ESAB Corp 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm - Internal Controls Over Financial Reporting (Ernst & Young LLP, Tysons, VA, Auditor Firm ID: 42 ) 53 Report of Independent Registered Public Accounting Firm - Consolidated and Combined Financial Statements (Ernst & Young LLP, Tysons, VA, Auditor Firm ID: 42 ) 54 Consolidated and Combined Statements of Operations 56 Consolidated and Combined Statements of Comprehensive Income (Loss) 57 Consolidated Balance Sheets 58 Consolidated and Combined Statements of Equity 59 Consolidated and Combined Statements of Cash Flows 60 Notes to Consolidated and Combined Financial Statements 61 Note 1. Organization and Basis of Presentation 61 Note 2. Summary of Significant Accounting Policies 63 Note 3. Recently Issued Accounting Pronouncements 68 Note 4. Discontinued Operations 68 Note 5. Acquisitions 69 Note 6. Revenue 69 Note 7. Earnings per Share from Continuing Operations 70 Note 8. Income Taxes 70 Note 9. Goodwill and Intangible Assets 75 Note 10. Property, Plant and Equipment, Net 76 Note 11. Inventories, Net 76 Note 12. Leases 77 Note 13. Accrued and Other Liabilities 77 Note 14. Benefit Plans 79 Note 15. Debt 86 Note 16. Derivatives 88 Note 17. Fair Value Measurements 90 Note 18. Equity 93 Note 19. Commitments and Contingencies 96 Note 20. Segment Information 98 Note 21. Related Party Transactions 100 Note 22. Subsequent Events 101 52 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of ESAB Corporation Opinion on Internal Control Over Financial Reporting We have audited ESAB Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, ESAB Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated and combined statements of operations, comprehensive (loss) income, equity and cash flows for each of the three years in the period ended December 31, 2023 and the related notes and schedule and our report dated February 29, 2024 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tysons, Virginia February 29, 2024 53 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of ESAB Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of ESAB Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated and combined statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 29, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 54 Asbestos Liability Description of the Matter At December 31, 2023, the Company’s asbestos liability balance was $267.7 million. As discussed in Note 19 of the consolidated financial statements, certain of the Company’s subsidiaries are defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured with components that are alleged to have contained asbestos. The Company records an asbestos liability for probable pending and future claims over the period that the Company believes it can reasonably estimate such claims. Auditing the asbestos liability was complex and highly judgmental due to the significant estimation of numerous variables required in determining the asbestos obligation. In particular, the estimates were sensitive to significant assumptions such as the period of time over which claims activity can be reasonably predicted, the number of future asbestos-related claims that may be received, the type and severity of disease alleged by each claimant, dismissal rates, the latency period associated with asbestos exposure, and settlement values. These assumptions have a significant effect on the asbestos liability. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to estimate the asbestos liability, including controls related to estimates of expected future claims and other key assumptions underlying the calculation of the obligation. We also tested management’s controls over the completeness and accuracy of the data used in the calculation. To audit the asbestos liability recorded by management, we performed procedures that included, among others, evaluating the methodology applied and the significant assumptions used in the Company’s calculation. For example, we assessed management’s assumptions for the nature and rate of future claims, claims disposition and settlement patterns by comparing these assumptions to the Company’s historical experience and industry data. We considered the Company’s historical data and industry data in evaluating the adequacy of the Company’s projections. We developed, with the assistance of an internal actuarial specialist, an independent range of estimated asbestos liability. We tested the completeness and accuracy of the claims data used by management. We also performed analyses to determine the sensitivity of changes in certain assumptions, such as the period over which claims can be estimated, to the calculated liability. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2021. Tysons, Virginia February 29, 2024 55 ESAB CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS Dollars in thousands, except per share amounts Year Ended December 31, 2023 2022 2021 Net sales $ 2,774,766 $ 2,593,480 $ 2,428,115 Cost of sales 1,759,015 1,707,950 1,590,132 Gross profit 1,015,751 885,530 837,983 Selling, general and administrative expense 587,475 533,369 512,815 Restructuring and other related charges 24,110 23,096 18,954 Operating income 404,166 329,065 306,214 Pension settlement gain — ( 9,136 ) ( 11,208 ) Interest expense (income) and other, net 85,074 37,950 ( 1,666 ) Income from continuing operations before income taxes 319,092 300,251 319,088 Income tax expense 95,727 69,170 80,409 Net income from continuing operations 223,365 231,081 238,679 Loss from discontinued operations, net of taxes ( 12,341 ) ( 3,068 ) — Net income 211,024 228,013 238,679 Less: Income attributable to noncontrolling interest, net of taxes 5,739 4,266 3,569 Net income attributable to ESAB Corporation $ 205,285 $ 223,747 $ 235,110 Earnings (loss) per share - basic Income from continuing operations $ 3.59 $ 3.75 $ 3.92 Loss on discontinued operations $ ( 0.20 ) $ ( 0.05 ) $ — Net income per share $ 3.39 $ 3.70 $ 3.92 Earnings (loss) per share - diluted Income from continuing operations $ 3.56 $ 3.74 $ 3.92 Loss on discontinued operations $ ( 0.20 ) $ ( 0.05 ) $ — Net income per share - diluted $ 3.36 $ 3.69 $ 3.92 See Notes to Consolidated and Combined Financial Statements. 56 ESAB CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Dollars in thousands Year Ended December 31, 2023 2022 2021 Net income $ 211,024 $ 228,013 $ 238,679 Other comprehensive income (loss): Foreign currency translation, net of tax expense (benefit) of $ 4,545 , $( 2,930 ) and $ 740 47,258 ( 175,719 ) ( 72,398 ) Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges, net of tax (benefit) expense of $( 1,087 ) and $ 3,240 ( 3,732 ) 11,102 — Defined benefit pension and other post-retirement plan activity, net of tax expense (benefit) of $ 2,639 , ($ 1,840 ) and ($ 1,192 ) 7,338 6,192 6,657 Other comprehensive income (loss) 50,864 ( 158,425 ) ( 65,741 ) Comprehensive income 261,888 69,588 172,938 Less: comprehensive income attributable to noncontrolling interest 5,887 678 2,513 Comprehensive income attributable to ESAB Corporation $ 256,001 $ 68,910 $ 170,425 See Notes to Consolidated and Combined Financial Statements. 57 ESAB CORPORATION CONSOLIDATED BALANCE SHEETS Dollars in thousands, except share and per share amounts December 31, 2023 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 102,003 $ 72,024 Trade receivables, less allowance for credit losses o f $ 25,477 and $ 23,471 385,198 374,329 Inventories, net 392,858 416,829 Prepaid expenses 61,771 56,637 Other current assets 55,890 68,851 Total current assets 997,720 988,670 Property, plant and equipment, net 294,305 284,226 Goodwill 1,588,331 1,529,767 Intangible assets, net 499,535 517,167 Lease asset - right of use 95,607 92,033 Other assets 353,131 342,152 Total assets $ 3,828,629 $ 3,754,015 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable $ 306,593 $ 316,265 Accrued liabilities 313,489 285,310 Total current liabilities 620,082 601,575 Long-term debt 1,018,057 1,218,643 Other liabilities 542,833 545,339 Total liabilities 2,180,972 2,365,557 Equity: Common stock - $ 0.001 par value - Authorized 600,000,000 ; 60,295,634 and 60,094,725 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 60 60 Additional paid-in capital 1,881,054 1,865,904 Retained earnings 350,557 159,231 Accumulated other comprehensive loss ( 624,272 ) ( 674,988 ) Total ESAB Corporation equity 1,607,399 1,350,207 Noncontrolling interest 40,258 38,251 Total equity 1,647,657 1,388,458 Total liabilities and equity $ 3,828,629 $ 3,754,015 See Notes to Consolidated and Combined Financial Statements. 58 ESAB CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY Dollars in thousands, except share and per share amounts Common Stock Additional Paid in Capital Retained Earnings Former Parent’s Investment Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at January 1, 2021 — $ — $ — $ — $ 2,898,831 $ ( 396,203 ) $ 42,139 $ 2,544,767 Net income — — — — 235,110 — 3,569 238,679 Distributions to noncontrolling owners — — — — — — ( 3,713 ) ( 3,713 ) Other comprehensive loss, net of tax benefit of $ 452 — — — — — ( 64,685 ) ( 1,056 ) ( 65,741 ) Former Parent Common stock-based award activity — — — — 6,267 — — 6,267 Transfers to Former Parent, net — — — — ( 218,585 ) — 54 ( 218,531 ) Balance at December 31, 2021 — $ — $ — $ — $ 2,921,623 $ ( 460,888 ) $ 40,993 $ 2,501,728 Net income — — — 168,310 55,437 — 4,266 228,013 Dividends declared ($ 0.15 per share) — — — ( 9,079 ) — — — ( 9,079 ) Former Parent Common stock-based award activity — — — — 1,728 — — 1,728 Net Transfers from Former Parent, including Separation Adjustments — — 4,346 — 70,643 ( 59,263 ) — 15,726 Net consideration paid to Former Parent, in connection with the Separation — — — — ( 1,200,000 ) — — ( 1,200,000 ) Issuance of common stock in connection with the Separation and reclassification of Net Investment from Former Parent 60,034,311 60 1,849,371 — ( 1,849,431 ) — — — Distributions to noncontrolling owners — — — — — — ( 3,420 ) ( 3,420 ) Other comprehensive loss, net of tax benefit of $ 1,530 — — — — — ( 154,837 ) ( 3,588 ) ( 158,425 ) Common stock-based award activity 60,414 — 12,187 — — — — 12,187 Balance at December 31, 2022 60,094,725 $ 60 $ 1,865,904 $ 159,231 $ — $ ( 674,988 ) $ 38,251 $ 1,388,458 Net income — — — 205,285 — — 5,739 211,024 Dividends declared ($ 0.23 per share) — — — ( 13,959 ) — — — ( 13,959 ) Distributions to noncontrolling owners — — — — — — ( 3,880 ) ( 3,880 ) Other comprehensive income, net of tax expense of $ 6,097 — — — — — 50,716 148 50,864 Common stock-based award activity 200,909 — 15,150 — — — — 15,150 Balance at December 31, 2023 60,295,634 $ 60 $ 1,881,054 $ 350,557 $ — $ ( 624,272 ) $ 40,258 $ 1,647,657 See Notes to Consolidated and Combined Financial Statements. 59 ESAB CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS Dollars in thousands Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 211,024 $ 228,013 $ 238,679 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other impairment charges 75,034 65,978 75,899 Stock-based compensation expense 16,122 12,964 6,267 Deferred income tax ( 25,408 ) ( 20,199 ) ( 8,644 ) Non-cash interest expense 1,195 1,972 — Pension settlement gain — ( 9,136 ) ( 11,208 ) Changes in operating assets and liabilities: Trade receivables, net ( 6,006 ) ( 8,142 ) ( 67,850 ) Inventories, net 17,958 ( 10,066 ) ( 117,350 ) Accounts payable ( 19,819 ) ( 28,794 ) 114,502 Other operating assets and liabilities 60,394 ( 18,232 ) 20,442 Net cash provided by operating activities 330,494 214,358 250,737 Cash flows from investing activities: Purchases of property, plant and equipment ( 48,178 ) ( 40,243 ) ( 35,584 ) Proceeds from sale of property, plant and equipment 4,600 4,849 5,204 Acquisitions, net of cash received ( 18,665 ) ( 149,029 ) ( 4,885 ) Net cash used in investing activities ( 62,243 ) ( 184,423 ) ( 35,265 ) Cash flows from financing activities: Proceeds from borrowings on term credit facility — 1,000,000 — Repayments of borrowings on term credit facility ( 12,500 ) — — Proceeds from borrowings on revolving credit facility and other 574,150 805,881 673 Repayments of borrowings on revolving credit facility and other ( 763,173 ) ( 585,491 ) — Payment of deferred financing fees and other ( 972 ) ( 4,706 ) — Payment of deferred consideration — ( 1,500 ) — Payment of dividends ( 13,342 ) ( 6,054 ) — Consideration to Former Parent in connection with the Separation — ( 1,200,000 ) — Distributions to noncontrolling interest holders ( 3,880 ) ( 3,420 ) ( 3,713 ) Transfers from (to) Former Parent, net — 2,847 ( 218,531 ) Net cash provided by (used in) financing activities ( 219,717 ) 7,557 ( 221,571 ) Effect of foreign exchange rates on Cash and cash equivalents ( 18,555 ) ( 6,677 ) ( 1,901 ) Increase (decrease) in Cash and cash equivalents 29,979 30,815 ( 8,000 ) Cash and cash equivalents, beginning of period 72,024 41,209 49,209 Cash and cash equivalents, end of period $ 102,003 $ 72,024 $ 41,209 Supplemental disclosures: Interest payments, net $ 79,148 $ 34,678 $ — Income tax payments, net $ 132,902 $ 85,659 $ — See Notes to Consolidated and Combined Financial Statements. 60 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Founded in 1904, ESAB Corporation (“ESAB” or the “Company”) is a focused premier industrial compounder. ESAB provides its partners with fabrication technology advanced equipment, consumables, gas control equipment, robotics and digital solutions. The Company’s rich history of innovative products, workflow solutions and its business system, ESAB Business Excellence System (“EBX”), enables the Company’s purpose of Shaping the world we imagine TM . The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding. The Company conducts its operations through two reportable segments. These segments consist of the “Americas,” which includes operations in North America and South America and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific. The Company’s fiscal year ends December 31. The Company’s first three quarters end on the last business day of the 13th week after the end of the prior quarter. Separation from Enovis On April 4, 2022 (the “Distribution Date”), Colfax Corporation (“Colfax,” “Enovis” or the “Former Parent”) completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities, through a tax-free, pro rata distribution (the “Distribution”) of 90 % of the outstanding common stock of ESAB to Colfax stockholders (the spin-off and related distribution, collectively, 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. In November 2022, Enovis sold a total of 6.0 million shares of the Company’s common stock as part of a secondary offering. After the secondary offering, Enovis no longer owned any of the Company’s outstanding common stock. In connection with the Separation, on April 4, 2022, ESAB and Enovis entered into a separation and distribution agreement as well as various other related agreements (collectively the “Separation Agreements”) that govern the Separation and the relationships between the parties going forward, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and license agreement for the EBX. Russia and Ukraine Conflict The invasion of Ukraine by Russia and the sanctions imposed in response have increased the level of economic and political uncertainty. While ESAB continues to closely monitor the situation and evaluate options, t he Company is meeting current contractual obligations w hile addressing applicable laws and regulations. For the year ended December 31, 2023, Russia represented approximately 6 % of the Company’s total revenue, and approximately $ 12 million of its Net income. Russia also has approximatel y 4 % of the Company’s total net assets excluding any goodwill allocation as of December 31, 2023. I n 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 $ 115 million as of December 31, 2023, which could be realized upon a transition out. The C ompany is closely monitoring developments in Ukraine and Russia. Changes in laws and regulations or other factors impacting the Company’s ability to fulfill contractual obligations could have an adverse effect on the results of operations. Basis of Presentation The accompanying Consolidated and Combined Financial Statements present the Company’s historical financial position, results of operations, changes in equity and cash flows in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The combined 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 have been included in the combined financial statements. Prior to the Separation, the combined financial statements also included allocations of certain general, administrative, sales and marketing expenses from Enovis’s corporate office and from other Enovis businesses to the Company 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 the Company been 61 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) an entity that operated independently of Enovis during the applicable periods. Re lated party a llocations prior to the Separation, including the method for such allocation, are discussed further in Note 21, “Related Party Transactions.” Following the Separation, the consolidated financial statements include ESAB and its wholly-owned subsidiaries and no longer include any allocations of expenses from Enovis. Accordingly: • The Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 con sist of the consolidated balances of ESAB. • The Consolidated Statement of Operations, Statement of Comprehensive Income (Loss), Statement of Changes in Equity and Statement of Cash Flows for the year ended December 31, 2023 consist of the consolidated results of ESAB. • The Consolidated and Combined Statement of Operations, Statement of Comprehensive Income (Loss), Statement of Changes in Equity and Statement of Cash Flows for the year ended December 31, 2022 consist of the activities of ESAB for the nine months ended December 31, 2022 and the combined activity of the former Fabrication Technology business of Enovis for the three months ended April 1, 2022. • The Consolidated and Combined Statement of Operations, Statement of Comprehensive Income (Loss), Statement of Changes in Equity and Statement of Cash Flows for the year ended December 31, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis. Our Consolidated and Combined Financial Statements may not be indicative of the Company's results had it been a separate stand-alone entity throughout the periods pre-separation presented, nor are the results stated herein indicative of what the Company's financial position, results of operations and cash flows may be in the future. Prior to the Separation, the Company was dependent on the Former Parent for all of its working capital and financing requirements under Enovis’s centralized approach to cash management and financing of its operations. With the exception of cash, cash equivalents and borrowings clearly associated with ESAB and related to the Separation, financing transactions relating to the Company during the period prior to the Separation were accounted for through the Former Parent’s investment account of the Company. Accordingly, none of Enovis’s cash, cash equivalents or debt at the corporate level has been assigned to the Company in these financial statements. Former Parent’s Investment, which included retained earnings, represented Enovis’s interest in the recorded net assets of the Company. All significant transactions between the Company and the Former Parent prior to the Separation have been included in the accompanying Financial Statements. Transactions with the Former Parent are reflected in the accompanying Consolidated and Combined Statements of Equity as “Transfers to Former Parent, net” for the year ended December 31, 2021, and “ Net Transfers from Former Parent, including Separation Adjustments” for the year ended December 31, 2022. The Consolidated and Combined Financial Statements reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. Intercompany transactions and accounts are eliminated in consolidation. The Company makes certain estimates and assumptions in preparing its Consolidated and Combined Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the Consolidated and Combined Financial Statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates. These Consolidated and Combined Financial Statements included in this annual 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 Financial Statements. 62 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 2. Summary of Significant Accounting Policies Principles of Consolidation The Company’s Consolidated and Combined Financial Statements are prepared in accordance with GAAP and include all majority-owned subsidiaries over which the Company exercises control and, when applicable, entities or joint ventures for which the Company has a controlling financial interest or is the primary beneficiary. When protective rights, substantive rights or other factors exist, further analysis is performed in order to determine whether or not there is a controlling financial interest. The Consolidated and Combined Financial Statements reflect the assets, liabilities, revenues and expenses of consolidated subsidiaries and the noncontrolling parties’ ownership share is presented as a noncontrolling interest. All significant intercompany accounts and transactions have been eliminated. Equity Method Investments Investments accounted for under the equity method are initially recorded at the amount of the Company’s initial investment and adjusted each period for the Company’s share of the investee’s income or loss and dividends paid. All equity investments are reviewed periodically for indications of other-than-temporary impairment, including, but not limited to, significant and sustained decreases in quoted market prices or a series of historic and projected operating losses by investees. If the decline in fair value is considered to be other-than-temporary, an impairment loss is recorded and the investment is written down to a new carrying value. Revenue Recognition The Company recognizes revenue when control of promised goods or services is transferred to the customer. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for transferring the goods or services. The Company provides a variety of products and services to its customers. Most of the Company’s contracts consist of a single, distinct performance obligation or promise to transfer goods or services to a customer. For contracts that include multiple performance obligations, we allocate the total transaction price to each performance obligation using our best estimate of the stand-alone selling price of each identified performance obligation. A significant majority of our revenue relates to the shipment of off-the-shelf products that is recognized when control is transferred to the customer. On a limited basis, we have agreements with customers that have multiple performance obligations. In determining whether there are multiple performance obligations, we first assess the goods or services promised in the customer arrangement and then consider the guidance in ASC 606, Revenue from Contracts with Customers , to evaluate whether goods and services are capable of being distinct and are considered distinct within the customer arrangement. To determine whether promised goods or services are separately identifiable (i.e., whether a promise to transfer a good or service is distinct in the context of the contract), we evaluate whether the contract is to deliver (1) multiple promised goods or services or (2) a combined item that comprises the individual goods or services promised in the contract. Substantially all revenue involving development and application engineering projects consists of a single performance obligation and is recognized at a point in time. As mentioned above, a majority of revenue recognized by the Company relates to contracts with customers for standard or off-the-shelf products. As control typically transfers to the customer upon shipment of the product in these circumstances, revenue is generally recognized at that point in time. Revenue recognition and billing typically occur simultaneously for contracts recognized at a point in time. Therefore, we do not have material revenues in excess of customer billings or billings to customers in excess of recognized revenues. Refer to Note 6, “Revenue” and Note 13, “Accrued and Other Liabilities” for additional information on the Company’s contract liability balances and related information. The period of benefit for the Company’s incremental costs of obtaining a contract generally have less than a one-year duration; therefore, the Company applies the practical expedient available and expenses costs to obtain a contract when incurred. 63 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Taxes Collected from Customers and Remitted to Governmental Authorities The Company collects various taxes and fees as an agent in connection with the sale of products and remits these amounts to the respective taxing authorities. These taxes and fees have been presented on a net basis within Net sales in the Consolidated and Combined Statements of Operations and are recorded as a component of Accrued liabilities in the Consolidated Balance Sheets until remitted to the respective taxing authority. Research and Development Expense Research and development costs of $ 38.8 million , $ 36.0 million and $ 39.7 million for the years ended December 31, 2023, 2022 and 2021, respectively, are expensed as incurred and are included in Selling, general and administrative expense in the Consolidated and Combined Statements of Operations. These amounts do not include development and application engineering costs incurred in conjunction with fulfilling customer orders and executing customer projects. Cash and Cash Equivalents Cash and cash equivalents include all financial instruments purchased with an initial maturity of three months or less. Trade Receivables Trade receivables are presented net of an allowance for credit losses. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Estimated credit losses are reviewed periodically. Inventories Inventories are valued at the lower of cost or net realizable value. Fixed manufacturing overhead costs are allocated to inventory based on normal production capacity and abnormal manufacturing activities are recognized as period costs. Cost for a substantial portion of United States inventories is determined using the last-in, first-out (“LIFO”) method. The value of inventory stated on a LIFO basis as of December 31, 2023 and 2022 was $ 107.8 million and $ 131.1 million, respecti vely. The valuation of LIFO inventories is made at the end of each year based on inventory levels and costs at that time. Cost of other inventories is determined by costing methods that approximate a first-in, first-out basis. Reserves are maintained for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. The reserve for excess and obsolete inventory was $ 47.6 million and $ 40.1 million as of December 31, 2023 and 2022, respectively. Property, Plant and Equipment Property, plant and equipment, net is stated at historical cost, which includes the fair values of such assets acquired through acquisitions and depreciated by the straight-line method over the estimated useful lives of the related assets. Repair and maintenance expenditures are expensed as incurred unless the repair extends the useful life of the asset. Impairment of Goodwill and Indefinite-Lived Intangible Assets Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company. The Company evaluates the recoverability of Goodwill and indefinite-lived intangible assets annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. The annual impairment test date elected by the Company is the first day of its fourth quarter. Goodwill and indefinite-lived intangible assets are considered to be impaired when the carrying value of a reporting unit or asset exceeds its fair value. As of the annual impairment test date, the Company had three reporting units: Americas, EMEA & APAC and Gas Control Equipment (“GCE”). In the evaluation of goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying value. If the Company determines that it is more likely than not for a reporting unit’s fair value to be greater than its carrying value, a calculation of the fair value is not 64 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) performed. If the Company determines that it is more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the reporting unit’s fair value is performed and compared to the carrying value of that reporting unit. In certain instances, the Company may elect to forgo the qualitative assessment and proceed directly to the quantitative impairment test. If the carrying value of a reporting unit exceeds its fair value, goodwill of that reporting unit is impaired and an impairment loss is recorded equal to the excess of the reporting unit’s carrying value over its fair value. When a quantitative impairment test is needed, the Company measures fair value of reporting units based on a present value of future discounted cash flows. The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future. Significant estimates in the discounted cash flow models include the weighted-average cost of capital, net sales and profitability of our business. For the year ended December 31, 2023 and 2022, a qualitative Goodwill impairment assessment was performed for the three reporting units. For the year ended December 31, 2021, a quantitative annual impairment test of Goodwill was performed for the GCE reporting unit while qualitative assessments were performed for the remaining two reporting units. All of the above tests indicated no impairment existed. Therefore, no impairment charges were recorded for the three years ended December 31, 2023. No material events that would represent impairment indicators have occurred subsequent to the performance of the 2023 annual impairment test. In the evaluation of indefinite-lived intangible assets for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. If the Company determines that it is more likely than not for the indefinite-lived intangible asset’s fair value to be greater than its carrying value, a calculation of the fair value is not performed. If the Company determines that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value, a fair value calculation is performed and compared to the carrying value of the asset. In certain instances, the Company may elect to forgo the qualitative assessment and proceed directly to the quantitative impairment test. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company measures the fair value of its indefinite-lived intangible assets using the “relief from royalty” method. Significant estimates in this approach include projected revenues and royalty and discount rates for each trade name evaluated. At the impairment testing date, the first day of the fourth quarter, quantitative impairment tests were performed for all the indefinite-lived trade name brands for the years ended December 31, 2023, 2022 and 2021, all of which indicated no impairment existed. Impairment of Long-Lived Assets Other than Goodwill and Indefinite-Lived Intangible Assets Definite-lived intangible assets primarily represent acquired trade names, customer relationships, acquired technology and software license agreements. The Company uses accelerated and straight-line methods of amortization with lives ranging from ten to thirty years . The Company assesses its long-lived assets and definite-lived intangible assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected cash flows are less than the carrying amounts, an impairment loss equal to the difference between the carrying amount of the asset and its fair value would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The Company determined that no significant impairment indicators were evident during the years ended December 31, 2023, 2022 and 2021. Derivatives The Company uses derivative instruments to manage exposures to interest rates and net investment exposures. The Company does not enter into derivatives for trading or speculative purposes. All derivatives are recognized at fair value on the Company’s Consolidated Balance Sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. The Company formally documents the relationship of the hedge with the hedged item as well as the risk-management strategy for all designated hedges. Both at inception and on an ongoing basis, the hedging instrument is assessed as to its effectiveness, when applicable. If and when a derivative is determined not to be highly effective as a hedge, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued. 65 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. The Company manages individual counterparty exposure by monitoring the credit rating of the counterparty and the size of financial commitments and exposures between the Company and the counterparty. Certain interest rate swap agreements are qualified and designated as cash flow hedges. The effective portion of the fair value unrealized gain or loss on cash flow hedges are reported as a component of Accumulated other comprehensive income ("AOCI") with offsetting amounts recorded in the Company’s Consolidated Balance Sheet depending on the position and the duration of the contract. The gain or loss on the derivative instrument due to the change in fair value is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. If a derivative is deemed to be ineffective, the change in fair value of the derivative is recognized directly in earnings. Certain cross-currency swap agreements are designated and qualify as a net investment hedge, the changes in the fair value 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. Offsetting amounts are recorded in the Company’s Consolidated Balance Sheet depending on the position and the duration of the contract. The Company has certain foreign currency contracts which are not designated as hedges. These derivatives are held as offsets to certain balance sheet exposures. The gains or losses on these contracts are recognized in Interest expense (income) and other, net, in the Company’s Consolidated and Combined Statement of Operations. Warranty Costs Estimated expenses related to product warranties are accrued as the revenue is recognized on products sold to customers and included in Cost of sales in the Consolidated and Combined Statements of Operations. Estimates are established using historical information as to the nature, frequency and average costs of warranty claims. Income Taxes Prior to the Separation, the Company’s domestic and foreign operating results were included in the income tax returns of Enovis. The Company accounted for income taxes under the separate return method. Under this approach, the Company determined its deferred tax assets and liabilities and related tax expense as if it were filing separate tax returns. Prior to the Separation, all or a portion of the Company’s income tax payable or receivable computed under the separate return method was adjusted to equity as it did not represent a liability or asset with the relevant taxing authorities during this period, except for certain unrecognized tax benefits for which ESAB could have reasonably been considered to be the primary obligor. The amounts were deemed settled with Enovis when they were due and therefore were included in Parent’s equity. The Company accounts for income taxes under ASC 740 , Income Taxes (“ASC 740”) which requires recognition of deferred income tax assets and liabilities reflecting the tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the Consolidated and Combined Financial Statements and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets and liabilities are reported in Other assets and Other liabilities in the Consolidated Balance Sheets, respectively. The effect on deferred income tax assets and liabilities of a change in tax rates is generally recognized in Income tax expense in the period that includes the enactment date. Global Intangible Low-Taxed Income is accounted for as a current tax expense in the year the tax is incurred. Valuation allowances are recorded if it is more likely than not that some portion of the deferred income tax assets will not be realized. In evaluating the need for a valuation allowance, the Company considers various factors, including the expected level of future taxable income and available tax planning strategies. Any changes in judgment about the valuation allowance are recorded through Income tax expense and are based on changes in facts and circumstances regarding realizability of deferred tax assets. The Company must presume that an income tax position taken in a tax return will be examined by the relevant tax authority and determine whether it is more likely than not that the tax position will be sustained upon examination based upon the technical merits of the position. An income tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. 66 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The Company establishes a liability for unrecognized income tax benefits for income tax positions for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority to the extent such tax positions reduce the Company’s income tax liability. The Company recognizes interest and penalties related to unrecognized income tax benefits in Income tax expense in the Consolidated and Combined Statements of Operations. Interest expense (income) and Other, Net Interest expense (income) and other, net is comprised of interest-bearing deposits of certain foreign subsidiaries, interest costs for the Company’s debt, amortization of debt issuance costs and interest income or expense of derivatives designated in hedging relationships. In addition, it is comprised of: • other non-operating expense (income) items, including certain pension-related activities, • foreign exchange exposure on cash and intercompany positions and interest income or expense on foreign currency contracts not designated in hedging relationships, and • Argentina highly inflationary accounting transaction foreign exchange loss on cash and cash equivalent remeasured into the Argentinian entity’s Brazilian real direct parent’s currency. For the years ended December 31, 2023 and 2022, Argentina had a transaction exchange loss on cash and cash equivalent of $ 26.2 million , and $ 2.4 million, partially offset by interest income of $ 8.7 million and $ 0.7 million, respectively. For the year ended December 31, 2021 , the impact was not material. See “Foreign Currency Exchange Gains and Losses” and “Argentina Highly Inflationary Accounting” policies below for additional information. Foreign Currency Exchange Gains and Losses The Company’s financial statements are presented in U.S. dollars. The functional currencies of the Company’s operating subsidiaries are generally the local currencies of the countries in which each subsidiary is located. Assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the balance sheet date. The amounts recorded in each year in Foreign currency translation are net of income taxes to the extent the unrealized foreign exchange is taxed currently or the underlying equity balances in the entities are not deemed to be permanently reinvested. Revenues and expenses are translated at average rates of exchange in effect during the year. Transactions in foreign currencies are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated for inclusion in the Consolidated Balance Sheets are recognized in Selling, general and administrative expense or Interest expense (income) and other, net in the Consolidated and Combined Statements of Operations for that period. The following table summarizes the Company’s net foreign transaction gains and losses included within the Consolidated and Combined Statements of Operations: Year Ended December 31, 2023 2022 2021 (In thousands) (1) Selling, general and administrative expense $ 11,389 $ 2,597 $ 2,195 Interest expense and other, net 1,719 109 191 Foreign currency transaction loss, net (2) $ 13,108 $ 2,706 $ 2,386 (1) This table excludes the foreign exchange impacts of applying highly inflationary accounting for the Company’s Argentina operations for the years ended December 31, 2023 and 2022, as described in the “Argentina Highly Inflationary Accounting” paragraph below. (2) During 2023, the weakening of the Ruble and certain other South American currencies drove the increase in the loss on transactions denominated in foreign currencies. 67 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Argentina Highly Inflationary Accounting Argentina is deemed to have a highly inflationary economy, resulting in the remeasurement of the Company’s Argentinian operations into Brazilian real, the functional currency of the Argentinian entity’s direct parent. Gains and losses from the remeasurement are recorded in the Company’s Consolidated and Combined Statements of Operations each year. In December 2023, the Argentine peso significantly devalued due to changes in their foreign exchange policy introduced by the Argentine government. For the year ended December 31, 2023 the remeasurement of the financial statements of the Company’s subsidiary operating in a highly inflationary economy has resulted in a transaction foreign exchange loss to Cost of sales of $ 11.5 million, Selling, general and administrative gain of $ 6.7 million and Interest (income) expense and other, net loss of $ 26.2 million. Despite the above transaction foreign exchange loss, the Argentine subsidiary has taken pricing and operational actions to remain profitable. For the year ended December 31, 2022, the remeasurement of the financial statements of the Company’s subsidiary operating in a highly inflationary economy has resulted in a transaction foreign exchange loss to Cost of sales of $ 6.6 million, Selling, general and administrative expense of $ 3.3 million and Interest (income) expense and other, net loss of $ 2.4 million. The impact to the Company’s Combined Statements of Operations for the year ended December 31, 2021 was not material. Use of Estimates The Company makes certain estimates and assumptions in preparing its Consolidated and Combined Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated and Combined Financial Statements and the reported amounts of revenues and expenses for the period presented. Actual results may differ from those estimates. 3. Recently Issued Accounting Pronouncements The Company assesses the adoption impacts of recently issued accounting pronouncements on the Company’s Consolidated and Combined financial statements as well as material updates to previous assessments. There were no new material accounting standards adopted in the year ended December 31, 2023 that impacted the Company. New Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires the disclosure of incremental information about significant segment expenses. The guidance also requires disclosure of the Chief Operating Decision Maker’s (the “CODM”) position for each segment and detail of how the CODM uses financial reporting to assess their segment’s performance. The new guidance is effective for fiscal years beginning after December 15, 2023 and for interim periods beginning after December 15, 2024. The Company is currently evaluating the effect the adoption of the ASU may have on its disclosures. In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures , which expands disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. The ASU is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the effect the adoption of the ASU may have on its disclosures. 4. Discontinued Operations The Company holds certain asbestos-related contingencies and insurance coverages from divested businesses that it does not have an interest in the ongoing operations. The entities that hold these assets and liabilities became subsidiaries of the Company in connection with the Separation. These contributions from the Former Parent wer e not previously included in the Company’s 2019 to 2021 historical carve-out financial statements. The Company has classified asbestos-related activity included in its Consolidated and Combined Statements of Operations as part of Loss from discontinued operations, net of taxes. 68 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Loss from discontinued operations, net of tax consisted of Selling, general and administrative expenses of $ 15.6 million net of a tax benefit of $ 3.3 million for the year ended December 31, 2023. Loss from discontinued operations, net of tax consisted of Selling, general and administrative expenses of $ 7.5 million net of a tax benefit of $ 4.4 million for the year ended December 31, 2022. See Note 19, “Commitments and Contingencies” for further information. Cash used in operating activities related to discontinued operations for the year ended December 31, 2023 was $ 15.2 million and for the year ended December 31, 2022 was $ 23.1 million. 5. Acquisitions The Company continually evaluates potential acquisitions that either strategically fit with our existing portfolio or expand our portfolio into a new and attractive business area. The Company has completed a number of acquisitions that have been accounted for under the acquisition method of accounting. The Company makes an initial allocation of the purchase price at the date of acquisition based upon our understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. As the Company obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, the Company is able to refine the estimates of fair value and more accurately allocate the purchase price. The Company makes appropriate adjustments to purchase price allocations prior to completion of the applicable measurement period, as required. The following briefly describes our acquisition activity for the three years ended December 31, 2023. On January 11, 2023, the Company completed the acquisition of Therapy Equipment Limited, a regional leader in oxygen regulators, for $ 19 million, net of cash received. On October 31, 2022, the Company completed the acquisition of Swift Cut Automation Limited, a provider of light industrial cutting systems, for $ 22 million, net of cash received. This acquisition provides a market-leading automated cutting portfolio. On October 14, 2022, the Company completed the acquisition of Ohio Medical, LLC, a United States based global leader in oxygen regulators and central gas systems, for $ 127 million, net of cash received. This acquisition expands the Company’s presence in industrial specialty gas applications and products and broadens the Company’s United States presence. 6. Revenue The Company provides fabrication technology advanced equipment, consumables, gas control equipment, robotics and digital solutions. The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding. Substantially all revenue is recognized at a point in time. The Company disaggregates its revenue into the following product groups: Year Ended December 31, 2023 2022 2021 (In thousands) Equipment $ 854,949 $ 740,824 $ 758,267 Consumables 1,919,817 1,852,656 1,669,848 Total $ 2,774,766 $ 2,593,480 $ 2,428,115 The sales mix in the above table is relatively consistent across both reportable segments. 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 December 31, 2023 is immaterial. In some circumstances, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 2023, 2022 and 2021, total contract liabilities were $ 31.2 million , $ 25.9 million and $ 22.3 million, respectively, and are included in Accrued liabilities on the Consolidated 69 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Balance Sheets. During the years ended December 31, 2023 and 2022, substantially all amounts included in the contract liability balance at the beginning of the respective year were recognized as revenue in the following year. Allowance for Credit Losses A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Consolidated Balance Sheets is as follows: Year Ended December 31, 2023 Balance at Beginning of Period Charged to Expense, net Write-Offs and Deductions Foreign Currency Translation Balance at End of Period (In thousands) Allowance for credit losses $ 23,471 $ 3,902 $ ( 2,289 ) $ 393 $ 25,477 7. Earnings per Share from Continuing Operations The Company has unvested share-based payment awards with a right to receive non-forfeitable dividends that are considered participating securities. The Company allocates earnings to participating securities and computed earnings per share using the two-class method as follows: Year Ended December 31, 2023 2022 2021 (In thousands, except share and per share data) Computation of earnings per share from continuing operations - basic: Income from continuing operations attributable to ESAB Corporation (1) $ 217,626 $ 226,815 $ 235,110 Less: distributed and undistributed earnings allocated to nonvested shares ( 1,555 ) ( 1,600 ) — Income from continuing operations attributable to common stockholders $ 216,071 $ 225,215 $ 235,110 Weighted-average shares of Common stock outstanding – basic (2) 60,233,623 60,054,930 60,034,311 Income per share from continuing operations – basic $ 3.59 $ 3.75 $ 3.92 Computation of earnings (loss) per share from continuing operations - diluted: Income from continuing operations attributable to common stockholders $ 216,071 $ 225,215 $ 235,110 Weighted-average shares of Common stock outstanding – basic (2) 60,233,623 60,054,930 60,034,311 Net effect of potentially dilutive securities (3) 422,123 98,129 — Weighted-average shares of Common stock outstanding – dilution 60,655,746 60,153,059 60,034,311 Net income per share from continuing operations – diluted $ 3.56 $ 3.74 $ 3.92 (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, o f $ 5.7 million, $ 4.3 million and $ 3.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. (2) The total number of shares outstanding on April 4, 2022 was 60,034,311 , which is utilized for the calculation of both basic and diluted earnings per share for the year ended December 31, 2021 as no ESAB common stock equivalents were outstanding prior to the Separation. (3) Potentially dilutive securities include stock options, performance-based restricted stock units and non performance-based restricted stock units. 8. Income Taxes Separation from Enovis Prior to the Separation, our operating results were included in the Former Parent’s various consolidated United States federal and certain state income tax returns, as well as certain non-United States returns. For periods prior to the Separation, our combined financial statements reflect Income tax expense and deferred tax balances as if we had filed tax returns on a standalone basis separate from the Former Parent. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer and a standalone enterprise for the periods prior to the 70 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Separation. For periods prior to the Separation, our pretax operating results include any transactions with the Former Parent as if it were an unrelated party. In connection with the Separation, we entered into agreements with the Former Parent, including a Tax Matters Agreement. The Tax Matters Agreement distinguishes between the treatment of tax matters for “joint” filings compared to “separate” and “unitary state” filings prior to the Separation. “Joint” filings are returns, such as the United States federal return, which include operations from both Former Parent legal entities and the Company. By contrast, “separate” filings are tax returns (primarily United States state returns and non-United States returns) that exclusively include either the Former Parent’s or the Company’s operations. “Unitary state” filings are state tax returns which may include legal entities of both the Company and the Former Parent. In accordance with the Tax Matters Agreement, the Company is liable for and has indemnified the Former Parent against all income tax liabilities involving “separate” and “unitary state” filings for periods prior to the Separation, except to the extent a unitary state filing includes a legal entity of the Former Parent and the adjustment relates to that legal entity. The Company is also liable for fifty percent of all cash taxes paid as a result of any adjustment or redetermination or otherwise in connection with any tax contest relating to any joint return. In connection with the Separation, the Company was required to enter into a transfer agreement under Section 965(h) and to become the primary obligor of the remaining installment payments associated with the Section 965 liability. The Former Parent is obligated under the Tax Matters Agreement for fifty percent of the installment obligation. Under the Separation Agreement, the Company is responsible for any tax indemnity related to the discontinued operations by the Former Parent. Income from continuing operations before income taxes and Income tax expense consisted of the following: Year Ended December 31, 2023 2022 2021 (In thousands) Income from continuing operations before income taxes: Domestic operations $ 37,364 $ ( 19,234 ) $ 10,140 Foreign operations 281,728 319,485 308,948 $ 319,092 $ 300,251 $ 319,088 Income tax expense: Current: Federal $ 18,034 $ 8,928 $ 18,477 State 3,760 2,451 1,797 Foreign 99,036 77,728 68,779 120,830 89,107 89,053 Deferred: Federal ( 11,897 ) ( 7,501 ) ( 12,700 ) State ( 1,341 ) 358 161 Foreign ( 11,865 ) ( 12,794 ) 3,895 ( 25,103 ) ( 19,937 ) ( 8,644 ) $ 95,727 $ 69,170 $ 80,409 71 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The Company’s Income tax expense differs from the amount that would be computed by applying the United States federal statutory rate as follows: Year Ended December 31, 2023 2022 2021 (In thousands) Taxes calculated at the United States federal statutory rate $ 67,010 $ 63,053 $ 67,008 State taxes 1,630 2,809 1,933 Effect of tax rates on international operations 1,548 ( 9,010 ) ( 8,879 ) Changes in tax reserves 10,753 ( 350 ) 2,734 Non-taxable dividends — — ( 46 ) Research and development tax credits ( 714 ) ( 542 ) ( 587 ) Effect of United States taxation on international operations 1,527 310 ( 313 ) Permanent differences, net 10,077 7,209 483 Provision to return 703 ( 7,055 ) ( 7,415 ) Withholding taxes 11,172 12,133 9,567 Capital gain — ( 3,655 ) 12,371 Valuation Allowance ( 12,308 ) 4,503 3,737 Other 4,329 ( 235 ) ( 184 ) Income tax expense $ 95,727 $ 69,170 $ 80,409 For the year ended December 31, 2023, the Company’s effective rate differs from the United States federal statutory rate of 21% due to changes in tax reserves, permanent differences relating to foreign subsidiaries and withholding taxes, partially offset by the favorable impact from changes in valuation allowances. The Company’s effective tax rate for years ending December 31, 2022 and December 31, 2021 differed from the United States federal statutory rate of 21% due to the impact of withholding taxes and permanent differences relating to foreign subsidiaries, partially offset by the favorable impact from the Company’s earnings outside the United States taxed at different rates than the United States federal statutory rate. The change in tax reserves in 2023 is largely the result of an adverse court ruling in an unrelated taxpayer’s tax case in a foreign jurisdiction. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. All deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other liabilities in the accompanying Consolidated Balance Sheets. The temporary differences that gave rise to the significant components of deferred tax assets and liabilities are presented below: 72 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) December 31, 2023 2022 (In thousands) Deferred tax assets: Post-retirement benefit obligation $ 1,350 $ 5,761 Expenses currently not deductible 52,526 36,320 Net operating loss carryforward 107,395 111,497 Tax credit carryforward 4,581 10,320 Depreciation and amortization 7,404 9,124 Inventory 12,238 5,685 Capitalized R&D Costs 18,178 14,160 Leases 23,987 22,713 Other 2,866 — Valuation allowance ( 79,354 ) ( 88,202 ) Deferred tax assets, net $ 151,171 $ 127,378 Deferred tax liabilities: Depreciation and amortization $ ( 120,055 ) $ ( 121,858 ) Leases ( 23,987 ) ( 22,713 ) Outside basis differences and other ( 79,985 ) ( 79,623 ) Total deferred tax liabilities $ ( 224,027 ) $ ( 224,194 ) Total deferred tax liabilities, net $ ( 72,856 ) $ ( 96,816 ) Deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other liabilities in the accompanying Consolidated Balance Sheets on a net jurisdictional basis as follows: December 31, 2023 2022 (In thousands) Other assets $ 46,602 $ 42,860 Other liabilities ( 119,458 ) ( 139,676 ) Deferred tax liability, net $ ( 72,856 ) $ ( 96,816 ) The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a more likely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded. During the year ended December 31, 2023, the valuation allowance decreased from $ 88.2 million to $ 79.4 million. with a net decrease of $ 12.3 million recognized as a decrease to Income tax expense, and a $ 3.4 million increase related to changes in foreign currency rates. The current year change primarily relates to the change in conclusion regarding the realizability of net operating loss carryforwards in a foreign jurisdiction. In determining how much of the relevant deferred tax asset could be realized on a more likely than not basis, consideration was given to tax planning strategies and, when applicable, future taxable income. The Company has United States federal net operating loss carryforwards of $ 11.6 million as of December 31, 2023 expiring in years 2028 through 2036. The Company’s ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions. As of December 31, 2023 the Company also has $ 414.6 million foreign net operating loss carryforwards primarily in the United Kingdom, Germany, the Netherlands and Sweden that may be subject to local tax restriction limitations. The foreign net operating losses can be carried forward indefinitely, except in applicable jurisdictions that make up less than five percent of the available net operating losses. As of December 31, 2023, the Company incurred $ 10.9 million of tax expense relating to a distribution of earnings for which it has changed its indefinite reinvestment assertion. Other than this expense incurred in the year ended December 31, 2023, the Company has not made any other material changes to its indefinite reinvestment assertion with respect to earnings 73 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) reinvested in its foreign operations. The majority of our global unremitted foreign earnings have been taxed or would be exempt from United States tax upon repatriation. The Company has made no provision for United States income taxes or additional non-United States taxes on certain undistributed earnings or outside basis differences of non-United States subsidiaries in which the Company remains indefinitely reinvested. A portion of these undistributed earnings may be subject to foreign and United States tax consequences upon remittance. The Company cannot practically estimate the amount of additional taxes that might be payable on those undistributed earnings. 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”). This liability for such uncertain tax positions includes the amount of benefit included in (i) its previously filed income tax returns and (ii) its financial results expected to be included in income tax returns to be filed for periods through the date of its Consolidated and Combined Financial Statements. The Company’s total unrecognized tax benefits were $ 30.9 million, $ 20.2 million and $ 37.7 million as of December 31, 2023, 2022 and 2021, respectively, inclusive of $ 12.1 million, $ 5.6 million and $ 6.2 million, respectively, of interest and penalties. The Company records interest and penalties on uncertain tax positions as a component of Income tax expense, which was an expense of $ 7.9 million, benefit of $ 0.7 million and expense of $ 0.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. The change in the balance for the year ended December 31, 2023 is primarily due to the increase in liability for an adverse court ruling in an unrelated taxpayer’s tax case in a foreign jurisdiction. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (inclusive of associated interest and penalties): (In thousands) Balance, January 1, 2021 $ 35,201 Addition for tax positions taken in prior periods 738 Addition for tax positions taken in the current period 2,987 Reductions related to settlements with taxing authorities ( 425 ) Reductions resulting from a lapse of applicable statute of limitations ( 565 ) Other, including the impact of foreign currency translation and United States tax rate changes ( 255 ) Balance, December 31, 2021 37,681 Addition for tax positions taken in prior periods 1,971 Addition for tax positions taken in the current period 1,171 Reductions related to settlements with taxing authorities ( 922 ) Transfer from Former Parent, impact of foreign currency translation and other ( 2,801 ) Other, including the impact of foreign currency translation and United States tax rate changes ( 16,897 ) Balance, December 31, 2022 20,203 Addition for tax positions taken in prior periods 13,514 Addition for tax positions taken in the current period — Reductions related to settlements with taxing authorities ( 4,160 ) Reductions resulting from a lapse of applicable statute of limitations ( 473 ) Other, including the impact of foreign currency translation 1,787 Balance, December 31, 2023 $ 30,871 The Company files numerous group and separate tax returns in Unites States federal and state jurisdictions, as well as international jurisdictions. The Company is routinely examined by various United States and non-United States taxing authorities. The Company is subject to audit by the United States, various states and foreign jurisdictions. In accordance with the Tax Matters Agreement with Former Parent, the Company is the primary obligor for (i) ESAB separate company state returns for all periods; (ii) unitary state returns that include only ESAB legal entities for all periods, and (iii) ESAB separate foreign returns for all periods. Pursuant to United States tax law, the Company filed its initial United States federal income tax return for the post-Separation period in October 2023. The Company reviews its global tax provisions on a quarterly basis. The Company accrues or adjusts contingent tax liabilities based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings and court decisions and the expiration of the statutes of limitations. 74 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Due to the difficulty in predicting with reasonable certainty when tax audits will be fully resolved and closed, the range of reasonably possible significant increases or decreases in the liability for unrecognized tax benefits that may occur within the next 12 months is difficult to ascertain. The Company does not believe the total amount of unrecognized benefits will change by a material amount within the next 12 months due to the settlement of audits and expirations of statutes of limitations. 9. Goodwill and Intangible Assets The following table summarizes Goodwill activity by segment for the years ended December 31, 2023 and 2022: Americas EMEA & APAC Total (In thousands) Balance, January 1, 2022 $ 519,154 $ 1,013,839 $ 1,532,993 Goodwill attributable to acquisition 63,183 13,047 76,230 Impact of foreign currency translation 3,508 ( 82,964 ) ( 79,456 ) Balance, December 31, 2022 585,845 943,922 1,529,767 Goodwill attributable to acquisitions 1,664 13,912 15,576 Impact of foreign currency translation 2,366 40,622 42,988 Balance, December 31, 2023 $ 589,875 $ 998,456 $ 1,588,331 The following table summarizes the Company’s Intangible assets, excluding Goodwill: December 31, 2023 2022 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization (In thousands) Indefinite-Lived Intangible Assets Trade names $ 185,301 $ — $ 180,691 $ — Definite-Lived Intangible Assets Customer relationships 496,483 ( 231,848 ) 482,499 ( 203,041 ) Technology 73,288 ( 55,288 ) 71,192 ( 50,005 ) Trade names 23,966 ( 10,983 ) 22,464 ( 9,412 ) Software 80,203 ( 61,920 ) 94,904 ( 74,799 ) Other intangible assets 22,878 ( 22,545 ) 22,800 ( 20,126 ) $ 882,119 $ ( 382,584 ) $ 874,550 $ ( 357,383 ) Amortization expense related to intangible assets of $ 39.7 million , $ 35.6 million and $ 42.1 million for the years ended December 31, 2023, 2022 and 2021, respectively, are included in the Selling, general and administrative expense in the Consolidated and Combined Statements of Operations. Expected Amortization Expense The Company’s expected annual amortization expense for acquired intangible assets for the next five years is as follows: December 31, 2023 (In thousands) 2024 $ 29,160 2025 28,115 2026 27,027 2027 22,562 2028 20,782 75 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 10. Property, Plant and Equipment, Net December 31, Depreciable Life 2023 2022 (In years) (In thousands) Land n/a $ 15,095 $ 15,839 Buildings and improvements 5 - 40 178,682 164,472 Machinery and equipment 3 - 15 394,318 382,830 588,095 563,141 Accumulated depreciation ( 293,790 ) ( 278,915 ) $ 294,305 $ 284,226 Depreciation expense for the years ended December 31, 2023, 2022 and 2021 was $ 30.0 million , $ 29.5 million and $ 32.5 million, respectively. 11. Inventories, Net Inventories, net consisted of the following: December 31, 2023 2022 (In thousands) Raw materials $ 156,583 $ 153,099 Work in process 43,561 44,086 Finished goods 244,580 261,902 444,724 459,087 LIFO reserve ( 4,279 ) ( 2,168 ) Less: allowance for excess, slow-moving and obsolete inventory ( 47,587 ) ( 40,090 ) $ 392,858 $ 416,829 At December 31, 2023 and 2022, approximately 27.4 % and 31.5 % of total inventories, respectively, were valued using the LIFO method. 76 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 12. Leases The Company leases certain office spaces, warehouses, production facilities, vehicles and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include renewal options, which can extend the lease term into the future. The Company determines the lease term by assuming options that are reasonably certain of being renewed will be exercised. Certain of the Company’s leases include rental payments adjusted for inflation. The right-of-use lease asset is recorded on the Consolidated Balance Sheets, with the current lease liability being included in Accrued liabilities and noncurrent lease liability being included in Other liabilities. Operating lease expense was $ 25.4 million, $ 21.3 million and $ 23.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. December 31, 2023 (In thousands) Future lease payments by year: 2024 $ 25,769 2025 20,540 2026 14,366 2027 9,938 2028 8,645 Thereafter 32,190 Total 111,448 Less: present value discount ( 12,045 ) Present value of lease liabilities $ 99,403 Weighted-average remaining lease term (in years): Operating leases 6.62 Weighted-average discount rate: Operating leases 3.5 % 13. Accrued and Other Liabilities Accrued and Other liabilities in the Consolidated Balance Sheets consisted of the following: December 31, 2023 December 31, 2022 Current Noncurrent Current Noncurrent (In thousands) Accrued taxes and deferred tax liabilities $ 45,681 $ 144,662 $ 49,615 $ 161,500 Compensation and related benefits 97,052 52,589 74,794 57,438 Asbestos liability 32,908 234,796 30,108 230,581 Contract liability 31,248 — 25,899 — Lease liability 22,794 76,609 18,664 76,163 Warranty liability 12,606 — 12,946 — Third-party commissions 18,711 — 18,315 — Restructuring liability 5,345 354 7,533 285 Other 47,144 33,823 47,436 19,372 $ 313,489 $ 542,833 $ 285,310 $ 545,339 77 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Accrued Warranty Liability A summary of the activity in the Company’s warranty liability included in Accrued liabilities in the Company’s Consolidated Balance Sheets is as follows: Year Ended December 31, 2023 2022 (In thousands) Warranty liability, beginning of period $ 12,946 $ 14,954 Accrued warranty expense 5,794 5,322 Changes in estimates related to pre-existing warranties 3,097 2,821 Cost of warranty service work performed ( 10,710 ) ( 9,680 ) Acquisition-related liability 1,278 — Foreign exchange translation effect 201 ( 471 ) Warranty liability, end of period $ 12,606 $ 12,946 Accrued Restructuring Liability The Company’s restructuring programs include a series of actions to reduce the structural costs of the Company. A summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Consolidated Balance Sheets is as follows: Year Ended December 31, 2023 Balance at Beginning of Period Charges Payments Foreign Currency Translation Balance at End of Period (In thousands) Restructuring and other related charges: Termination benefits (1) $ 4,910 $ 10,017 $ ( 10,223 ) $ ( 109 ) $ 4,595 Facility closure costs and other (2) 2,908 8,637 ( 10,483 ) 42 1,104 Subtotal $ 7,818 18,654 $ ( 20,706 ) $ ( 67 ) $ 5,699 Non-cash charges (3) 5,456 Total $ 24,110 (1) Includes severance and other termination benefits, including outplacement services. (2) Includes the cost of relocating associates, relocating equipment, lease termination expense and other costs in connection with the closure and optimization of facilities and product lines. (3) Includes impairment of long-lived assets in connection with the closure and optimization of facilities and product lines. Year Ended December 31, 2022 Balance at Beginning of Period Charges Payments Foreign Currency Translation Balance at End of Period (In thousands) Restructuring and other related charges: Termination benefits (1) $ 7,818 $ 4,642 $ ( 7,626 ) $ 76 $ 4,910 Facility closure costs (2) 291 17,656 ( 15,068 ) 29 2,908 Subtotal $ 8,109 22,298 $ ( 22,694 ) $ 105 $ 7,818 Non-cash charges (3) 798 Total $ 23,096 (1) Includes severance and other termination benefits, including outplacement services. (2) Includes the cost of relocating associates, relocating equipment, lease termination expense and other costs in connection with the closure and optimization of facilities and product lines. (3) Includes impairment of long-lived assets in connection with the closure and optimization of facilities and product lines. 78 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 14. Benefit Plans The Company sponsors various defined benefit plans and other post-retirement benefits plans, including health and life insurance, for certain eligible employees or former employees. The Company uses December 31 st as the measurement date for all of its employee benefit plans. Prior to the Separation, the Former Parent offered both funded and unfunded noncontributory defined benefit pension plans in t he United States that were share d amongst its businesses, including the Company prior to the Company becoming plan sponsor. The participation of the Company’s employees and retirees in this plan was as though it participated in a multiemployer plan with the Former Parent. As a result, prior to the Separation, a proportionate share of the cost associated with this defined benefit plan was allocated to the Company based on the Company’s share of total Former Parent headcount. This allocation is reflected within Interest expense (income) and other, net, in the Consolidated and Combined Statements of Operations , while any assets and liabilities associated with this defined benefit plan were retained by the Former Parent and were not recorded on the Company’s historical Combined Financial Statements. As part of the Separation, certain United States defined benefit and other post-retirement plans, formerly sponsored by the Former Parent were transferred to the Company as of March 21, 2022 (“Transfer Date”). As of the Transfer Date, the transferred plans include a defined benefit pension plan with assets of $ 201.3 million and projected benefit liabilities of $ 200.7 million, one unfunded defined benefit plan with liabilities of less than $ 0.1 million and one other post-retirement benefit plan with liabilities of $ 11.7 million, all of which were recorded in the financial statements of the Former Parent at December 31, 2021. During the year ended December 31, 2022, the Company recognized a Pension settlement gain of $ 9.1 million related to a completed buy-out of a foreign defined benefit plan by a third party plus the merger of two Company pension plans resulting in one plan benefiting from the surplus assets in the other plan. During the year ended December 31, 2021, the Company recognized a Pension settlement gain of $ 11.2 million when the trustees of a Company pension plan agreed to merge the plan with another Company pension plan and contribute the plan’s surplus assets. These amounts are reflected in Pension settlement gain in the Consolidated and Combined Statements of Operations. 79 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The following table summarizes the total changes in the Company’s pension and accrued post-retirement benefits and plan assets and includes a statement of the plans’ funded status: Pension Benefits Other Post-Retirement Benefits Year Ended December 31, Year Ended December 31, 2023 2022 2023 2022 (In thousands) Change in benefit obligation: Projected benefit obligation, beginning of year $ 256,022 $ 142,914 $ 8,850 $ 382 Transfer from Former Parent — 200,690 — 11,697 Service cost 1,439 1,684 11 15 Interest cost 11,170 5,874 393 234 Plan amendments 175 862 — — Actuarial loss (gain) 802 ( 60,148 ) ( 514 ) ( 2,807 ) Foreign exchange effect 4,079 ( 12,452 ) ( 1 ) ( 35 ) Benefits paid ( 27,720 ) ( 23,385 ) ( 549 ) ( 636 ) Settlements ( 3,584 ) ( 283 ) — — Other 360 266 — — Projected benefit obligation, end of year $ 242,743 $ 256,022 $ 8,190 $ 8,850 Accumulated benefit obligation, end of year $ 239,578 $ 253,123 $ 8,190 $ 8,850 Change in plan assets: Fair value of plan assets, beginning of year $ 219,050 $ 84,503 $ — $ — Transfer from Former Parent — 201,259 — — Actual return on plan assets 19,651 ( 51,266 ) — — Employer contributions (1) ( 857 ) 5,315 549 636 Foreign exchange effect 3,162 ( 7,583 ) — — Benefits paid ( 27,720 ) ( 23,385 ) ( 549 ) ( 636 ) Settlements ( 2,505 ) 9,947 — — Other 691 260 — — Fair value of plan assets, end of year $ 211,472 $ 219,050 $ — $ — Funded status, end of year $ ( 31,271 ) $ ( 36,972 ) $ ( 8,190 ) $ ( 8,850 ) Amounts recognized on the Consolidated Balance Sheets as of December 31: Non-current assets $ 17,300 $ 15,701 $ — $ — Current liabilities ( 3,186 ) ( 3,025 ) ( 764 ) ( 824 ) Non-current liabilities ( 45,385 ) ( 49,648 ) ( 7,426 ) ( 8,026 ) Total $ ( 31,271 ) $ ( 36,972 ) $ ( 8,190 ) $ ( 8,850 ) (1) The employer contribution amount for the year ended December 31, 2023 includes a refund of assets totaling $ 5.1 million to the Company arising from a completed wind up of a foreign defined benefit plan. For pension plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and fair value of plan assets were $ 50.7 million and $ 3.9 million, respectively, as of December 31, 2023 and $ 201.1 million and $ 149.8 million, respectively, as of December 31, 2022. For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and fair value of plan assets were $ 55.6 million and $ 7.0 million, respectively, as of December 31, 2023 and $ 206.8 million and $ 154.1 million, respectively, as of December 31, 2022. 80 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The following table summarizes the changes in the Company’s foreign pension benefit obligations and plan assets, included in the table above, and includes a statement of the plans’ funded status: Foreign Pension Benefits Year Ended December 31, 2023 2022 (In thousands) Change in benefit obligation: Projected benefit obligation, beginning of year $ 99,401 $ 141,278 Service cost 1,439 1,684 Interest cost 4,148 2,161 Plan amendments 175 862 Actuarial loss (gain) 335 ( 25,131 ) Foreign exchange effect 4,079 ( 12,452 ) Benefits paid ( 7,138 ) ( 8,984 ) Settlements ( 3,584 ) ( 283 ) Other 360 266 Projected benefit obligation, end of year $ 99,215 $ 99,401 Accumulated benefit obligation, end of year $ 96,049 $ 96,500 Change in plan assets: Fair value of plan assets, beginning of year $ 70,821 $ 84,503 Actual return on plan assets 1,262 ( 12,494 ) Employer contributions ( 1,015 ) 5,170 Foreign exchange effect 3,162 ( 7,581 ) Benefits paid ( 7,138 ) ( 8,984 ) Settlements ( 2,505 ) 9,947 Other 691 260 Fair value of plan assets, end of year $ 65,278 $ 70,821 Funded status, end of year $ ( 33,937 ) $ ( 28,580 ) Expected contributions to the Company’s pension and other post-employment benefit plans for the year ending December 31, 2024 are $ 5.2 million. The following benefit payments are expected to be paid during each respective fiscal year: Pension Benefits Other Post-Retirement Benefits All Plans Foreign Plans (In thousands) 2024 $ 21,183 $ 7,256 $ 764 2025 20,635 7,074 745 2026 20,300 7,138 744 2027 19,912 7,175 740 2028 19,134 6,802 688 2029 - 2033 89,736 35,683 3,055 The Company’s primary investment objective for its pension plan assets is to provide a source of retirement income for the plans’ participants and beneficiaries. The assets are invested with the goal of preserving principal while providing a reasonable rate of return over the long term. Diversification of assets is achieved through strategic allocations to various asset classes. Actual allocations to each asset class vary due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions and the timing of benefit payments and contributions. The asset allocation is monitored and rebalanced as required, as frequently as on a quarterly basis in some instances. The target allocation for plan assets varies by plan and jurisdiction. The actual allocation percentages as of December 31, 2023 and 2022 are consistent with the target allocation ranges of the plans. 81 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The following are the actual allocation percentages for the Company’s pension plan assets: Actual Asset Allocation December 31, 2023 2022 United States Plans: Equity securities: United States 38 % 36 % International 12 % 13 % Fixed income 49 % 50 % Cash and cash equivalents 1 % 1 % Foreign Plans: Equity securities 1 % 4 % Fixed income securities 48 % 34 % Cash and cash equivalents 1 % 16 % Insurance contracts 38 % 34 % Investment funds (1) 12 % 12 % (1) Represents various fixed income and equity securities. A summary of the Company’s pension plan assets for each fair value hierarchy level for the periods presented follows (see Note 17, “Fai r Value Measurements” for further description of the levels within the fair value hierarchy): December 31, 2023 Measured at Net Asset Value (1) Level One Level Two Level Three Total (In thousands) United States Plans: Cash and cash equivalents $ — $ 1,237 $ — $ — $ 1,237 Equity securities: United States large cap 29,289 — — — 29,289 United States small/mid cap 10,130 16,033 — — 26,163 International 18,078 — — — 18,078 Fixed income mutual funds: United States government and corporate 70,283 — — — 70,283 Other — 1,145 — — 1,145 Foreign Plans: Cash and cash equivalents (2) — 547 — — 547 Equity securities — 921 — — 921 Non-United States government and corporate bonds — 31,147 — — 31,147 Insurance contracts — — 24,592 — 24,592 Investment funds — — 8,050 — 8,050 Other — — 20 — 20 $ 127,780 $ 51,030 $ 32,662 $ — $ 211,472 (1) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient (the “NAV”) have not been classified in the fair value hierarchy. These investments, consisting of common/collective trusts, are valued using the NAV provided by the Trustee. The NAV is based on the underlying investments held by the fund, which are traded in an active market, less its liabilities. These investments are able to be redeemed in the near-term. (2) The weighted-average interest crediting rates received in Cash and cash equivalents of foreign plans are immaterial relative to total plan assets. 82 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) December 31, 2022 Measured at Net Asset Value (1) Level One Level Two Level Three Total (In thousands) United States Plans: Cash and cash equivalents $ — $ 1,591 $ — $ — $ 1,591 Equity securities: United States large cap 31,018 — — — 31,018 United States small/mid cap 10,789 11,289 — — 22,078 International 18,928 — — — 18,928 Fixed income mutual funds: United States government and corporate 73,497 — — — 73,497 Other — 1,118 — — 1,118 Foreign Plans: Cash and cash equivalents (2) — 11,348 — — 11,348 Equity securities — 2,475 — — 2,475 Non-United States government and corporate bonds — 24,289 — — 24,289 Insurance contracts — — 24,236 — 24,236 Investment funds — — 8,400 — 8,400 Other — 33 39 — 72 $ 134,232 $ 52,143 $ 32,675 $ — $ 219,050 (1) Certain investments that are measured at fair value using the NAV have not been classified in the fair value hierarchy. These investments, consisting of common/collective trusts, are valued using the NAV provided by the Trustee. The NAV is based on the underlying investments held by the fund, which are traded in an active market, less its liabilities. These investments are able to be redeemed in the near-term. (2) The weighted-average interest crediting rates received in Cash and cash equivalents of foreign plans are immaterial relative to total plan assets. 83 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The following table sets forth the components of net periodic benefit (income) cost and Other comprehensive income of the Company’s defined benefit pension plans and other post-retirement employee benefit plans: Pension Benefits Other Post-Retirement Benefits Year Ended December 31, Year Ended December 31, 2023 2022 2021 2023 2022 2021 (In thousands) Components of Net Periodic Benefit (Income) Cost: Service cost $ 1,439 $ 1,684 $ 1,785 $ 11 $ 15 $ 14 Interest cost 11,170 5,874 1,668 393 234 22 Amortization 1,206 4,313 1,220 — ( 181 ) — Settlement (gain) loss — ( 9,114 ) ( 11,195 ) — — 8 Other — 92 2 — — — Expected return on plan assets ( 11,391 ) ( 11,519 ) ( 2,258 ) — — — Net periodic benefit cost (income) $ 2,424 $ ( 8,670 ) $ ( 8,778 ) $ 404 $ 68 $ 44 Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Gain) Loss: Transfer from Former Parent $ — $ 53,134 $ — $ — $ ( 2,629 ) $ — Current year net actuarial (gain) loss ( 7,021 ) 949 ( 5,788 ) ( 514 ) ( 2,807 ) ( 27 ) Current year prior service cost 175 862 — — — — Less amounts included in net periodic benefit cost: Amortization of net (loss) gain ( 1,575 ) ( 4,340 ) ( 1,228 ) 479 181 ( 8 ) Settlement/divestiture/other loss ( 1,079 ) ( 67 ) — — — — Amortization of prior service cost 38 ( 1,067 ) ( 5 ) — — — Total recognized in Other comprehensive (gain) loss $ ( 9,462 ) $ 49,471 $ ( 7,021 ) $ ( 35 ) $ ( 5,255 ) $ ( 35 ) Each component of net periodic benefit (income) cost is included in the Company’s Consolidated and Combined Statements of Operations for the years ended December 31, 2023, 2022 and 2021. Service cost is included within Selling, general and administrative expense with the non-service costs net of expected return on plan assets and settlement gains included within Interest expense (income) and other, net. Settlement gains of $ 9.1 million and $ 11.2 million are recorded within Pension settlement gain on the Company’s Consolidated and Combined Statement of Operations for the years ended December 31, 2022 and 2021, respectively. 84 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The following table sets forth the components of net periodic benefit (income) cost and Other comprehensive income of the foreign defined benefit pension plans, included in the table above: Foreign Pension Benefits Year Ended December 31, 2023 2022 2021 (In thousands) Components of Net Periodic Benefit (Income) Cost: Service cost $ 1,439 $ 1,684 $ 1,785 Interest cost 4,148 2,161 1,646 Amortization 40 687 1,118 Settlement gain — ( 9,114 ) ( 11,195 ) Other ( 331 ) 92 2 Expected return on plan assets ( 2,475 ) ( 2,063 ) ( 2,258 ) Net periodic benefit cost (income) $ 2,821 $ ( 6,553 ) $ ( 8,902 ) Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Gain) Loss: Current year net actuarial loss (gain) $ 1,984 $ ( 12,262 ) $ ( 5,710 ) Current year prior service cost 175 862 — Less amounts included in net periodic benefit (income) cost: Amortization of net loss ( 78 ) ( 714 ) ( 1,126 ) Settlement/divestiture/other loss ( 1,079 ) ( 67 ) — Amortization of prior service cost 38 ( 1,067 ) ( 5 ) Total recognized in Other comprehensive loss (gain) $ 1,040 $ ( 13,248 ) $ ( 6,841 ) The components of net unrecognized pension and other post-retirement benefit cost included in Accumulated other comprehensive loss in the Consolidated Balance Sheets that have not been recognized as a component of net periodic benefit cost are as follows: Pension Benefits Other Post-Retirement Benefits December 31, December 31, 2023 2022 2023 2022 (In thousands) Net actuarial loss (gain) $ 61,573 $ 71,066 $ ( 5,234 ) $ ( 5,199 ) Prior service income ( 81 ) ( 112 ) — — Total $ 61,492 $ 70,954 $ ( 5,234 ) $ ( 5,199 ) The key economic assumptions used in the measurement of the Company’s pension and other post-retirement benefit obligations are as follows: Pension Benefits Other Post-Retirement Benefits December 31, December 31, 2023 2022 2023 2022 Weighted-average discount rate: All plans 4.4 % 4.6 % 4.8 % 5.0 % Foreign plans 3.9 % 4.3 % — % — % Weighted-average rate of increase in compensation levels for active foreign plans (1) 3.1 % 3.2 % — % — % (1) Weighted-average rate of increase is only applicable to plans with compensation increase assumptions. 85 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The key economic assumptions used in the computation of net periodic benefit cost are as follows: Pension Benefits Other Post-Retirement Benefits Year Ended December 31, Year Ended December 31, 2023 2022 2021 2023 2022 2021 Weighted-average discount rate: All plans 4.6 % 2.2 % 1.3 % — % 2.6 % 6.0 % Foreign plans 4.3 % 1.9 % 1.3 % — % — % — % Weighted-average expected return on plan assets: All plans 5.0 % 4.8 % 3.6 % — % — % — % Foreign plans 4.1 % 3.2 % 3.6 % — % — % — % Weighted-average rate of increase in compensation levels for active foreign plans (1) 3.2 % 3.2 % 3.4 % — % — % — % (1) Weighted-average rate of increase is only applicable to plans with compensation increase assumptions. In determining discount rates, the Company utilizes the single discount rate equivalent to discounting the expected future cash flows from each plan using the yields at each duration from a published yield curve as of the measurement date. For measurement purposes, a weighted-average annual rate of increase in the per capita cost of covered health care benefits of 7.5 % was assumed. The rate was assumed to decrease gradually to 4.0 % by 2034 and remain at that level thereafter for benefits covered under the plans. The expected long-term rate of return on plan assets is determined using the calculated value of plan assets, which is based on the Company’s investment policy target allocation of the asset portfolio between various asset classes and the expected real returns of each asset class over various periods of time that are consistent with the long-term nature of the underlying obligations of these plans. The Company maintains defined contribution plans covering certain union and non-union employees. The Company’s expense for the years ended December 31, 2023, 2022 and 2021 was $ 7.6 million, $ 8.7 million and $ 7.9 million, respectively. 15. Debt Long-term debt consists of the following: December 31, 2023 2022 (In thousands) Term loans $ 987,500 $ 1,000,000 Revolving credit facilities 32,000 221,000 Total debt 1,019,500 1,221,000 Unamortized deferred financing fees ( 1,443 ) ( 2,357 ) Long-term debt $ 1,018,057 $ 1,218,643 Term Loans and Revolving Credit Facility On April 4, 2022, the Company entered into a credit agreement (as amended and restated from time-to-time, the “Credit Agreement”) in connection with the Separation. The Credit Agreement initially consisted 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 initial aggregate principal amount of $ 400 million (the “Term Loan A-1 Facility”), with a maturity date of April 4, 2027; and • a $ 600 million 364 -day senior term loan facility (the “Term Loan A-2 Facility”) with a maturity date of April 3, 2023. 86 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 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 made up of (i) $ 200 million under the Revolving Facility, (ii) $ 400 million under the Term Loan A-1 Facility and (iii) $ 600 million under the Term Loan A-2 Facility. The Company used these proceeds to make payments to Enovis of $ 1.2 billion, which was used as part of the consideration for the contribution of certain assets and liabilities to the Company by Enovis in connection with the Separation. On June 28, 2022, the Company 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 facility (the “Term Loan A-3 Facility” and, together with the Term Loan A-1 Facility, the “Term Facilities,” and, together with the Revolving Facility, the “Facilities”) with a maturity date of April 3, 2025 to refinance the Company’s existing Term Loan A-2 Facility. 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. As of December 31, 2023, the Credit Agreement 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 $ 395 million (the “Term Loan A-1 Facility”), with a maturity date of April 4, 2027; and, • A Term Loan A-3 loan with an aggregate principal amount of $ 593 million (the “Term Loan A-3 Facility”) with a maturity date of April 3, 2025. The Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends. In addition, the Credit Agreement requires that the Company maintains certain financial covenants and the Company was in compliance with all of its debt covenants as of December 31, 2023. The Credit Agreement contains various events of default (including failure to comply with the covenants under the Credit Agreement and related agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Term Facilities and the Revolving Facility. Certain United States subsidiaries of the Company have agreed to guarantee the obligations of the Company under the Credit Agreement. Loans made under the Term Facilities will bear interest, at the election of the Company, at either the base rate (as defined in the Credit Agreement) or at the term Secured Overnight Financing Rate (“SOFR”) plus an adjustment (as defined in the Credit Agreement), in each case, plus the applicable interest rate margin. Loans made under the Revolving Facility will bear interest, at the election of the Company, at either the base rate or, (i) in the case of loans denominated in dollars, the term SOFR 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”) and, (iii) in the case of loans denominated in sterling, Sterling Overnight Index Average (“SONIA”) plus an adjustment (as all such rates are defined in the Credit Agreement Amendment), in each case, plus the applicable interest rate margin. The applicable interest rate margin changes based upon the Company’s total leverage ratio (ranging from 1.125 % to 1.750 % or in the case of the base rate margin, 0.125 % to 0.750 %). Each swing line loan denominated in dollars will bear interest at the base rate plus the applicable interest rate margin. To manage exposures to currency exchange rates and interest rates arising in Long term debt, the Company entered into interest rate and cross currency swap agreements during the year ended December 31, 2022. Refer to Note 16, “Derivatives” for additional information. As of December 31, 2023, the weighted-average interest rate of borrowings under the Credit Agreement was 5.223 %, including the net impact from the interest rate and cross currency swaps and excluding accretion of deferred financing fees, and there was $ 718 million of borrowing capacity available on the Revolving Facility. 87 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Other Indebtedness In addition to the debt agreements discussed above, the Company also has the ability to inc ur approxi mately $ 78 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that the Company currently has in place that the Company has used from time to time in the past for short-term working capital needs. The Company is party to letter of credit facilities with an aggregate capacity of $ 109.0 million. Total letters of credit of $ 28.6 million were outstanding as of December 31, 2023. Deferred Financing Fees In total, the Company had deferred financing fees of $ 2.3 million included in its Consolidated Balance Sheet as of December 31, 2023, which will be charged to Interest expense (income) and other, net, using the straight-line method. The costs associated with the Term Facilities will be amortized over the contractual term of the Term Facilities and the costs associated with the Revolving Facility will be amortized over the life of the Credit Agreement. Of the $ 2.3 million, $ 0.9 million of deferred financing fees relating to the Revolving Facility are included in Other assets and $ 1.4 million of deferred financing fees relating to the Term Facilities are recorded as a contra-liability within Long-ter m debt. Other The Company’s minimum principal payments for the next five years are as follows: December 31, 2023 (in thousands) 2024 $ — 2025 592,500 2026 — 2027 427,000 2028 — Total debt (1) $ 1,019,500 (1) Total debt excludes $ 1.4 million of related unamortized deferred financing fees. 16. Derivatives The Company uses derivative instruments to manage exposures to currency exchange rates and interest rates arising in connection with Long-term debt and the normal course of business. The Company has established policies and procedures that govern the risk management of these exposures. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. The Company is subject to the credit risk of counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with an individual counterparty was considered significant as of December 31, 2023. The Company does not expect any counterparties to fail to meet their obligations. The Company records derivatives in the Consolidated Balance Sheets at fair value. Cash Flow Hedges On July 14, 2022, the Company entered into two interest rate swap agreements to manage interest rate risk exposure. The aggregate notional amount of these contracts is $ 600 million and they mature in April 2025. These interest rate swap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate of 3.293 %, plus a spread, thus reducing the impact of interest-rate changes on future interest expense. The applicable spread may vary between 1.125 % to 1.750 %, depending on the total leverage ratio of the Company. The spread is 1.250 % as of December 31, 2023. These agreements involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the life of the agreement without an exchange of the underlying principal amount. 88 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The above interest rate swap agreements are designated and qualify as a cash flow hedge, and as such the gain or loss on the derivative instrument due to the change in fair value is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. If a derivative is deemed to be ineffective, the change in fair value of the derivative is recognized directly in earnings. The Company did not have any ineffectiveness related to cash flow hedges during the year ended December 31, 2023. The cash inflows and outflows associated with the Company’s interest rate swap agreements designated as cash flow hedges are classified in cash flows from operating activities in the accompanying Consolidated and Combined Statements of Cash Flows. The Company expects a gain o f $ 6.7 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 December 31, 2023. The effects of designated cash flow hedges on the Company’s Consolidated and Combined Statements of Operations consisted of the following: Year Ended December 31, Derivative type (Gain) loss recognized in the Consolidated and Combined Statements of Operations: 2023 2022 (In thousands) Interest rate swap agreements Interest expense (income) and other, net $ ( 11,053 ) $ 413 Net Investment Hedges On July 22, 2022, the Company entered into two cross-currency swap agreements to partially hedge its net investment in its Euro denominated subsidiaries against adverse movements in exchange rates between the U.S. dollar and the Euro. In addition, the cross-currency swap agreements include provisions to exchange fixed-rate payments in U.S. dollar for fixed-rate payments in Euro and are designated and qualify as a net investment hedge. These contracts have a Euro aggregate notional amount of approximately € 270 million and a U.S. dollar aggregate notional amount of $ 275 million at December 31, 2023, and they mature in April 2025. The changes in the spot rate of these instruments are recorded in AOCI in equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in AOCI. The Company uses the spot method of assessing hedge effectiveness and as such, the initial value of the hedge components excluded from the assessment of effectiveness is recognized in the Interest expense (income) and other, net line item in the Consolidated and Combined Statement of Operations under a systematic and rational method over the life of the cross-currency swap agreements. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change. The Company did not have any ineffectiveness related to net investment hedges during the year ended December 31, 2023. The cash inflows and outflows associated with the excluded components of the Company’s cross-currency swap agreements designated as net investment hedges are classified in operating activities in the accompanying Consolidated and Combined Statements of Cash Flows. The effects of the excluded components of designated net investment hedges on the Company’s Consolidated and Combined Statements of Operations consisted of the following: Year Ended December 31, Derivative type Gain recognized in the Consolidated and Combined Statements of Operations: 2023 2022 Cross currency swap agreements Interest expense (income) and other, net $ ( 4,779 ) $ ( 2,181 ) 89 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) The table below shows the fair value of the derivatives recognized in the Company’s Consolidated Balance Sheets: December 31, 2023 December 31, 2022 Designated as hedging instruments Other Liabilities Other Assets Other Liabilities Other Assets (In thousands) Cross currency swap agreements $ 22,232 $ — $ 10,769 $ — Interest rate swap agreements — 9,522 — 14,342 Total $ 22,232 $ 9,522 $ 10,769 $ 14,342 Derivatives Not Designated as Hedging Instruments The Company has certain foreign currency contracts that are not designated as hedges. As of December 31, 2023 and December 31, 2022, the Company had foreign currency contracts related to purchases and sales with notional values of $ 232.5 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 Company’s Consolidated Balance Sheets: December 31, 2023 December 31, 2022 Not designated as hedging instruments Accrued Liabilities Other Current Assets Accrued Liabilities Other Current Assets (In thousands) Foreign currency contracts $ 596 $ 1,088 $ 2,166 $ 3,682 The amounts in the table above as of December 31, 2023 reflect the fair value of the Company’s foreign currency contracts on a net basis where allowable under master netting agreements. Had these amounts been recognized on a gross basis, the impact would have been a $ 1.2 million increase in Other current assets with a corresponding increase in Accrued liabilities. The Company recognized the following in its Consolidated and Combined Financial Statements related to its derivative instruments not designated in a hedging relationship: Year Ended December 31, Foreign currency contracts 2023 2022 2021 (In thousands) Change in unrealized (loss) gain ( 1,023 ) 1,338 177 Realized loss (1) ( 2,928 ) ( 17,601 ) ( 5,631 ) (1) The year ended December 31, 2022 includes realized losses relating to certain corporate entities contributed to ESAB Corporation which are reflected within Interest expense (income) and other, net, in the Consolidated and Combined Statements of Operations. These realized losses are offset by unrealized gains which are also reflected within Interest expense (income) and other, net, in the Consolidated and Combined Statements of Operations . 17. Fair Value Measurements The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level One: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level Two: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. 90 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying values of financial instruments, including Trade receivables and Accounts payable, approximate their fair values due to their short-term maturities. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future. 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 (see Note 14, “Benefit Plan s” for classification of the assets of the Company’s benefit plans within the fair value hierarchy): December 31, 2023 Level One Level Two Level Three Total (In thousands) Assets: Cash equivalents $ 6,027 $ — $ — $ 6,027 Foreign currency contracts - not designated as hedges — 2,261 — 2,261 Interest rate swap agreements — 9,522 — 9,522 Deferred compensation plans — 3,488 — 3,488 $ 6,027 $ 15,271 $ — $ 21,298 Liabilities: Foreign currency contracts - not designated as hedges $ — $ 1,769 $ — $ 1,769 Cross currency swap agreements — 22,232 — 22,232 Deferred compensation plans — 3,488 — 3,488 $ — $ 27,489 $ — $ 27,489 December 31, 2022 Level One Level Two Level Three Total (In thousands) Assets: Cash equivalents $ 8,195 $ — $ — $ 8,195 Foreign currency contracts - not designated as hedges — 3,682 — 3,682 Interest rate swap agreements — 14,342 — 14,342 Deferred compensation plans — 2,501 — 2,501 $ 8,195 $ 20,525 $ — $ 28,720 Liabilities: Foreign currency contracts - not designated as hedges $ — $ 2,166 $ — $ 2,166 Cross currency swap agreements — 10,769 — 10,769 Deferred compensation plans — 2,501 — 2,501 $ — $ 15,436 $ — $ 15,436 The Company’s cash equivalents consist of investments in foreign interest-bearing deposit accounts and foreign money market mutual funds that are valued based on quoted market prices. The fair value of these investments approximate cost due to their short-term maturities and the high credit quality of the issuers of the underlying securities. The Company measures the fair value of foreign currency contracts, cross currency swap agreements and interest rate swap agreements using Level Two inputs based on observable spot and forward rates in active markets. Additionally, the fair value of derivatives designated in hedging relationships includes a credit valuation adjustment to appropriately incorporate nonperformance risk for the Company and the respective counterparty. For the year ended December 31, 2023, the impact of the credit valuation adjustment on the Company’s derivatives is immaterial. Refer to Note 16, “Derivatives” for additional information. 91 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) There were no transfers in or out of Level One, Two or Three during the years ended December 31, 2023 and 2022. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. Concentrations of credit risk are considered to exist when there are amounts collectible from multiple counterparties with similar characteristics, which could cause their ability to meet contractual obligations to be similarly impacted by economic or other conditions. The Company performs credit evaluations of its customers prior to delivery or commencement of services and normally does not require collateral. Letters of credit are occasionally required when the Company deems n ecessary. There are no customers which represent more than 10% of the Company’s Accounts receivable, net as of December 31, 2023 and 2022. 92 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 18. Equity Accumulated Other Comprehensive Loss The following table presents the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the years ended December 31, 2023, 2022 and 2021. All amounts are net of tax and noncontrolling interest, if any. Accumulated Other Comprehensive Loss Components Net Unrecognized Pension and Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Net Investment Hedges Cash Flow Hedges Total (In thousands) Balance at January 1, 2021 $ ( 29,378 ) $ ( 366,825 ) $ — $ — $ ( 396,203 ) Other comprehensive income (loss) before reclassifications: $ — Net actuarial gain 7,479 — — — 7,479 Foreign currency translation adjustment 1,534 ( 72,867 ) — — ( 71,333 ) Other comprehensive (loss) income before reclassifications 9,013 ( 72,867 ) — — ( 63,854 ) Amounts reclassified from Accumulated other comprehensive loss (1) ( 831 ) — — — ( 831 ) Net current period Other comprehensive (loss) income 8,182 ( 72,867 ) — — ( 64,685 ) Balance at December 31, 2021 ( 21,196 ) ( 439,692 ) — — ( 460,888 ) Other comprehensive income (loss) before reclassifications: Amounts contributed by Former Parent (2) ( 50,504 ) ( 8,759 ) — — ( 59,263 ) Net actuarial gain 113 — — — 113 Foreign currency translation adjustment 1,712 ( 82,351 ) ( 8,336 ) — ( 88,975 ) Loss on long-term intra-entity foreign currency transactions — ( 83,105 ) — — ( 83,105 ) Unrealized gain on cash flow hedges — — — 10,782 10,782 Other comprehensive (loss) income before reclassifications ( 48,679 ) ( 174,215 ) ( 8,336 ) 10,782 ( 220,448 ) Amounts reclassified from Accumulated other comprehensive loss (1) 6,028 — — 320 6,348 Net current period Other comprehensive (loss) income ( 42,651 ) ( 174,215 ) ( 8,336 ) 11,102 ( 214,100 ) Balance at December 31, 2022 ( 63,847 ) ( 613,907 ) ( 8,336 ) 11,102 ( 674,988 ) Other comprehensive income (loss) before reclassifications: Net actuarial gain 8,969 — — — 8,969 Foreign currency translation adjustment ( 3,285 ) ( 11,143 ) ( 8,879 ) — ( 23,307 ) Gain on long-term intra-entity foreign currency transactions — 70,428 — — 70,428 Unrealized gain on cash flow hedges — — — 4,834 4,834 Other comprehensive (loss) income before reclassifications 5,684 59,285 ( 8,879 ) 4,834 60,924 Amounts reclassified from Accumulated other comprehensive loss (1)(3) ( 1,642 ) — — ( 8,566 ) ( 10,208 ) Net current period Other comprehensive (loss) income 4,042 59,285 ( 8,879 ) ( 3,732 ) 50,716 Balance at December 31, 2023 $ ( 59,805 ) $ ( 554,622 ) $ ( 17,215 ) $ 7,370 $ ( 624,272 ) 93 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) (1) The amounts on this line within the Net Unrecognized Pension and Other Post-Retirement Benefit Cost column are included in the computation of net periodic benefit cost. See Note 14, “Benefit Plans” for additional details. (2) Includes unrecognized pension and other post-retirement costs and accumulated currency translation adjustments of certain entities which were part of the Corporate segment of the Former Parent and were transferred to ESAB Corporation in anticipation of the Separation. (3) During the years ended December 31, 2023 and 2022, the amount on this line within the Cash Flow Hedges column is a component of Interest expense (income) and other, net. See Note 16, “Derivatives,” for additional details. Share-Based Payments Prior to the Separation, the Company had no stock-based compensation plans; however, certain employees of the Company participated in the Former Parent’s stock-based compensation plans which provided for the grants of stock options and restricted stock units (“RSUs”). Prior to the Separation, the Former Parent allocated stock-based compensation expense to the Company based on ESAB employees participating in Former Parent plans. This is reflected in the accompanying Consolidated and Combined Statements of Operations and Comprehensive Income for the period prior to the Separation. Prior to the Separation, in addition to stock compensation expense related to direct employees of the Company, stock compensation expense related to certain corporate employees of the Former Parent was allocated to the Company based on the Company’s proportional share of total Former Parent revenues. For the three months ended April 1, 2022, $ 0.7 million of stock-based compensation expense was allocated to the Company. For the year ended December 31, 2021, $ 2.6 million was allocated to the Company. Following the Separation, the Company independently incurs stock compensation expenses as a stand-alone company. In connection with the Separation, the Company adopted the 2022 Omnibus Incentive Plan (the “Stock Plan”) that became effective upon the Separation. Outstanding equity awards of the Former Parent held by ESAB employees at the Separation date were converted into or replaced with awards of ESAB common stock under the Stock Plan, with the intent to maintain the economic value of the equity awards immediately before and after the Distribution. The terms of the equity awards period, exercisability and vesting schedule, as applicable, generally continued unchanged. Other than converted or replacement equity awards of ESAB issued in replacement of the Former Parent’s RSUs and stock options, the terms of the converted or replacement equity awards of ESAB (e.g. vesting date and expiration date) continued unchanged. The Company measures and recognizes compensation expense related to share-based payments based on the fair value of the instruments issued. Stock-based compensation expense is generally recognized as a component of Selling, general and administrative expense in the Consolidated and Combined Statements of Operations. Stock Options Under the Stock Plan, the Company may grant options to purchase common stock, with a maximum term of 10 years at a purchase price equal to the market value of the Company’s common stock on the date of grant. Stock-based compensation expense for stock option awards is based upon the grant-date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the entire award. For the year ended December 31, 2023, the Stock-based compensation expense for the stock option awards was $ 2.2 million. As of December 31, 2023 , the Company had $ 2.3 million of unrecognized compensation expense related to stock option awards that will be recognized over a weighted-average period of 1.9 years. Restricted Stock Units During the year ended December 31, 2023 and 2022, the Company granted certain employees performance-based restricted stock units (“PRSUs”), the vesting of which is fully based on company specific performance metrics over a three-year performance period. The awards also have a service requirement that equals the respective performance periods. These PRSUs are valued at the market value of a share of common stock on the date of grant taking into consideration the probability of achieving the specified performance goal. The ultimate payout of PRSUs with a performance metric adjusts the cumulative expense based on its estimate and the percent of the requisite service period that has elapsed. For the year ended December 31, 2023, the Stock-based compensation expense for the PRSU’s was $ 3.1 million. 94 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Under the Stock Plan, the Compensation Committee may also award RSUs to select executives, employees and outside directors, which typically vest over three years after the date of grant. With limited exceptions, the employee must remain in service until the vesting date. The Compensation Committee determines the terms and conditions of each award, including any restriction period and other criteria applicable to the awards. For the year ended December 31, 2023, the Stock-based compensation expense for the RSU’s was $ 9.8 million. The activity of the Company’s PRSUs and RSUs is as follows: PRSUs RSUs Number of Units Weighted- Average Grant-Date Fair Value Number of Units Weighted- Average Grant-Date Fair Value Balance at December 31, 2022 110,288 $ 53.99 464,278 $ 50.80 Granted 83,873 61.32 183,605 61.46 Vested ( 19,062 ) 59.42 ( 152,907 ) 51.00 Forfeited and expired ( 6,124 ) 61.32 ( 55,346 ) 53.52 Balance at December 31, 2023 168,975 56.75 439,630 54.84 The fair value of shares vested during the year ended December 31, 2023 was $ 8.9 million . As of December 31, 2023 , the Company had $ 18.4 million of unrecognized compensation expense related to PRSU and RSU awards that will be recognized over a weighted-average period of 2.0 years. 95 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 19. Commitments and Contingencies Asbestos Contingencies Certain entities that became subsidiaries of ESAB Corporation in connection with the Separation are the legal obligor for certain asbestos obligations including long-term asbestos insurance assets, long-term asbestos insurance receivables, accrued asbestos liabilities, long-term asbestos liabilities, asbestos indemnity expenses, asbestos-related defense costs and asbestos insurance recoveries related to the asbestos obligations from the Former Parent’s other legacy industrial businesses. As a result, the Company holds certain asbestos-related contingencies and insurance coverages. These subsidiaries are each one of many defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured or used with components that are alleged to have contained asbestos. Such components were acquired from third-party suppliers and were not manufactured by any of the Company’s, or Former Parent’s, subsidiaries nor were the subsidiaries producers or direct suppliers of asbestos. The manufactured products that are alleged to have contained or used asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the United States Navy. The subs idiaries settle asbestos claims for amounts the Company considers reasonable given the facts and circumstances of each claim. The annual average settlement payment per asbestos claimant has fluctuated during the past several years while the number of cases has steadily declined. The Company expects such fluctuations to continue in the future based upon, among other things, the number and type of claims settled in a particular period and the jurisdictions in which such claims arise. To date, the majority of settled claims have been dismissed for no payment. The Company has classified asbestos-related activity in Loss from discontinued operations in the Consolidated and Combined Statements of Operations. This is consistent with the Former Parent’s classification on the basis that, pursuant to the purchase agreement from the Former Parent’s Fluid Handling business divestiture, the Former Parent retained its asbestos-related contingencies and insurance coverages. However, as the Former Parent did not retain an interest in the ongoing operations of the business subject to the contingencies, asbestos-related activity was classified as part of Loss from discontinued operations, net of taxes in the Consolidated Statements of Operations of the Former Parent. The Company has projected each subsidiary’s future asbestos-related liability costs with regard to pending and future unasserted claims based upon the Nicholson methodology. The Nicholson methodology is a standard approach used by experts and has been accepted by numerous courts. Consistent with the Former Parent, it is ESAB’s policy to record a liability for asbestos-related liability costs for the longest period of time that ESAB management can reasonably estimate. The Company believes that it can reasonably estimate the asbestos-related liability for pending and future claims that will be resolved in the next 15 years and has recorded that liability as its best estimate. While it is reasonably possible that the subsidiaries will incur costs after this period, the Company does not believe the reasonably possible loss or a range of reasonably possible losses is estimable at the current time. Accordingly, no accrual has been recorded for any costs that may be paid after the next 15 years. Defense costs associated with asbestos-related liabilities as well as costs incurred related to efforts to recover insurance from the subsidiaries’ insurers are expensed as incurred. Each subsidiary has separate insurance coverage acquired prior to Company ownership. The Company estimates the insurance assets for each subsidiary based upon the applicable policy language, expected recoveries and allocation methodologies and law pertaining to the affected subsidiary’s insurance policies. 96 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Asbestos-related claims activity since December 31, 2022 and 2021, respectively, is as follows: Year Ended December 31, 2023 2022 (Number of claims) Claims unresolved, beginning of period 14,106 14,559 Claims filed (1) 4,627 4,338 Claims resolved (2) ( 5,085 ) ( 4,791 ) Claims unresolved, end of period 13,648 14,106 (In dollars) Average cost of resolved claims (3) $ 9,524 $ 10,017 (1) Claims filed include all asbestos claims for which notification has been received or a file has been opened. (2) Claims resolved include all asbestos claims that have been settled, dismissed or that are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants. (3) Excludes claims settled in Mississippi for which the majority of claims have historically been resolved for no payment and insurance recoveries. The Company’s Consolidated Balance Sheets include the following amounts related to asbestos-related litigation: December 31, 2023 2022 (In thousands) Long-term asbestos insurance asset (1) $ 221,489 $ 215,112 Long-term asbestos insurance receivable (1) 17,868 17,231 Accrued asbestos liability (2) 32,908 30,108 Long-term asbestos liability (3) 234,796 230,581 (1) Included in Other assets in the Consolidated Balance Sheets. (2) Represents current accruals for probable and reasonably estimable asbestos-related liability costs that the Company believes the subsidiaries will pay and unpaid legal costs related to defending themselves against asbestos-related liability claims and legal action against the Company’s insurers, which is included in Accrued liabilities in the Consolidated Balance Sheets. (3) Included in Other liabilities in the Consolidated Balance Sheets. Management’s analyses are based on currently known facts and assumptions. Projecting future events, such as new claims to be filed each year, the average cost of resolving each claim, coverage issues among layers of insurers, the method in which losses will be allocated to the various insurance policies, interpretation of the effect on coverage of various policy terms and limits and their interrelationships, the continuing solvency of various insurance companies, the amount of remaining insurance available, as well as the numerous uncertainties inherent in asbestos litigation could cause the actual liabilities and insurance recoveries to be higher or lower than those projected or recorded which could materially affect the Company’s financial condition, results of operations or cash flow. General Litigation The Company is involved in various pending legal proceedings arising out of the ordinary course of the Company’s business. None of these legal proceedings is expected to have a material adverse effect on the financial condition, results of operations or cash flow of the Company. With respect to these proceedings, and the litigation and claims described in the proceeding paragraphs, management of the Company believes that it will either prevail, has adequate insurance coverage or has established appropriate accruals to cover potential liabilities. Legal costs related to proceedings or claims are recorded when incurred. Other costs that management estimates may be paid related to the claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company. 97 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Off-Balance Sheet Arrangements As of December 31, 2023, the Company had $ 131.8 million of unconditional purchase obligations with suppliers, the majority of which is expected to be paid by December 31, 2024. 20. Segment Information ESAB is a world leader in fabrication and gas control technology, providing our partners with fabrication technology advanced equipment, consumables, gas control equipment, robotics and digital solutions, which enable the everyday and extraordinary work that shapes our world. The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding. The Company conducts its operations through two reportable segments. These segments consist of the “Americas,” which includes operations in North America and South America and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific. The Company’s management evaluates the operating results of each of its reportable segments based upon Net sales and Adjusted EBITDA, which represents Net income from continuing operations excluding the impact of Income tax expense, Interest expense 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 Company’s segment results were as follows: Year Ended December 31, 2023 2022 2021 (In thousands) Net sales (1) : Americas $ 1,214,998 $ 1,128,306 $ 1,004,208 EMEA & APAC 1,559,768 1,465,174 1,423,907 $ 2,774,766 $ 2,593,480 $ 2,428,115 Adjusted EBITDA (2) : Americas $ 224,742 $ 188,577 $ 159,623 EMEA & APAC 276,360 248,177 244,458 $ 501,102 $ 436,754 $ 404,081 Depreciation, amortization and other impairment charges: Americas $ 34,589 $ 29,281 $ 33,890 EMEA & APAC 40,445 36,697 42,009 $ 75,034 $ 65,978 $ 75,899 Capital expenditures: Americas $ 21,576 $ 18,005 $ 14,095 EMEA & APAC 26,602 22,238 21,489 $ 48,178 $ 40,243 $ 35,584 (1) For the years ended December 31, 2023, 2022 and 2021, the total Net sales originating from the United States were $ 619.1 million, $ 583.0 million and $ 533.5 million, respectively. The remainder of the sales were derived from foreign countries. (2) The following is a reconciliation of Net income from continuing operations to Adjusted EBITDA: 98 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2023 2022 2021 (In thousands) Net income from continuing operations $ 223,365 $ 231,081 $ 238,679 Income tax expense 95,727 69,170 80,409 Interest expense (income) and other, net (1) 85,074 37,950 ( 29 ) Pension settlement gain — ( 9,136 ) ( 11,208 ) Restructuring and other related charges (2) 24,110 23,096 18,954 Separation costs (3) — 15,545 2,865 Acquisition - amortization and other related charges (4) 36,851 34,196 35,949 Depreciation and other amortization 35,975 34,852 38,462 Adjusted EBITDA $ 501,102 $ 436,754 $ 404,081 (1) Relates to removal of interest expense, net included within the Interest expense (income) and other, net line within the Consolidated and Combined Statements of Operations. (2) I ncludes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expense, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines . (3) I ncludes non-recurrin g charges and employee costs related to the planning and execution of t he separation from Enovis within the Selling, general and administrative expense line within the Consolidated and Combined Statements of Operations. (4) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses. December 31, 2023 2022 (In thousands) Investments in Equity Method Investees: Americas $ — $ — EMEA & APAC 30,633 28,527 $ 30,633 $ 28,527 Total Assets: Americas $ 1,671,634 $ 1,666,799 EMEA & APAC 2,156,995 2,087,216 $ 3,828,629 $ 3,754,015 December 31, 2023 2022 (In thousands) Property, Plant and Equipment, Net (1) : United States $ 68,398 $ 68,380 Czech Republic 60,948 60,278 India 31,258 34,892 Russia 15,550 19,111 Mexico 23,922 17,666 Other foreign countries 94,229 83,899 $ 294,305 $ 284,226 (1) As the Company does not allocate all long-lived assets, specifically intangible assets, to each individual country, evaluation of long-lived assets in total is impracticable. 99 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) 21. Related Party Transactions Related Party Agreements On April 4, 2022, in connection with the Separation, the Company entered into several agreements with Enovis that govern the Separation and provide a framework for the relationship between the parties going forward including a separation and distribution agreement, a transition services agreement, tax matters agreement, employee matters agreements, a stockholders and registration rights agreement, an intellectual property matters agreement and a license agreement for EBX. The Separation and Distribution Agreement The Company entered into a separation and distribution agreement (the “Separation Agreement”) with Enovis immediately prior to the distribution of the Company’s common stock to Enovis stockholders. The Separation Agreement sets forth the Company’s agreements with Enovis regarding the principal actions to be taken in connection with the Separation. The Separation Agreement contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of ESAB and Enovis as part of the Separation, (ii) cash distribution made to Enovis in partial consideration of the transfer of ESAB Assets to the Company in connection with the Separation and (iii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of ESAB’s business with ESAB and financial responsibility for the obligations and liabilities of Enovis’s remaining business with Enovis. Transition Services Agreement The transition services agreement sets forth the terms and conditions pursuant to which the Company and its subsidiaries and Enovis and its subsidiaries will provide to each other various services. The services to be provided include human resources, payroll, certain information technology services, treasury services and financial reporting services. The charges for the transition services generally are expected to allow the providing company to fully recover all internal and external costs and expenses it actually incurs in connection with providing the service (including a reasonable allocation of overhead) provided in the manner and at a level substantially consistent with that provided by the respective providing company immediately preceding the Distribution Date. As of the year ended December 31, 2023, the majority of the related obligations have been closed out. Tax Matters Agreement The tax matters agreement governs the Company’s and Enovis’s respective rights, responsibilities and obligations after the Separation with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and certain other matters regarding taxes. Employee Matters Agreement The employee matters agreement sets forth, among other things, the allocation of assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the Separation, including the treatment of outstanding equity and other incentive awards and certain retirement and welfare benefit obligations. Stockholders and Registration Rights Agreement The stockholders and registration rights agreement sets forth the rights of the stockholders when requiring the Company to facilitate the resale of shares. Intellectual Property Matters Agreement The intellectual property matters agreement sets forth the terms and conditions pursuant to which Enovis and the Company have mutually granted certain personal, generally irrevocable, non-exclusive, worldwide and royalty-free rights to use certain intellectual property. The Company and Enovis are able to sublicense their rights in connection with activities relating to their businesses, but not for independent use by third parties. 100 ESAB CORPORATION NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued) EBX License Agreement The EBX license agreement sets forth the terms and conditions pursuant to which Enovis has granted a royalty-free, non-exclusive, worldwide and nontransferable license to the Company to use EBX, solely in support of its businesses. The Company will be able to sublicense such license solely to direct and indirect wholly-owned subsidiaries. In addition, under the EBX license agreement, Enovis and the Company each license to each other improvements made by such party to EBX during the first two years of the term of the EBX license agreement. Allocated Expenses Prior to the Separation, the Company operated as part of the Former Parent and not as a stand-alone company. Accordingly, the Former Parent allocated certain shared costs to the Company that are reflected as expenses in these financial statements. These amounts included, but were not limited to, items such as general management and executive oversight, compliance, human resources, procurement and legal functions and financial management, including public company reporting, consolidated tax filings and tax planning. Management considered the allocation methodologies used by the Former Parent to be reasonable and to appropriately reflect the related expenses attributable to the Company for purposes of the three months ended April 1, 2022 and the year ended December 31, 2021 combined financial statements; however, the expenses reflected in these financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a separate stand-alone entity. In addition, the expenses reflected in the financial statements 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. The Company had no stock-based compensation plans prior to the Separation; however, certain employees of the Company participated in the Former Parent’s stock-based compensation plans, which provided for the grants of stock options and RSUs among other types of awards. The expense associated with the Company's employees who participated in the plans of the Former Parent was allocated to the Company in the accompanying Consolidated and Combined Statements of Operations through the date of Separation. The Company’s allocated expenses from the Former Parent were $ 6.0 million for the three months ended April 1, 2022, and $ 29.5 million for the year ended December 31, 2021 and are included in the Selling, general and administrative expense in the Consolidated and Combined Statements of Operations. Following the Separation, the Company independently incurs expenses as a stand-alone company. Refer to Note 14, “Benefit Plans,” for allocations of net periodic benefit associated with a Former Parent sponsored benefit plan. 22. Subsequent Events The dividend of $ 3.6 million included in Accrued liabilities in the Consolidated Balance Sheet at December 31, 2023 was paid on January 12, 2024, to stockholders of record as of December 29, 2023. In addition, on February 22, 2024, the Board of Directors declared a quarterly cash dividend of $ 0.06 per share of ESAB’s common stock payable on April 12, 2024, to stockholders of record as of March 29, 2024. On February 26, 2024, the Company completed the acquisition of Sager S.A., a welding repair and maintenance product and service leader in South America for approximately $ 18.5 million of cash consideration. 101 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.