ESAB Corp 10-Q

Item 1. Financial Statements ESAB CORPORATION CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS Dollars in thousands, except per share amounts (Unaudited) Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 Net sales $ 673,250 $ 680,996 $ 2,070,047 $ 2,085,418 Cost of sales 419,460 431,282 1,290,915 1,324,392 Gross profit 253,790 249,714 779,132 761,026 Selling, general and administrative expense 145,900 145,439 434,537 442,836 Restructuring and other related charges 1,875 3,129 8,572 17,742 Operating income 106,015 101,146 336,023 300,448 Pension settlement loss — — 12,155 — Interest expense and other, net 16,894 20,502 49,925 58,831 Income from continuing operations before income taxes 89,121 80,644 273,943 241,617 Income tax expense 18,074 19,808 54,463 77,806 Net income from continuing operations 71,047 60,836 219,480 163,811 Loss from discontinued operations, net of taxes ( 1,214 ) ( 1,723 ) ( 3,684 ) ( 4,259 ) Net income 69,833 59,113 215,796 159,552 Income attributable to noncontrolling interest, net of taxes ( 1,593 ) ( 1,543 ) ( 4,698 ) ( 4,506 ) Net income attributable to ESAB Corporation $ 68,240 $ 57,570 $ 211,098 $ 155,046 Earnings (loss) per share – basic Income from continuing operations $ 1.14 $ 0.98 $ 3.54 $ 2.63 Loss on discontinued operations ( 0.02 ) ( 0.03 ) ( 0.06 ) ( 0.07 ) Net income per share – basic $ 1.12 $ 0.95 $ 3.48 $ 2.56 Earnings (loss) per share – diluted Income from continuing operations $ 1.13 $ 0.97 $ 3.50 $ 2.61 Loss on discontinued operations ( 0.02 ) ( 0.03 ) ( 0.06 ) ( 0.07 ) Net income per share – diluted $ 1.11 $ 0.94 $ 3.44 $ 2.54 See Notes to Consolidated and Condensed Financial Statements. 2 ESAB CORPORATION CONSOLIDATED AND CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Dollars in thousands (Unaudited) Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 Net income $ 69,833 $ 59,113 $ 215,796 $ 159,552 Other comprehensive income (loss): Foreign currency translation, net of tax (benefit) expense of $( 2,871 ), $ 2,984 , $( 924 ) and $ 2,546 63,675 ( 63,808 ) 23,764 ( 7,988 ) Unrealized (loss) income on derivatives designated and qualifying as cash flow hedges, net of tax (benefit) expense of $( 911 ), $( 13 ), $( 1,155 ) and $ 553 ( 3,130 ) ( 47 ) ( 3,968 ) 1,903 Defined benefit pension and other post-retirement plan activity, net of tax expense of $ 23 , $ 52 , $ 270 and $ 183 343 240 1,299 1,404 Other comprehensive income (loss) 60,888 ( 63,615 ) 21,095 ( 4,681 ) Comprehensive income (loss) 130,721 ( 4,502 ) 236,891 154,871 Comprehensive income attributable to noncontrolling interest 2,302 853 4,715 4,377 Comprehensive income (loss) attributable to ESAB Corporation $ 128,419 $ ( 5,355 ) $ 232,176 $ 150,494 See Notes to Consolidated and Condensed Financial Statements. 3 ESAB CORPORATION CONSOLIDATED AND CONDENSED BALANCE SHEETS Dollars in thousands, except share and per share amounts (Unaudited) September 27, 2024 December 31, 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 253,670 $ 102,003 Trade receivables, less allowance for credit losses of $ 24,637 and $ 25,477 420,938 385,198 Inventories, net 422,654 392,858 Prepaid expenses 58,732 61,771 Other current assets 65,517 55,890 Total current assets 1,221,511 997,720 Property, plant and equipment, net 296,437 294,305 Goodwill 1,667,878 1,588,331 Intangible assets, net 499,789 499,535 Lease assets - right of use 94,413 95,607 Other assets 304,506 353,131 Total assets $ 4,084,534 $ 3,828,629 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable $ 320,252 $ 306,593 Accrued liabilities 316,819 313,489 Total current liabilities 637,071 620,082 Long-term debt 1,080,182 1,018,057 Other liabilities 489,556 542,833 Total liabilities 2,206,809 2,180,972 Equity: Common stock - $ 0.001 par value - 600,000,000 shares authorized, 60,444,246 and 60,295,634 shares outstanding as of September 27, 2024 and December 31, 2023, respectively 60 60 Additional paid-in capital 1,893,665 1,881,054 Retained earnings 548,300 350,557 Accumulated other comprehensive loss ( 604,900 ) ( 624,272 ) Total ESAB Corporation equity 1,837,125 1,607,399 Noncontrolling interest 40,600 40,258 Total equity 1,877,725 1,647,657 Total liabilities and equity $ 4,084,534 $ 3,828,629 See Notes to Consolidated and Condensed Financial Statements. 4 ESAB CORPORATION CONSOLIDATED AND CONDENSED STATEMENTS OF EQUITY Dollars in thousands, except share and per share amounts (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at December 31, 2023 60,295,634 $ 60 $ 1,881,054 $ 350,557 $ ( 624,272 ) $ 40,258 $ 1,647,657 Net income — — — 59,951 — 1,643 61,594 Dividends declared ($ 0.06 per share) — — — ( 3,641 ) — — ( 3,641 ) Other comprehensive loss, net of tax expense of $ 2,029 — — — — ( 23,389 ) ( 323 ) ( 23,712 ) Common stock-based award activity 128,787 — 480 — — — 480 Balance at March 29, 2024 60,424,421 $ 60 $ 1,881,534 $ 406,867 $ ( 647,661 ) $ 41,578 $ 1,682,378 Net income — — — 82,907 — 1,462 84,369 Dividends declared ($ 0.08 per share) — — — ( 4,856 ) — — ( 4,856 ) Distributions to noncontrolling owners — — — — — ( 1,218 ) ( 1,218 ) Other comprehensive loss, net of tax benefit of $ 79 — — — — ( 15,712 ) ( 369 ) ( 16,081 ) Common stock-based award activity 14,417 — 4,833 — — — 4,833 Balance at June 28, 2024 60,438,838 $ 60 $ 1,886,367 $ 484,918 $ ( 663,373 ) $ 41,453 $ 1,749,425 Net income — — — 68,240 — 1,593 69,833 Dividends declared ($ 0.08 per share) — — — ( 4,858 ) — — ( 4,858 ) Distributions and purchases related to noncontrolling interest — — 2,860 — ( 1,706 ) ( 3,155 ) ( 2,001 ) Other comprehensive income, net of tax benefit of $ 3,759 — — — — 60,179 709 60,888 Common stock-based award activity 5,408 — 4,438 — — — 4,438 Balance at September 27, 2024 60,444,246 $ 60 $ 1,893,665 $ 548,300 $ ( 604,900 ) $ 40,600 $ 1,877,725 5 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Balance at December 31, 2022 60,094,725 $ 60 $ 1,865,904 $ 159,231 $ ( 674,988 ) $ 38,251 $ 1,388,458 Net income — — — 31,903 — 1,313 33,216 Dividends declared ($ 0.05 per share) — — — ( 3,033 ) — — ( 3,033 ) Distributions to noncontrolling owners — — — — — ( 1,359 ) ( 1,359 ) Other comprehensive income, net of tax benefit of $ 934 — — — — 38,279 501 38,780 Common stock-based award activity 127,538 — 2,229 — — — 2,229 Balance at March 31, 2023 60,222,263 $ 60 $ 1,868,133 $ 188,101 $ ( 636,709 ) $ 38,706 $ 1,458,291 Net income — — — 65,573 — 1,650 67,223 Dividends declared ($ 0.06 per share) — — — ( 3,644 ) — — ( 3,644 ) Other comprehensive income, net of tax expense of $ 1,193 — — — — 20,094 60 20,154 Common stock-based award activity 37,106 — 4,701 — — — 4,701 Balance at June 30, 2023 60,259,369 $ 60 $ 1,872,834 $ 250,030 $ ( 616,615 ) $ 40,416 $ 1,546,725 Net income — — — 57,570 — 1,543 59,113 Dividends declared ($ 0.06 per share) — — — ( 3,646 ) — — ( 3,646 ) Distributions to noncontrolling owners — — — — — ( 982 ) ( 982 ) Other comprehensive loss, net of tax expense of $ 3,023 — — — — ( 62,925 ) ( 690 ) ( 63,615 ) Common stock-based award activity 11,703 — 3,501 — — — 3,501 Balance at September 29, 2023 60,271,072 $ 60 $ 1,876,335 $ 303,954 $ ( 679,540 ) $ 40,287 $ 1,541,096 See Notes to Consolidated and Condensed Financial Statements. 6 ESAB CORPORATION CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS Dollars in thousands (Unaudited) Nine Months Ended September 27, 2024 September 29, 2023 Cash flows from operating activities: Net income $ 215,796 $ 159,552 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other impairment charges 50,028 57,090 Stock-based compensation expense 14,473 11,150 Deferred income tax 2,394 756 Non-cash interest expense 2,259 896 Pension settlement loss 12,155 — Changes in operating assets and liabilities: Trade receivables, net ( 39,075 ) ( 15,170 ) Inventories, net ( 31,651 ) ( 16,212 ) Accounts payable 16,895 ( 17,746 ) Other operating assets and liabilities ( 14,751 ) 27,783 Net cash provided by operating activities 228,523 208,099 Cash flows from investing activities: Purchases of property, plant and equipment ( 27,071 ) ( 28,865 ) Proceeds from sale of property, plant and equipment 3,452 5,171 Acquisitions, net of cash received ( 86,537 ) ( 18,665 ) Other investing ( 4,058 ) — Net cash used in investing activities ( 114,214 ) ( 42,359 ) Cash flows from financing activities: Proceeds from borrowings on Senior Notes 700,000 — Proceeds from borrowings on revolving credit facilities and other 205,000 454,671 Repayments of borrowings on Term Loans ( 597,500 ) ( 6,250 ) Repayments of borrowings on revolving credit facilities and other ( 236,623 ) ( 578,623 ) Payment of debt issuance costs and other ( 15,522 ) — Payment of dividends ( 12,135 ) ( 9,702 ) Distributions to noncontrolling interest holders ( 2,644 ) ( 2,279 ) Net cash provided by (used in) financing activities 40,576 ( 142,183 ) Effect of foreign exchange rates on Cash and cash equivalents ( 3,218 ) ( 12,748 ) Increase in Cash and cash equivalents 151,667 10,809 Cash and cash equivalents, beginning of period 102,003 72,024 Cash and cash equivalents, end of period $ 253,670 $ 82,833 See Notes to Consolidated and Condensed Financial Statements. 7 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 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 and workflow solutions and its business system ESAB Business Excellence (“EBX”) enables the Company’s purpose of Shaping the world we imagine TM . 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. On April 4, 2022, ESAB Corporation completed its spin-off from Colfax Corporation (“Colfax,” “Enovis” or “Former Parent”) becoming an independent, publicly traded company (the “Separation”). The Company’s fiscal year ends December 31. The Company’s third quarter ends on the last business day of the 13 th week after the end of the prior quarter. As used herein, the third quarter results for 2024 and 2023 refer to the 13-week periods ended September 27, 2024 and September 29, 2023, respectively. 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, the Company is meeting current contractual obligations while addressing applicable laws and regulations. For the three and nine months ended September 27, 2024, Russia represented approximately 6 % and 5 % of the Company’s total revenue, respectively, and approximately $ 2 million and $ 12 million of its Net income, respectively. Russia also has approximately 5 % of the Company’s total net assets excluding any goodwill allocation as of September 27, 2024. In case of a 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 $ 119 million as of September 27, 2024, which could be realized upon a transition out. The Company is closely monitoring developments in Ukraine and Russia. Changes in laws and regulations or other factors impacting the Company’s ability to fulfill contractual obligations could have an adverse effect on the results of operations and cash flows. Basis of Presentation The Consolidated and Condensed Financial Statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The Consolidated and Condensed Financial Statements reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. Intercompany transactions and accounts are eliminated in consolidation. In the normal course of business, the Company incurs research and development costs related to new product development, which are expensed as incurred and included in Selling, general and administrative expense on the Company’s Consolidated and Condensed Statements of Operations. Research and development costs were $ 9.2 million and $ 29.0 million during the three and nine months ended September 27, 2024, respectively, and $ 9.0 million and $ 28.1 million during the three and nine months ended September 29, 2023, respectively. T hese amounts do not include development and application engineering costs incurred in conjunction with fulfilling customer orders and executing customer projects, nor do they include costs related to securing third party product rights. The Company expects to continue making significant expenditures for research and development to maintain and improve its competitive positions. The accompanying interim Consolidated and Condensed Financial Statements and the related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), filed with the SEC on February 29, 2024. 8 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 2. Discontinued Operations The Company holds certain asbestos-related contingencies and insurance coverages from divested businesses for which it does not have an interest in the ongoing operations. The Company has classified asbestos-related activity in its Consolidated and Condensed Statements of Operations as part of Loss from discontinued operations, net of taxes. This activity consists primarily of expected settlements, legal and administrative expenses associated with the above liabilities. Loss from discontinued operations, net of taxes was $ 1.2 million and $ 3.7 million for the three and nine months ended September 27, 2024, respectively, and $ 1.7 million and $ 4.3 million for the three and nine months ended September 29, 2023, respectively. S ee Note 14, “Commitments and Contingencies” for further information. Cas h used in operating activities related to discontinued operations for the three and nine months ended September 27, 2024 was $ 3.6 million and $ 12.1 million, respectively, and for the three and nine months ended September 29, 2023 it was $ 2.5 million and $ 12.2 million , respectively. 3. Acquisitions On July 2, 2024, the Company completed the acquisition of Linde Industries Private Limited, a leading welding company in Bangladesh, for approximately $ 69 million, net of cash received, to extend the Company’s position in this fast-growing region. The Company recognized intangible assets and goodwill of approximately $ 20 million and $ 40 million, respectively. The valuation of the acquired intangible assets and certain other assets and liabilities are determined based upon third-party valuations that have yet to be finalized. On April 30, 2024, the Company reached an agreement to acquire SUMIG Soluções para Solda e Corte Ltda., a South American light automation and equipment business for approximately $ 74 million of cash consideration. This acquisition is expected to be completed during the fourth quarter of 2024, subject to customary closing conditions. 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 million, net of cash received. On January 11, 2023, the Company completed the acquisition of Therapy Equipment Limited, a regional leader in oxygen regulators, for approximately $ 19 million, net of cash received. 4. 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. Substantially all revenue is recognized at a point in time. The Company disaggregates its revenue into the following product groups: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Equipment $ 219,415 $ 209,037 $ 665,934 $ 635,305 Consumables 453,835 471,959 1,404,113 1,450,113 Total $ 673,250 $ 680,996 $ 2,070,047 $ 2,085,418 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 September 27, 2024 is immaterial. In some circumstances, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 2023 and December 31, 2022, total contract liabilities were $ 31.2 million and $ 25.9 million, respectively, and were included in Accrued liabilities on the Consolidated and Condensed Balance Sheets. During the three and nine months ended September 27, 2024, revenue recognized that was included in the contract liabilities balance at the beginning of the year was $ 1.3 million and $ 22.6 million, respectively. During the three and nine months ended September 29, 2023, revenue recognized that was included in the contract liabilities balance at the 9 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) beginning of the year was $ 2.3 million and $ 16.7 million, respectively. As of September 27, 2024 and September 29, 2023, total contract liabilities were $ 27.8 million and $ 29.5 million, respectively. Allowance for Credit Losses A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Consolidated and Condensed Balance Sheets is as follows: Nine months ended September 27, 2024 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 $ 25,477 $ 1,796 $ ( 2,263 ) $ ( 373 ) $ 24,637 5. Earnings per Share from Continuing Operations The Company has unvested share-based payment awards with a right to receive non-forfeitable dividends, which are considered participating securities. The Company allocates earnings to participating securities and computed earnings per share using the two-class method as follows: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (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) $ 69,454 $ 59,293 $ 214,782 $ 159,305 Distributed and undistributed earnings allocated to nonvested shares ( 305 ) ( 425 ) ( 1,052 ) ( 1,162 ) Income from continuing operations attributable to common stockholders $ 69,149 $ 58,868 $ 213,730 $ 158,143 Weighted-average shares of Common stock outstanding – basic 60,439,818 60,265,516 60,406,056 60,216,606 Income per share from continuing operations – basic $ 1.14 $ 0.98 $ 3.54 $ 2.63 Computation of earnings per share from continuing operations – diluted: Income from continuing operations attributable to common stockholders $ 69,149 $ 58,868 $ 213,730 $ 158,143 Weighted-average shares of Common stock outstanding – basic 60,439,818 60,265,516 60,406,056 60,216,606 Net effect of potentially dilutive securities (2) 646,311 465,197 644,791 376,153 Weighted-average shares of Common stock outstanding – dilution 61,086,129 60,730,713 61,050,847 60,592,759 Net income per share from continuing operations – diluted $ 1.13 $ 0.97 $ 3.50 $ 2.61 (1) Net income from continuing operations attributable to ESAB Corporation for the respective periods is calculated using Net income from continuing operations, less Income attributable to noncontrolling interest, net of taxes, of $ 1.6 million and $ 4.7 million for the three and nine months ended September 27, 2024, respectively, and $ 1.5 million and $ 4.5 million for the three and nine months ended September 29, 2023, respectively. (2) Potentially dilutive securities include stock options, performance-based restricted stock units and non-performance-based restricted stock units. 6. Income Taxes During the three and nine months ended September 27, 2024, Income from continuing operations before income taxes was $ 89.1 million and $ 273.9 million, respectively, while Income tax expense was $ 18.1 million and $ 54.5 million, respectively. The effective tax rate was 20.3 % and 19.9 % for the three and nine months ended September 27, 2024, respectively. The effective tax rate differed from the 2024 U.S. federal statutory rate of 21.0% primarily due to a favorable final ruling in a tax case in a foreign jurisdiction during the three months ended June 28, 2024 and an agreement with a taxing authority on the treatment of subsidy income in a foreign jurisdiction during the three months ended September 27, 2024. 10 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) During the three and nine months ended September 29, 2023, Income from continuing operations before income taxes was $ 80.6 million and $ 241.6 million, respectively, while Income tax expense was $ 19.8 million and $ 77.8 million, respectively. The effective tax rate was 24.6 % and 32.2 % for the three and nine months ended September 29, 2023, respectively. The effective tax rate differed from the 2023 U.S. federal statutory rate of 21.0% primarily due to discrete tax expenses in 2023 for dividend withholding taxes and an increase in the liability for uncertain tax positions. During the nine months ended September 29, 2023, the Company recorded total tax expense of $ 10.9 million relating to a change in its indefinite reinvestment assertion on certain foreign undistributed earnings. Additionally, the Company increased the net liability for uncertain tax positions by $ 9.4 million primarily relating to an adverse court ruling in a tax case in a foreign jurisdiction. During the nine months ended September 27, 2024, a favorable final ruling in a tax case in a foreign jurisdiction was decided and the Company released the related liability for uncertain tax positions for a net tax benefit of $ 7.9 million. This resulted in a decrease in the ending unrecognized tax benefit balance of $ 17.7 million. The Company also recorded a tax benefit of $ 4.9 million due to an agreement with a taxing authority on the treatment of subsidy income in a foreign jurisdiction. 7. Inventories, Net Inventories, net consisted of the following: September 27, 2024 December 31, 2023 (In thousands) Raw materials $ 159,119 $ 156,583 Work in process 47,852 43,561 Finished goods 264,269 244,580 471,240 444,724 LIFO reserve ( 4,880 ) ( 4,279 ) Allowance for excess, slow-moving and obsolete inventory ( 43,706 ) ( 47,587 ) $ 422,654 $ 392,858 At September 27, 2024 and December 31, 2023 , 24.0 % a nd 27.4 % of total inventories, respectively, were valued using the last-in, first-out (“LIFO”) method. 8. Accrued and Other Liabilities Accrued and Other liabilities in the Consolidated and Condensed Balance Sheets consisted of the following: September 27, 2024 December 31, 2023 Current Noncurrent Current Noncurrent (In thousands) Accrued taxes and deferred tax liabilities $ 46,243 $ 133,424 $ 45,681 $ 144,662 Compensation and related benefits 84,004 52,299 97,052 52,589 Asbestos liability 34,757 196,772 32,908 234,796 Contract liabilities 27,844 — 31,248 — Lease liabilities 21,375 70,064 22,794 76,609 Warranty liability 13,914 — 12,606 — Third-party commissions 16,144 — 18,711 — Restructuring liability 5,581 — 5,345 354 Accrued interest 21,539 — 711 — Other 45,418 36,997 46,433 33,823 $ 316,819 $ 489,556 $ 313,489 $ 542,833 11 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) Accrued Warranty Liability A summary of the activity in the Company’s warranty liability included in Accrued liabilities in the Company’s Consolidated and Condensed Balance Sheets is as follows: Nine Months Ended September 27, 2024 September 29, 2023 (In thousands) Warranty liability, beginning of period $ 12,606 $ 12,946 Accrued warranty expense 8,026 4,448 Changes in estimates related to pre-existing warranties 1,829 2,710 Cost of warranty service work performed ( 8,507 ) ( 7,891 ) Foreign exchange translation effect and other ( 40 ) 1,156 Warranty liability, end of period $ 13,914 $ 13,369 Accrued Restructuring Liability The Company’s restructuring programs include a series of actions to reduce the structural costs of the Company. A summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Consolidated and Condensed Balance Sheets is as follows: Nine Months Ended September 27, 2024 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) $ 4,595 $ 5,318 $ ( 5,702 ) $ 65 $ 4,276 Facility closure costs and other (2) 1,104 3,254 ( 2,633 ) ( 420 ) 1,305 Total $ 5,699 $ 8,572 $ ( 8,335 ) $ ( 355 ) $ 5,581 (1) Includes severance and other termination benefits, including outplacement services. (2) Includes the cost of relocating associates, relocating equipment and other costs in connection with the closure and optimization of facilities and product lines. 9. 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. During the three months ended March 29, 2024, the Company recognized a non-cash pension settlement loss of $ 12.2 million related to the transfer of plan assets to a third party as part of externalizing the risk associated with a foreign defined benefit plan. This amount is reflected in Pension settlement loss in the Consolidated and Condensed Statements of Operations. 10. Debt Long-term debt consisted of the following: September 27, 2024 December 31, 2023 (In thousands) Term loans $ 390,000 $ 987,500 Senior unsecured notes 700,000 — Revolving credit facilities — 32,000 Total debt 1,090,000 1,019,500 Unamortized deferred financing fees ( 9,818 ) ( 1,443 ) Long-term debt $ 1,080,182 $ 1,018,057 12 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) Senior Notes, 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 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. The Revolving Facility contains a $ 300 million foreign currency sublimit and a $ 50 million swing line loan sub-facility. On April 4, 2022, the Company drew down $ 1.2 billion available under the credit facilities consisting of (i) $ 200 million under the Revolving Facility, (ii) $ 400 million under the Term Loan A-1 Facility and (iii) $ 600 million under the Term Loan A-2 Facility. 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 the Credit Agreement (“Credit Agreement Amendment”). The Credit Agreement Amendment provides for a $ 600 million term loan facility (the “Term Loan A-3 Facility”) 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. On April 9, 2024, the Company issued $ 700 million in aggregate principal amount of 6.25 % senior notes due 2029 (the “Senior Notes”). The Senior Notes have a contractual interest rate of 6.25 % and maturity date of April 15, 2029. The Company used the net proceeds from the Senior Notes offering to pay off its Term Loan A-3 Facility and pay fees associated with the offering. As of September 27, 2024, the Company’s long-term Debt consisted of the following facilities: • A $ 750 million Revolving Facility with a maturity date of April 4, 2027, with zero dollars drawn; • A Term Loan A-1 Facility with an aggregate principal amount of $ 390 million and a maturity date of April 4, 2027; and • Senior Notes with an aggregate principal amount of $ 700 million and a maturity date of April 15, 2029. 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 contains financial covenants requiring the Company to maintain (i) a maximum total leverage ratio of not more than 4.00 :1.00, with step-downs to, commencing with the fiscal quarter ending June 30, 2023, 3.75 :1.00, and commencing with the fiscal quarter ending June 30, 2024, 3.50 :1.00, and (ii) a minimum interest coverage ratio of 3.00 :1.00. 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 loan facilities (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”) rate and, (iii) in the case of loans denominated in sterling, Sterling Overnight Index Average (“SONIA”) plus an adjustment (as all such rates are defined in the Credit Agreement Amendment), in each case, plus the applicable interest rate margin. The applicable interest rate margin changes based upon the Company’s total leverage ratio (consolidated total debt divided by EBITDA, as defined in the credit agreement and ranging from 1.125 % to 1.750 % or in the case of the base rate margin, 0.125 % to 0.750 %). Each swing line loan denominated in dollars will bear interest at the base rate plus the applicable interest rate margin. 13 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 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. Refer to Note 11, “Derivatives” for additional information. As of September 27, 2024, the weighted-average interest rate of borrowings under the Credit Agreement and Senior Notes was 5.01 %, including the net impact from the interest rate and cross-currency swaps and excluding accretion of deferred financing fees, and there was $ 750 million of borrowing capacity available under the Revolving Facility, subject to the Company meeting financial covenants and other requirements. Other Indebtedness In addition to the debt agreements discussed above, the Company also has the ability to incur approximately $ 50 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that the Company has used from time to time in the past for short-term working capital needs. The Company is party to letter of credit facilities with an aggregate capacity of $ 109.2 million. Total letters of credit of $ 28.6 million were outstanding as of September 27, 2024. Deferred Financing Fees The Company had total deferred financing fees of $ 10.5 million included in its Consolidated and Condensed Balance Sheets as of September 27, 2024, which will be charged to Interest expense and other, net, over the term of the related debt instruments. The costs associated with the Term Facilities will be amortized over the contractual term of the Term Facilities, the costs associated with the Revolving Facility will be amortized over the life of the Credit Agreement and the costs associated with the Senior Notes will be amortized over the life of the Note. Of the $ 10.5 million, $ 0.7 million of deferred financing fees relating to the Revolving Facility are included in Other assets and $ 9.8 million of deferred financing fees relating to the Term Facilities and Senior Notes are recorded as a contra-liability within long-term debt. 11. 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 September 27, 2024. The Company does not expect any counterparties to fail to meet their obligations. The Company records derivatives in the Consolidated and Condensed Balance Sheets at fair value. Cash Flow Hedges On July 14, 2022, the Company entered into two interest rate swap agreements to manage interest rate risk exposure. The aggregate notional amount of these contracts was $ 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. In March 2024, the Company settled one of the interest rate swaps associated with the Company’s floating-rate debt and received $ 5.5 million in connection with that settlement. The termination of the interest rate swap was related to the repayment of the Term A-3 Facility in April 2024. Refer to Note 10, “Debt” for further information. As this interest rate swap was designated as a cash flow hedge, $ 5.5 million was deferred in accumulated other comprehensive income (loss) (“AOCI”) and will be recognized in earnings over the period the originally forecasted hedged transaction impacts earnings. The remaining $ 300 million swap is expected to continue to be hedged against the remaining floating-rate debt. 14 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) For the remaining swap, the spread was 1.250 % as of September 27, 2024. This agreement involves 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. This interest rate swap agreement is designated and qualifies 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 the cash flow hedges during the nine months ended September 27, 2024. The cash inflows and outflows associated with the Company’s interest rate swap agreement designated as cash flow hedges are classified in cash flows from operating activities in the accompanying Consolidated and Condensed Statements of Cash Flows. The Company expects a gain of $ 1.6 million, net of tax, related to interest rate swap agreements to be reclassified from AOCI to earnings through such agreements’ maturity in April 2025 as the hedged transactions are realized. The expected gain to be reclassified is based on current forward rates in active markets as of September 27, 2024. The effects of designated cash flow hedges on the Company’s Consolidated and Condensed Statements of Operations consisted of the following: Three Months Ended Nine Months Ended Derivative Type (Gain) Recognized in the Consolidated and Condensed Statements of Operations September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Interest rate swap agreement(s) Interest expense and other, net $ ( 1,910 ) $ ( 1,051 ) $ ( 7,680 ) $ ( 5,746 ) Net Investment Hedges On July 22, 2022, the Company entered into two cross-currency swap agreements, set to mature in April 2025, 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. 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 had a Euro aggregate notional amount of approximately € 270 million and a U.S. Dollar aggregate notional amount of $ 275 million. Prior to the maturity of these two cross-currency swaps, on June 25, 2024, the Company de-designated these swaps and entered into four new cross-currency swaps for the same above notional amounts that mature in October 2026. On August 22, 2024, the Company entered into two additional cross-currency swap agreements, set to mature in October 2026. These contracts have a Euro aggregate notional amount of approximately € 90 million and a U.S. dollar aggregate notional amount of $ 100 million. These swaps are designated and accounted for as a net investment hedge. 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 and other, net line item in the Consolidated and Condensed Statements 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. Due to the de-designation transaction above on June 25, 2024, the Company will keep the balance in AOCI related to the original derivative for the duration that the investment is held. The Company did not have any ineffectiveness related to net investment hedges during the nine months ended September 27, 2024. 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 Condensed Statements of Cash Flows. 15 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) The effects of the excluded components of designated net investment hedges on the Company’s Consolidated and Condensed Statements of Operations consisted of the following: Three Months Ended Nine Months Ended Derivative Type (Gain) Recognized in the Consolidated and Condensed Statements of Operations September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Cross-currency swap agreements Interest expense and other, net $ ( 1,061 ) $ ( 1,197 ) $ ( 3,415 ) $ ( 3,585 ) The table below shows the fair value of the derivatives recognized in the Consolidated and Condensed Balance Sheets: September 27, 2024 December 31, 2023 Designated as Hedging Instruments Other Liabilities Other Assets Other Liabilities Other Assets (In thousands) Cross-currency swap agreements $ 26,647 $ — $ 22,232 $ — Interest rate swap agreement(s) — 1,520 — 9,522 $ 26,647 $ 1,520 $ 22,232 $ 9,522 Derivatives Not Designated as Hedging Instruments The Company has certain foreign currency contracts that are not designated as hedges. As of September 27, 2024 and December 31, 2023, the Company had foreign currency contracts related to purchases and sales with notional values of $ 232.8 million and $ 232.5 million, respectively. The table below shows the fair value of derivative instruments not designated in a hedging relationship recognized in the Consolidated and Condensed Balance Sheets: September 27, 2024 December 31, 2023 Not Designated as Hedging Instruments Accrued Liabilities Other Current Assets Accrued Liabilities Other Current Assets (In thousands) Foreign currency contracts $ 510 $ 411 $ 596 $ 1,088 The amounts in the table above as of September 27, 2024 reflect the fair value of the Company’s foreign currency contracts on a net basis where allowable under master netting agreements. Had these amounts been recognized on a gross basis, the impact would have been a $ 0.8 million increase in Other current assets with a corresponding increase in Accrued liabilities. The Company recognized the following in its Consolidated and Condensed Financial Statements related to its derivative instruments not designated in a hedging relationship: Three Months Ended Nine Months Ended Foreign Currency Contracts September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Change in unrealized (losses) $ ( 1,220 ) $ ( 2,567 ) $ ( 591 ) $ ( 3,860 ) Realized gains (losses) 919 ( 370 ) 903 896 The above gains or losses on foreign currency contracts are usually offset by foreign exchange exposure on cash and intercompany positions, all of which are recognized in Interest expense and other, net, in the Consolidated and Condensed Statements of Operations. 12. Financial Instruments and Fair Value Measurements The carrying values of financial instruments, including Trade receivables and Accounts payable, approximate their fair values due to their short-term maturities. 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. 16 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) A summary of the Company’s assets and liabilities that are measured at fair value for each fair value hierarchy level for the periods presented is as follows: September 27, 2024 Level One Level Two Level Three Total (In thousands) Assets: Cash equivalents $ 5,999 $ — $ — $ 5,999 Foreign currency contracts — 1,188 — 1,188 Interest rate swap agreement — 1,520 — 1,520 Deferred compensation plans — 4,994 — 4,994 $ 5,999 $ 7,702 $ — $ 13,701 Liabilities: Foreign currency contracts $ — $ 1,287 $ — $ 1,287 Cross-currency swap agreements — 26,647 — 26,647 Deferred compensation plans — 4,994 — 4,994 $ — $ 32,928 $ — $ 32,928 December 31, 2023 Level One Level Two Level Three Total (In thousands) Assets: Cash equivalents $ 6,027 $ — $ — $ 6,027 Foreign currency contracts — 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 $ — $ 1,769 $ — $ 1,769 Cross-currency swap agreements — 22,232 — 22,232 Deferred compensation plans — 3,488 — 3,488 $ — $ 27,489 $ — $ 27,489 The Company measures the fair value of foreign currency contracts, cross-currency swap agreements and interest rate swap agreement(s) 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 nine months ended September 27, 2024, the impact of the credit valuation adjustment on the Company’s derivatives is immaterial. Refer to Note 11, “Derivatives” for additional information. There were no transfers in or out of Level One, Two or Three during the nine months ended September 27, 2024. 17 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 13. Equity Share Repurchase Program On August 13, 2024, the Board of Directors authorized and approved a stock repurchase program to repurchase up to five million shares of the Company’s Common stock, par value $ 0.001 per share, from time-to-time on the open market, in privately negotiated transactions or as may otherwise be determined by the Company’s management in its discretion. No repurchases of the Company’s Common stock have been made through the nine months ended September 27, 2024. The timing and amount of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions, applicable legal requirements and other factors. There is no term associated with the repurchase authorization. Accumulated Other Comprehensive Loss (“AOCL”) The following tables present the changes in the balances of each component of AOCL including reclassifications out of AOCL for the nine months ended September 27, 2024 and September 29, 2023. All amounts are net of tax and noncontrolling interest, if any. 18 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 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 December 31, 2023 $ ( 59,805 ) $ ( 554,622 ) $ ( 17,215 ) $ 7,370 $ ( 624,272 ) Other comprehensive income (loss) before reclassifications: Foreign currency translation adjustment 243 ( 38,265 ) 4,995 — ( 33,027 ) Gain on long-term intra-entity foreign currency transactions — 7,996 — — 7,996 Unrealized gain on cash flow hedges — — — 3,920 3,920 Other comprehensive income (loss) before reclassifications 243 ( 30,269 ) 4,995 3,920 ( 21,111 ) Amounts reclassified from Accumulated other comprehensive loss (1)(2) 629 — — ( 2,907 ) ( 2,278 ) Net current period Other comprehensive income (loss) 872 ( 30,269 ) 4,995 1,013 ( 23,389 ) Balance at March 29, 2024 $ ( 58,933 ) $ ( 584,891 ) $ ( 12,220 ) $ 8,383 $ ( 647,661 ) Other comprehensive income (loss) before reclassifications: Foreign currency translation adjustment 6 ( 23,042 ) 686 — ( 22,350 ) Gain on long-term intra-entity foreign currency transactions — 8,162 — — 8,162 Unrealized gain on cash flow hedges — — — 811 811 Other comprehensive income (loss) before reclassifications 6 ( 14,880 ) 686 811 ( 13,377 ) Amounts reclassified from Accumulated other comprehensive loss (1)(2) 327 — — ( 2,662 ) ( 2,335 ) Net current period Other comprehensive income (loss) 333 ( 14,880 ) 686 ( 1,851 ) ( 15,712 ) Balance at June 28, 2024 $ ( 58,600 ) $ ( 599,771 ) $ ( 11,534 ) $ 6,532 $ ( 663,373 ) Other comprehensive income (loss) before reclassifications: Foreign currency translation adjustment ( 291 ) 63,336 ( 8,945 ) — 54,100 Gain on long-term intra-entity foreign currency transactions — 8,866 — — 8,866 Unrealized loss on cash flow hedges — — — ( 1,230 ) ( 1,230 ) Other comprehensive income (loss) before reclassifications ( 291 ) 72,202 ( 8,945 ) ( 1,230 ) 61,736 Amounts reclassified from Accumulated other comprehensive loss (1)(2) 343 — — ( 1,900 ) ( 1,557 ) Purchase related to noncontrolling interest — ( 1,706 ) — — ( 1,706 ) Net current period Other comprehensive (loss) income 52 70,496 ( 8,945 ) ( 3,130 ) 58,473 Balance at September 27, 2024 $ ( 58,548 ) $ ( 529,275 ) $ ( 20,479 ) $ 3,402 $ ( 604,900 ) (1) The amounts on this line within the Net Unrecognized Pension and Other Post-Retirement Benefit Cost column are included in the computation of net periodic benefit cost. (2) During the three and nine months ended September 27, 2024, the amount within the Cash Flow Hedges column is a component of Interest expense and other, net. See Note 11, “Derivatives” for additional details. 19 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 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 December 31, 2022 $ ( 63,847 ) $ ( 613,907 ) $ ( 8,336 ) $ 11,102 $ ( 674,988 ) Other comprehensive (loss) income before reclassifications: Net actuarial loss ( 2 ) — — — ( 2 ) Foreign currency translation adjustment ( 108 ) 31,276 ( 2,086 ) — 29,082 Gain on long-term intra-entity foreign currency transactions — 12,501 — — 12,501 Unrealized loss on cash flow hedges — — — ( 2,051 ) ( 2,051 ) Other comprehensive (loss) income before reclassifications ( 110 ) 43,777 ( 2,086 ) ( 2,051 ) 39,530 Amounts reclassified from Accumulated other comprehensive loss (1)(2) 279 — — ( 1,530 ) ( 1,251 ) Net current period Other comprehensive income (loss) 169 43,777 ( 2,086 ) ( 3,581 ) 38,279 Balance at March 31, 2023 $ ( 63,678 ) $ ( 570,130 ) $ ( 10,422 ) $ 7,521 $ ( 636,709 ) Other comprehensive (loss) income before reclassifications: Net actuarial loss ( 2 ) — — — ( 2 ) Foreign currency translation adjustment ( 49 ) ( 6,381 ) ( 3,036 ) — ( 9,466 ) Gain on long-term intra-entity foreign currency transactions — 23,142 — — 23,142 Unrealized gain on cash flow hedges — — — 7,640 7,640 Other comprehensive (loss) income before reclassifications ( 51 ) 16,761 ( 3,036 ) 7,640 21,314 Amounts reclassified from Accumulated other comprehensive loss (1)(2) 889 — — ( 2,109 ) ( 1,220 ) Net current period Other comprehensive income (loss) 838 16,761 ( 3,036 ) 5,531 20,094 Balance at June 30, 2023 $ ( 62,840 ) $ ( 553,369 ) $ ( 13,458 ) $ 13,052 $ ( 616,615 ) Other comprehensive income (loss) before reclassifications: Net actuarial gain 4 — — — 4 Foreign currency translation adjustment 161 ( 79,233 ) 5,992 — ( 73,080 ) Gain on long-term intra-entity foreign currency transactions — 9,962 — — 9,962 Unrealized gain on cash flow hedges — — — 767 767 Other comprehensive income (loss) before reclassifications 165 ( 69,271 ) 5,992 767 ( 62,347 ) Amounts reclassified from Accumulated other comprehensive loss (1)(2) 236 — — ( 814 ) ( 578 ) Net current period Other comprehensive income (loss) 401 ( 69,271 ) 5,992 ( 47 ) ( 62,925 ) Balance at September 29, 2023 $ ( 62,439 ) $ ( 622,640 ) $ ( 7,466 ) $ 13,005 $ ( 679,540 ) (1) The amounts on this line within the Net Unrecognized Pension and Other Post-Retirement Benefit Cost column are included in the computation of net periodic benefit cost. (2) During the three and nine months ended September 29, 2023, the amount within the Cash Flow Hedges column is a component of Interest expense and other, net. See Note 11, “Derivatives” for additional details. 20 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 14. Commitments and Contingencies Asbestos Contingencies Certain entities that became subsidiaries of ESAB Corporation in connection with the Separation are the legal obligor, or owner, 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 U.S. Navy. The subsidiaries 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 settlement value 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 to plaintiffs. The Company has classified asbestos-related activity in Loss from discontinued operations, net of taxes in the Consolidated and Condensed Statements of Operations. This is consistent with the Former Parent’s classification on the basis that, pursuant to the purchase agreement from the Former Parent’s Fluid Handling business divestiture, the Former Parent retained its asbestos-related contingencies and insurance coverages. 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 and Condensed 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 that was 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. 21 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) Asbestos-related claims activity since December 31 is as follows: Nine Months Ended September 27, 2024 September 29, 2023 (Number of claims) Claims unresolved, beginning of period 13,648 14,106 Claims filed (1) 3,782 3,353 Claims resolved (2) ( 3,978 ) ( 4,095 ) Claims unresolved, end of period 13,452 13,364 (1) Claims filed include all asbestos claims for which notification have 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. The Company’s Consolidated and Condensed Balance Sheets included the following amounts related to asbestos-related litigation: September 27, 2024 December 31, 2023 (In thousands) Long-term asbestos insurance asset (1) $ 191,805 $ 221,489 Long-term asbestos insurance receivable (1) 18,924 17,868 Accrued asbestos liability (2) 34,757 32,908 Long-term asbestos liability (3) 196,772 234,796 (1) Included in Other assets in the Consolidated and Condensed 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 and Condensed Balance Sheets. (3) Included in Other liabilities in the Consolidated and Condensed 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 that 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 preceding 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. 15. Segment Information ESAB is a focused premier industrial compounder. ESAB provides its partners with fabrication technology advanced equipment, consumables, gas control equipment, welding robotics and digital solutions. 22 ESAB CORPORATION NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS — (Continued) (Unaudited) 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 (loss), Restructuring and other related charges, acquisition - amortization and other related charges and depreciation and other amortization . The Com pany’s segment results were as follows: Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Net sales: Americas $ 288,816 $ 305,816 $ 894,628 $ 907,663 EMEA & APAC 384,434 375,180 1,175,419 1,177,755 $ 673,250 $ 680,996 $ 2,070,047 $ 2,085,418 Adjusted EBITDA (1) : Americas $ 59,369 $ 57,187 $ 178,151 $ 164,892 EMEA & APAC 68,066 65,338 219,394 207,696 $ 127,435 $ 122,525 $ 397,545 $ 372,588 (1) The following is a reconciliation of Net income from continuing operations to Adjusted EBITDA. Three Months Ended Nine Months Ended September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 (In thousands) Net income from continuing operations $ 71,047 $ 60,836 $ 219,480 $ 163,811 Income tax expense 18,074 19,808 54,463 77,806 Interest expense and other, net (1) 16,894 20,502 49,925 58,831 Pension settlement loss — — 12,155 — Restructuring and other related charges 1,875 3,129 8,572 17,742 Acquisition - amortization and other related charges (2) 10,064 9,285 25,571 27,826 Depreciation and other amortization 9,481 8,965 27,379 26,572 Adjusted EBITDA $ 127,435 $ 122,525 $ 397,545 $ 372,588 (1) Relates to removal of interest expense, net included within the Interest expense and other, net line within the Consolidated and Condensed Statements of Operations. (2) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses. 16. Subsequent Event The dividend of $ 4.9 million included in Accrued liabilities in the Consolidated Balance Sheets at September 27, 2024 was paid on October 11, 2024 to stockholders of record as of September 27, 2024. 23