What changed in this filing

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Item 1. Financial Statements

2023-11-01 compared with 2023-08-01 · 154 added, 108 removed, 587 unchanged (31% of the section changed)

3 unchanged sentences

Dollars in thousands, except per share amounts

Three Months Ended Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Net sales $ 680,996 $ 620,265 $ 2,085,418 $ 1,929,353

4 unchanged sentences

Operating income 101,146 80,994 300,448 250,486

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

Interest expense and other, net 20,502 12,165 58,831 19,516

18 unchanged sentences

Dollars in thousands

Three Months Ended Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Net income $ 59,113 $ 53,316 $ 159,552 $ 165,743

Other comprehensive income (loss):

Foreign currency translation, net of tax (benefit) expense of $( 483 ), $ 360 , $( 438 ) and $ 698

Other comprehensive (loss) income:

Foreign currency translation, net of tax expense of $ 2,984 , $ 1,630 , $ 2,546 and $ 2,328

( 63,808 ) ( 98,792 ) ( 7,988 ) ( 245,868 )

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax expense of $ 1,611 and $ 566

Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges, net of tax (benefit) expense of $( 13 ), $ 2,895 , $ 553 and $ 2,894

( 47 ) 9,960 1,903 9,960

1 unchanged sentence

240 766 1,404 2,322

Other comprehensive income (loss) 20,154 ( 101,118 ) 58,934 ( 145,521 )

Comprehensive income (loss) 87,377 ( 45,094 ) 159,373 ( 33,094 )

Other comprehensive loss ( 63,615 ) ( 88,066 ) ( 4,681 ) ( 233,586 )

Comprehensive (loss) income ( 4,502 ) ( 34,750 ) 154,871 ( 67,843 )

comprehensive income (loss) attributable to noncontrolling interest 853 ( 181 ) 4,377 ( 693 )

Comprehensive income (loss) attributable to ESAB Corporation $ 85,667 $ ( 44,124 ) $ 155,849 $ ( 32,582 )

Comprehensive (loss) income attributable to ESAB Corporation $ ( 5,355 ) $ ( 34,569 ) $ 150,494 $ ( 67,150 )

See Notes to Consolidated and Combined Condensed Financial Statements.

2 unchanged sentences

Dollars in thousands, except share and per share amounts

June 30, 2023 December 31, 2022

September 29, 2023 December 31, 2022

CURRENT ASSETS:

20 unchanged sentences

Total liabilities 2,214,947 2,365,557

Common stock - $ 0.001 par value - 600,000,000 shares authorized, 60,259,369 and 60,094,725 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

Common stock - $ 0.001 par value - 600,000,000 shares authorized, 60,271,072 and 60,094,725 shares outstanding as of September 29, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,876,335 1,865,904

30 unchanged sentences

60,259,369 $ 60 $ 1,872,834 $ 250,030 $ ( 616,615 ) $ 40,416 $ 1,546,725

Net income — — — 57,570 — 1,543 59,113

Dividends declared ($ 0.06 per share)

— — — ( 3,646 ) — — ( 3,646 )

Distributions to noncontrolling owners — — — — — ( 982 ) ( 982 )

Other comprehensive loss, net of tax expense of $ 3,023

— — — — ( 62,925 ) ( 690 ) ( 63,615 )

Common stock-based award activity 11,703 — 3,501 — — — 3,501

Balance at September 29, 2023

60,271,072 $ 60 $ 1,876,335 $ 303,954 $ ( 679,540 ) $ 40,287 $ 1,541,096

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

21 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.

2 unchanged sentences

Dollars in thousands

Six Months Ended

June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022

Cash flows from operating activities:

5 unchanged sentences

Non-cash interest expense 896 1,673

Pension settlement gain — ( 3,300 )

Changes in operating assets and liabilities:

12 unchanged sentences

Proceeds from borrowings on revolving credit facility 454,671 495,881

Repayments of borrowings on term credit facility ( 6,250 ) —

Repayments of borrowings on revolving credit facility and other ( 578,623 ) ( 360,000 )

14 unchanged sentences

Organization and Basis of Presentation

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

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

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

4 unchanged sentences

The Company’s fiscal year ends December 31.

The Company’s second quarter ends 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 2023 and 2022 refer to the 13-week periods ended June 30, 2023 and July 1, 2022, respectively.

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

As used herein, the third quarter results for 2023 and 2022 refer to the 13-week periods ended September 29, 2023 and September 30, 2022, respectively.

Separation from Enovis

7 unchanged sentences

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

For the three and six months ended June 30, 2023, Russia represented approximate ly 6 % of the Company’s total revenue, and app roximately $ 4 million and $ 6 million of its N et income, respectively.

Russia also has approximately 4 % of the Company’s total net assets excluding any goodwill allocation as of June 30, 2023.

For the three and nine months ended September 29, 2023, Russia represented approximate ly 5 % of the Company’s total revenue, and app roximately $ 3 million and $ 10 million of its N et income, respectively.

Russia also has approximately 4 % of the Company’s total net assets excluding any goodwill allocation as of September 29, 2023.

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

Russia has a cumulative translation loss of approximately $ 120 million as of June 30, 2023, which could be realized upon a transition out.

Russia has a cumulative translation loss of approximately $ 125 million as of September 29, 2023, which could be realized upon a transition out.

The Company is closely monitoring developments in Ukraine and Russia.

22 unchanged sentences

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

Research and development costs were $ 9.5 million and $ 19.1 million during the three and six months ended June 30, 2023, respectively, and $ 9.6 million and $ 19.1 million during the three and six months ended July 1, 2022, respectively.

Research and development costs were $ 9.0 million and $ 28.1 million during the three and nine months ended September 29, 2023, respectively, and $ 8.0 million and $ 27.1 million during the three and nine months ended September 30, 2022, respectively.

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

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

In addition to the factors discussed elsewhere in this Form 10-Q, the results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the results of operations that may be achieved for the full year.

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

The Company expects to continue making significant expenditures for research and development to maintain and improve its competitive positions.

The results of operations for the three and nine months ended September 29, 2023 are not necessarily indicative of the results of operations that may be achieved for the full year.

In addition to the factors discussed elsewhere in this Form 10-Q, 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.

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

7 unchanged sentences

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

Loss from discontinued operations, net of taxes consists of Selling, general and administrative expenses of $ 2.1 million and $ 3.0 million , and a tax benefit of $ 0.5 million and $ 0.5 million for the three and six months ended June 30, 2023, respectively, and $ 2.3 million and $ 4.9 million, and a tax benefit of $ 0.4 million and $ 1.0 million for the three and six months ended July 1, 2022, respectively .

Loss from discontinued operations, net of taxes consists of Selling, general and administrative expenses of $ 2.2 million and $ 5.2 million , and a tax benef it of $ 0.5 million and $ 1.0 million f or the three and nine months ended September 29, 2023, respectively.

Loss from discontinued operations, net of tax consists of Selling, general and administrative expenses of $ 1.3 million and $ 6.2 million, and a tax benefit of $ 0.3 million and $ 1.3 million for the three and nine months ended September 30, 2022, respectively .

S ee Note 13 “Commitments and Contingencies” for further information.

Cas h used in operating activities related to discontinued operations for the three and six months ended June 30, 2023 was $ 4.4 million and $ 9.7 million, respectively, and was $ 9.1 million and $ 13.7 million for the three and s ix months ended July 1, 2022 , respectively.

Cas h used in operating activities related to discontinued operations for the three and nine months ended September 29, 2023 was $ 2.5 million and $ 12.2 million, respectively, and was $ 5.6 million and $ 19.3 million for the three and nine months ended September 30, 2022, respectively.

On January 11, 2023, the Company completed the acquisition of Therapy Equipment Limited, a regional leader in oxygen regulators, for $ 18.7 million, net of cash received.

4 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(In thousands)

4 unchanged sentences

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

Given the nature of the business, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of June 30, 2023 is immaterial.

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 29, 2023 is immaterial.

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

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

During the three and six months ended June 30, 2023, revenue recognized that was included in the contract liability balance at the beginning of the year w as $ 3.3 million and $ 14.4 million, res pectively.

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.

As of June 30, 2023 and July 1, 2022, total contract liabilities were $ 28.2 million and $ 21.5 million, respectively, and were included in Accrued liabilities on the Company’s Consolidated and Condensed Balance Sheets.

During the three and nine months ended September 29, 2023, revenue recognized that was included in the contract liability balance at the beginning of the year w as $ 2.3 million and $ 16.7 million, res pectively.

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 was $ 4.6 million and $ 19.0 million, respectively.

As of September 29, 2023 and September 30, 2022, total contract liabilities were $ 29.5 million and $ 22.5 million, respectively, and were included in Accrued liabilities on the Company’s Consolidated and Condensed Balance Sheets.

ESAB CORPORATION

2 unchanged sentences

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

Six Months Ended June 30, 2023

Nine Months Ended September 29, 2023

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

6 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(In thousands, except share and per share data)

15 unchanged sentences

Net income per share from continuing operations – diluted $ 0.97 $ 0.88 $ 2.61 $ 2.77

(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 $ 1.7 million and $ 3.0 million for the three and six months ended June 30, 2023, respectively, and $ 0.8 million and $ 1.7 million for the three and six months ended July 1, 2022, respectively.

(1) Net income from continuing operations attributable to ESAB Corporation for the respective periods is calculated using Net income from continuing operations, less Income attributable to noncontrolling interest, net of taxes, of $ 1.5 million and $ 4.5 million for the three and nine months ended September 29, 2023, respectively, and $ 1.0 million and $ 2.7 million for the three and nine months ended September 30, 2022, respectively.

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

1 unchanged sentence

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

During the three and six months ended June 30, 2023, Income from continuing operations before income taxes was $ 89.8 million and $ 161.0 million, respectively, while Income tax expense was $ 21.0 million and $ 58.0 million, respectively.

The effective tax rate was 23.4 % and 36.0 % for the three and six months ended June 30, 2023, respectively.

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

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

During the three and nine months ended September 29, 2023, Income from continuing operations before income taxes was $ 80.6 million and $ 241.6 million, respectively, while Income tax expense was $ 19.8 million and $ 77.8 million, 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 was 25.7 % and 28.2 % for the three and six months ended July 1, 2022 .

The effective tax rate was 24.6 % and 32.2 % for the three and nine months ended September 29, 2023, respectively.

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

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

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 rate was 24.7 % and 27.2 % for the three and nine months ended September 30, 2022.

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

federal statutory rate of 21.0% primarily due to the impact of withholding taxes and non-deductible expenses.

During the six months ended June 30, 2023, the Company changed its indefinite reinvestment assertion on certain undistributed earnings of the Company’s foreign subsidiaries, resulting in a total tax expense of $ 10.9 million, which was recorded in the three months ended March 31, 2023, on such earnings that have not been indefinitely reinvested.

During the nine months ended September 29, 2023, the Company changed its indefinite reinvestment assertion on certain undistributed earnings of the Company’s foreign subsidiaries, resulting in a total tax expense of $ 10.9 million, which was recorded in the three months ended March 31, 2023, on such earnings that have not been indefinitely reinvested.

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

During the six months ended June 30, 2023, due to an adverse court ruling in a tax case in a foreign jurisdiction the Company increased the related liability for uncertain tax positions by $ 9.4 million partially offset by changes in other positions that occurred during the three months ended March 31, 2023.

During the nine months ended September 29, 2023, due to an adverse court ruling in a tax case in a foreign jurisdiction the Company increased the related liability for uncertain tax positions by $ 9.4 million partially offset by changes in other positions that occurred during the three months ended March 31, 2023.

Inventories, Net

Inventories, net consisted of the following:

June 30, 2023 December 31, 2022

September 29, 2023 December 31, 2022

(In thousands)

6 unchanged sentences

$ 425,691 $ 416,829

At June 30, 2023 and December 31, 2022 , 28.4 % a nd 31.5 % of total inventories, respectively, were valued using the LIFO method.

At September 29, 2023 and December 31, 2022 , 29.9 % a nd 31.5 % of total inventories, respectively, were valued using the LIFO method.

Accrued and Other Liabilities

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

June 30, 2023 December 31, 2022

September 29, 2023 December 31, 2022

Current Noncurrent Current Noncurrent

14 unchanged sentences

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

Six Months Ended

June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022

(In thousands)

9 unchanged sentences

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

Six Months Ended June 30, 2023

Nine Months Ended September 29, 2023

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

12 unchanged sentences

Long-term debt consisted of the following:

June 30, 2023 December 31, 2022

September 29, 2023 December 31, 2022

(In thousands)

12 unchanged sentences

• A $ 600 million 364 -day senior term loan facility (the “Term Loan A-2 Facility”) with a maturity date of April 3, 2023.

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

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

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

4 unchanged sentences

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

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

The Credit Agreement currently consists of the following facilities:

• A $ 750 million revolving credit facility (the “Revolving Facility”) with a maturity date of April 4, 2027;

• A Term A-1 loan with an aggregate principal amount of $ 400 million (the “Term Loan A-1 Facility”) with a maturity date of April 4, 2027;

• A Term Loan A-3 loan with an aggregate principal amount of $ 600 million (the “Term Loan A-3 Facility”) with a maturity date of April 3, 2025.

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

5 unchanged sentences

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

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

The applicable interest rate margin changes based upon the Company’s total leverage ratio (consolidated total debt divided by EBITDA, according to the definitions in the credit agreement and ranging from 1.125 % to 1.750 % or in the case of the base rate margin, 0.125 % to 0.750 %).

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

To manage exposures to currency exchange rates and interest rates arising in Long-term debt, the Company entered into interest rate and cross currency swap agreements during the year ended December 31, 2022.

Refer to Note 10 “Derivatives” for additional information.

As of June 30, 2023, the weighted-average interest rate of borrowings under the Credit Agreement wa s 5.27 %, in cluding the net impact from the interest rate and cross currency swaps and excluding accretion of deferred financing fees, and there was $ 589 million of borrowing capacity available under the Revolving Facility, subject to meeting financial covenants and other requirements.

ESAB CORPORATION

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

Refer to Note 10 “Derivatives” for additional information.

As of September 29, 2023, the weighted-average interest rate of borrowings under the Credit Agreement wa s 5.22 %, in cluding the net impact from the interest rate and cross currency swaps and excluding accretion of deferred financing fees, and there was $ 653 million of borrowing capacity available under the Revolving Facility, subject to meeting financial covenants and other requirements.

Deferred Financing Fees

In total, the Company had deferred financing fees of $ 3.0 million i ncluded in its Consolidated Balance Sheet as of June 30, 2023, which will be charged to Interest expense and other, net, using the straight-line method.

The Company had total deferred financing fees of $ 2.7 million i ncluded in its Consolidated Balance Sheet as of September 29, 2023, which will be charged to Interest expense 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.

1 unchanged sentence

Other Indebtedness

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

In addition to the debt agreements discussed above, the Company also has the ability to incur approximately $ 76 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that the Company has used from time to time in the past for short-term working capital needs.

The Company is party to letter of credit facilities with an aggregate capacity of $ 110.3 million.

Total letters of credit of $ 28.2 million were outstanding as of June 30, 2023.

Total letters of credit of $ 28.1 million were outstanding as of September 29, 2023.

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

3 unchanged sentences

Counterparties include a number of major banks and financial institutions.

None of the concentrations of risk with an individual counterparty was considered significant as of June 30, 2023.

None of the concentrations of risk with an individual counterparty was considered significant as of September 29, 2023.

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

5 unchanged sentences

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

The spread is 1.250 % as of June 30, 2023.

The spread was 1.250 % as of September 29, 2023.

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

1 unchanged sentence

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

The Company did not have any ineffectiveness related to cash flow hedges during the six months ended June 30, 2023.

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

The Company expects a gain of $ 9.6 million, net of tax, related to interest rate swap agreements to be reclassified from AOCI to earnings over the next 12 months as the hedged transactions are realized.

The expected gain to be reclassified is based on current forward rates in active markets as of June 30, 2023.

The Company did not have any ineffectiveness related to cash flow hedges during the nine months ended September 29, 2023 .

ESAB CORPORATION

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

The Company expects a gain of $ 9.9 million, net of tax, r elated 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 29, 2023.

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

Six Months Ended

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

June 30, 2023

Three Months Ended Nine Months Ended

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

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(In thousands)

6 unchanged sentences

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

Dollar aggregate notional amount of $ 275 million at June 30, 2023, and they mature in April 2025.

Dollar aggregate notional amount of $ 275 million at September 29, 2023, and they mature in April 2025.

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

1 unchanged sentence

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

The Company did not have any ineffectiveness related to net investment hedges during the six months ended June 30, 2023.

The Com pany did not have any ineffectiveness related to net investment hedges during the nine months ended September 29, 2023 .

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

1 unchanged sentence

Combined Condensed Statements of Operations consisted of the following:

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

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

June 30, 2023

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(In thousands)

Cross currency swap agreements Interest expense and other, net $ ( 1,197 ) $ ( 897 ) $ ( 3,585 ) $ ( 897 )

ESAB CORPORATION

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

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

June 30, 2023

December 31, 2022

September 29, 2023 December 31, 2022

Designated as hedging instruments:

6 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, the Company had foreign currency contracts related to purchases and sales with notional values of $ 195.9 million and $ 260.0 million, respectively.

ESAB CORPORATION

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

As of September 29, 2023 and December 31, 2022, the Company had foreign currency contracts related to purchases and sales with notional values of $ 202.5 million and $ 260.0 million, respectively.

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

June 30, 2023

December 31, 2022

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

September 29, 2023 December 31, 2022

Not designated as hedging instruments:

Accrued Liabilities Other Current Assets Accrued Liabilities Other Current Assets

(In thousands)

Foreign currency contracts $ 2,345 $ — $ 2,166 $ 3,682

The amounts in the table above as of June 30, 2023 reflect the fair value of the Company’s foreign currency contracts on a net basis where allowable under master netting agreements.

The amounts in the table above as of September 29, 2023 reflect the fair value of the Company’s foreign currency contracts on a net basis where allowable under master netting agreements.

Had these amounts been recognized on a gross basis, the impact would have been a $ 0.6 million increase in Other current assets with a corresponding increase in Accrued liabilities.

1 unchanged sentence

Three Months Ended

Six Months Ended

Foreign currency contracts June 30, 2023

June 30, 2023

Nine Months Ended

Foreign currency contracts September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(In thousands)

6 unchanged sentences

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

June 30, 2023

September 29, 2023

(In thousands)

21 unchanged sentences

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 six months ended June 30, 2023, the impact of the credit valuation adjustment on the Company’s derivatives is immaterial.

For the nine months ended September 29, 2023, the impact of the credit valuation adjustment on the Company’s derivatives is immaterial.

Refer to Note 10 “Derivatives” for additional information.

There were no transfers in or out of Level One, Two or Three during the six months ended June 30, 2023.

There were no transfers in or out of Level One, Two or Three during the nine months ended September 29, 2023.

Accumulated Other Comprehensive Loss

The following tables present the changes in the balances of each component of AOCI including reclassifications out of AOCI for the six months ended June 30, 2023 and July 1, 2022.

The following tables present the changes in the balances of each component of AOCI including reclassifications out of AOCI for the nine months ended September 29, 2023 and September 30, 2022.

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

26 unchanged sentences

$ ( 62,840 ) $ ( 553,369 ) $ ( 13,458 ) $ 13,052 $ ( 616,615 )

Other comprehensive income (loss) before reclassifications:

Net actuarial gain 4 — — — 4

Foreign currency translation adjustment 161 ( 79,233 ) 5,992 — ( 73,080 )

Gain on long-term intra-entity foreign currency transactions — 9,962 — — 9,962

Unrealized gain on cash flow hedges — — — 767 767

Other comprehensive income (loss) before reclassifications 165 ( 69,271 ) 5,992 767 ( 62,347 )

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

236 — — ( 814 ) ( 578 )

Net current period Other comprehensive (loss) income 401 ( 69,271 ) 5,992 ( 47 ) ( 62,925 )

Balance at September 29, 2023

$ ( 62,439 ) $ ( 622,640 ) $ ( 7,466 ) $ 13,005 $ ( 679,540 )

(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.

(2) During the three and six months ended June 30, 2023, the amount on this line within the Cash Flow Hedges column, is a component of Interest expense and other, net.

(2) During the three and nine months ended September 29, 2023, the amount on this line within the Cash Flow Hedges column is a component of Interest expense 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

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

(In thousands)

5 unchanged sentences

Amounts reclassified from Accumulated other comprehensive loss (1)

786 — — — 786

Amounts contributed by Former Parent (2)

7 unchanged sentences

Amounts reclassified from Accumulated other comprehensive loss (1)

770 — — — 770

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

1 unchanged sentence

$ ( 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.

(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.

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

See Note 10 “Derivatives” for additional details.

Commitments and Contingencies

22 unchanged sentences

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

Six Months Ended

June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022

(Number of claims)

7 unchanged sentences

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

June 30, 2023 December 31, 2022

September 29, 2023 December 31, 2022

(In thousands)

20 unchanged sentences

Segment Information

ESAB is a world leader in connected fabrication technology and gas control solutions.

ESAB is a premier narrowly diversified global leader in connected fabrication technology and gas control solutions.

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

2 unchanged sentences

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

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

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

The Com pany’s segment results were as follows:

Three Months Ended

Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(In thousands)

8 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(In thousands)

3 unchanged sentences

20,502 12,165 58,831 19,516

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

Restructuring and other related charges 3,129 6,676 17,742 16,629

8 unchanged sentences

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

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

R elated Party Transactions

5 unchanged sentences

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

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

These amounts included, but were not limited to, items such as general management and executive oversight,

compliance, human resources, procurement, and legal functions and financial management, including public company reporting, consolidated tax filings and tax planning.

Management considered the allocation methodologies used by the Former Parent to be reasonable and to appropriately reflect the related expenses attributable to the Company for purposes of the three months ended April 1, 2022;

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

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

In addition, the expenses reflected in the financial statements for the three months ended April 1, 2022 are not indicative of expenses the Company will incur in the future.

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

4 unchanged sentences

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

therefore, no related amounts were reflected on the Company’s financial statements for the six months ended June 30, 2023.

therefore, no related amounts were reflected on the Company’s financial statements for the nine months ended September 29, 2023.

Net Parent Investment

1 unchanged sentence

Subsequent Events

The dividend of $ 3.6 million included in Accrued liabilities in the Consolidated Balance Sheet at June 30, 2023 was paid on July 11, 2023 to stockholders of record as of June 30, 2023.

The dividend of $ 3.6 million included in Accrued liabilities in the Consolidated Balance Sheet at September 29, 2023 was paid on October 13, 2023 to stockholders of record as of September 29, 2023.

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

What changed 10-Q

Item 1. Financial Statements