-related pricing and cost increases. Business Segments We formulate, develop, manufacture, and supply consumable products and equipment, including cutting, joining, and automated welding products, as well as gas control equipment. Our products are marketed under several brand names, most notably ESAB, providing a wide range of products with innovative technologies to solve challenges in virtually any industry. ESAB’s comprehensive range of welding consumables includes electrodes, cored and solid wires, and fluxes using a wide range of specialty and other materials, and cutting consumables including electrodes, nozzles, shields, and tips. ESAB’s equipment ranges from portable welding machines to large customized automated cutting and welding systems. ESAB also offers a range of software and digital solutions to help its customers increase their productivity, remotely monitor their welding operations, and digitize their documentation. Products are sold into a wide range of end markets, including general industry, infrastructure, renewable energy, medical and life sciences, transportation, construction and energy. We report results in two reportable segments: Americas and EMEA & APAC. Americas The following table summarizes selected financial data for our Americas segment: 41 Three Months Ended Nine Months Ended September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021 (Dollars in millions) Net sales $ 281.4 $ 260.0 $ 844.7 $ 739.8 Gross profit $ 91.8 $ 89.9 $ 280.9 $ 252.0 Gross profit margin 32.6 % 34.6 % 33.2 % 34.1 % Selling, general and administrative expense $ 53.4 $ 56.3 $ 169.3 $ 164.7 Adjusted EBITA (non-GAAP) $ 43.2 $ 38.6 $ 128.9 $ 102.7 Adjusted EBITA margin (non-GAAP) 15.4 % 14.9 % 15.3 % 13.9 % Adjusted EBITDA (non-GAAP) $ 46.4 $ 42.6 $ 138.9 $ 113.8 Adjusted EBITDA margin (non-GAAP) 16.5 % 16.4 % 16.4 % 15.4 % Items excluded from Adjusted EBITA: Restructuring and other related charges $ 1.9 $ 1.8 $ 9.1 $ 6.3 Acquisition-related amortization $ 4.0 $ 4.6 $ 12.3 $ 14.0 Separation costs $ 0.8 $ 0.2 $ 4.6 $ 0.3 Items excluded from Adjusted EBITDA: Depreciation and other amortization $ 3.2 $ 3.9 $ 10.1 $ 11.1 Third Quarter of 2022 Compared to Third Quarter of 2021 Net sales in our Americas segment increased $21.4 million in the third quarter of 2022 compared with the prior year peri od. Net sales from existing business increased $27.1 million primarily due to inflation-related pricing increases. Gross profit increased due to the benefit from price increases partially offset by inflation-related cost increases. Gross profit margin decreased 200 basis points due to dilution effect caused by inflation-related pricing and cost increases. Selling, general and administrative expense decreased primarily due to a favorable currency translation impact. Adjusted EBITA, Adjusted EBITDA, and related margins improved primarily as a result of the aforementioned factors. Nine months ended September 30, 2022 Compared to Nine months ended October 1, 2021 Net sales in our Americas segment increased $104.9 million in the nine months ended September 30, 2022 compared with the prior year period. Net sales from existing business increased $112.5 million primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives. Gross profit increased primarily due to benefit from price increases partially offset by inflation-related cost increases, while gross profit margin decreased 90 basis points due to dilution effect caused by inflation-related pricing and cost increases. Selling, general and administrative expense increased mainly due to inflation-related cost increases. Adjusted EBITA, Adjusted EBITDA, and related margins improved primarily due to improved sales, partially offset by inflation-related pricing and cost increases. 42 EMEA & APAC The following table summarizes the selected financial data for our EMEA & APAC segment: Three Months Ended Nine Months Ended September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021 (Dollars in millions) Net sales $ 338.9 $ 346.0 $ 1,084.6 $ 1,064.1 Gross profit $ 117.5 $ 117.1 $ 380.3 $ 373.1 Gross profit margin 34.7 % 33.8 % 35.1 % 35.1 % Selling, general and administrative expense $ 68.2 $ 67.7 $ 224.8 $ 216.6 Adjusted EBITA (non-GAAP) $ 53.5 $ 54.1 $ 169.8 $ 169.8 Adjusted EBITA margin (non-GAAP) 15.8 % 15.6 % 15.7 % 16.0 % Adjusted EBITDA (non-GAAP) $ 58.6 $ 59.9 $ 185.9 $ 187.6 Adjusted EBITDA margin (non-GAAP) 17.3 % 17.3 % 17.1 % 17.6 % Core adjusted EBITDA (non-GAAP) $ 49.2 $ 48.7 $ 170.8 $ 164.5 Core adjusted EBITDA margin (non-GAAP) 16.6 % 16.1 % 16.9 % 16.9 % Items excluded from Adjusted EBITA: Restructuring and other related charges $ 4.8 $ 2.4 $ 7.6 $ 4.5 Acquisition-related amortization $ 3.3 $ 4.3 $ 10.2 $ 13.1 Separation costs $ 1.0 $ 0.5 $ 4.3 $ 0.5 Items excluded from Adjusted EBITDA: Depreciation and other amortization $ 5.1 $ 5.8 $ 16.1 $ 17.8 Items excluded from Core adjusted EBITDA Adjusted EBITDA attributable to Russia (non-GAAP) $ 9.5 $ 11.2 $ 15.0 $ 23.1 Third Quarter of 2022 Compared to Third Quarter of 2021 Net sales decreased for our EMEA & APAC segment by $7.1 million in the third quarter of 2022 compared with the prior year peri od. Net sales from existing business increased $16.7 million offset by $23.8 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to inflation-related pricing increases and to a lesser extent, new product initiatives which were offset by a decrease in sales volumes due to the Russia and Ukraine conflict. Gross profit increased in the third quarter of 2022 compared with the prior year period due primarily to price increases, partially offset by higher energy costs, other inflation-related cost increases, reduced sales volumes, and an unfavorable currency translation impact. Gross profit margin improved compared to the prior period due to price increases partially offset by the dilution effect caused by inflation-related pricing and cost increases. Selling, general and administrative expense remained largely consistent compared to the same period in 2021. Adjusted EBITA and Adjusted EBITDA also remained largely consistent compared to the same period in 2021. Core adjusted EBITDA increased from $48.7 million to $49.2 million and the related Core adjusted EBITDA margins expanded 50 basis points from 16.1% to 16.6%. Nine months ended September 30, 2022 Compared to Nine months ended October 1, 2021 Net sales increased for our EMEA & APAC segment by $20.5 million in the nine months ended September 30, 2022 compared with the prior year period. Net sales from existing business increased $87.2 million offset by $66.7 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives partially offset by reduced sales volumes due to the Russia and Ukraine conflict. Gross profit increased in the third quarter of 2022 compared with the prior year period due primarily to benefit from price increases and a favorable product mix, partially offset by inflation-related cost increases, reduced sales volumes and an unfavorable currency translation impact. Gross profit margin remained largely consistent compared to the same period in 2021. Selling, general and administrative expense increased over the same period primarily driven by inflation related costs, increased allowances on receivables of approximately $4.0 million relating to Russian and Ukrainian operations and higher employee compensation. Adjusted EBITA and Adjusted EBITDA remained relatively consistent compared to the same period in 2021 while related margins declined primarily due to increased Selling, general and administrative expenses. Core adjusted EBITDA increased from $164.5 million to $170.8 million and the related Core adjusted EBITDA margins remained largely consistent compared to the same period in 2021. 43 Liquidity and Capital Resources Overview Prior to the completion of the Separation, we financed our working capital requirements through cash flows from operating activities and arrangements with our Former Parent. We currently expect to finance our working capital requirements through cash flows from operating activities. We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures and restructuring related cash outflows, asbestos-related cash outflows, and debt service and required amortization of principal and, pending Board approval, payment of cash dividends. In conjunction with the Separation on April 4, 2022, we 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 us by Enovis in connection with the Separation. On June 28, 2022, we amended and restated the Credit Agreement by entering into Amendment No. 2 to Credit Agreement (“Credit Agreement Amendment”). The Credit Agreement Amendment provides for a $600 million Term Loan A-3 Facility with a maturity date of April 3, 2025 to refinance our existing Term Loan A-2 Facility. Also on June 28, 2022, we 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. As of September 30, 2022, we are in compliance with the covenants under Credit Agreement. As of September 30, 2022, the weighted average interest rate of borrowings under the Credit Agreement was 3.82% , excluding accretion of deferred financing fees. Refer to Note 10, “Derivatives” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to swap agreements. As of end of the third quarter, we had the capacity for additional indebtedness with up to $615 million available on the Revolving Facility, subject to meeting financial covenants and other requirements. Additionally, we have the ability to incur $50 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that we currently have in place which we have used from time to time in the past for short-term working capital needs. Refer to Note 9, “Debt” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to the Credit Facilities. We believe that we could raise additional funds in the form of debt or equity if it was determined to be appropriate for strategic acquisitions or other corporate purposes. We believe that our sources of liquidity between debt and cash flows from operating activities are adequate to fund our operations for the next twelve months. 44 Cash Flows As of September 30, 2022, we had $60.6 million of Cash and cash equivalents, an increase of $19.4 million from the balance as of December 31, 2021 of $41.2 million. The following table summarizes the change in Cash and cash equivalents during periods indicated: Nine Months Ended September 30, 2022 October 1, 2021 (Dollars in Millions) (1) Net cash provided by operating activities $ 122.9 $ 192.1 Purchases of property, plant and equipment (22.0) (18.9) Proceeds from sale of property, plant and equipment 4.3 1.1 Acquisitions, net of cash received — (4.9) Net cash used in investing activities (17.7) (22.7) Proceeds from borrowings on term credit facility 1,000.0 — Proceeds from borrowings on revolving credit facility and other 495.9 0.2 Repayments of borrowings on revolving credit facility (360.0) — Payment of deferred financing fees and other (4.9) — Payments of deferred consideration (1.5) — Payment of dividends (3.0) — Distributions to noncontrolling interest holders (2.0) (2.6) Consideration to Former Parent in connection with the Separation (1,200.0) — Transfers from (to) Former Parent, net 2.8 (173.4) Net cash used in financing activities (72.7) (175.7) Effect of foreign exchange rates on Cash and cash equivalents (13.2) (1.4) Increase (decrease) in Cash and cash equivalents $ 19.4 $ (7.7) (1) Numbers may not sum due to rounding. Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as pension funding, asbestos-related costs and restructuring program funding. Changes in significant operating cash flow items are discussed below. • Cash used in operating activities related to discontinued operations for the nine months ended September 30, 2022 was $19.3 million, which was mainly asbestos-related. • During the nine months ended September 30, 2022, we paid $13.2 million and $19.9 million for Separation costs and interest related to our term loans and revolving credit facility, respectively. • During the nine months ended September 30, 2022 and October 1, 2021, cash payments of $17.7 million and $10.2 million, respectively, were made related to our restructuring initiatives. • Additionally, during the nine months ended September 30, 2022 cash provided by operating activities decreased compared to the same period in 2021 also due to a decrease in cash provided by changes in operating assets and liabilities resulting from investment in inventories and other working capital to primarily support growth and manage supply chain challenges as a result of COVID-19. Cash flows used in investing activities during the nine months ended September 30, 2022 and October 1, 2021 includes $22.0 million and $18.9 million, respectively, of cash used for the Purchases of property, plant and equipment. Cash flows used in financing activities decreased b y $103.0 million during the nine months ended September 30, 2022 and October 1, 2021 primarily due to the receipt of proceeds from the issuance of our debt of $1.5 billion, of which $1.2 billion was 45 paid to our Former Parent in connection with the Separation. Transfers from (to) Former Parent, net also significantly decreased compared to the prior period. The remaining change was primarily due to a $360.0 million repayment on the revolving credit facility. In July 2022, the Company paid a cash dividend of $0.05 per share, or $3.0 million, to stockholders of record as of July 1, 2022. Our Cash and cash equivalents as of September 30, 2022 includ e $49.6 million held in jurisdictions outside the U.S. Cash repatriation of non-U.S. cash into the U.S. may be subject to taxes, other local statutory restrictions and minority owner distributions. Critical Accounting Policies The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial position. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position. There have been no other significant additions or changes to the methods, estimates and judgments included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in our Form 10.