Document
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COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM
10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 28, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number - 001-34045
Colfax Corporation
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
54-1887631
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
420 National Business Parkway,
5th Floor
 
20701
Annapolis Junction,
Maryland
 
 
(Address of principal executive offices)
 
(Zip Code)
(301)
323-9000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer     Accelerated filer         Non-accelerated filer
Smaller reporting company     Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
CFX
New York Stock Exchange
5.75% Tangible Equity Units
CFXA
New York Stock Exchange
As of June 28, 2019, there were 117,667,359 shares of the registrant’s common stock, par value $.001 per share, outstanding.

1


TABLE OF CONTENTS

 
Page
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
            Condensed Consolidated Statements of Operations
            Condensed Consolidated Statements of Comprehensive Loss
            Condensed Consolidated Balance Sheets
            Condensed Consolidated Statements of Equity
            Condensed Consolidated Statements of Cash Flows
            Notes to Condensed Consolidated Financial Statements
                 Note 1. General
                 Note 2. Recently Issued Accounting Pronouncements
                 Note 3. Discontinued Operations
                 Note 4. Acquisition
                 Note 5. Revenue
                 Note 6. Net (Loss) Income Per Share
                 Note 7. Income Taxes
                 Note 8. Equity
                 Note 9. Inventories, Net
                 Note 10. Leases
                 Note 11. Debt
                 Note 12. Accrued Liabilities
                 Note 13. Net Periodic Benefit Cost - Defined Benefit Plans
                 Note 14. Financial Instruments and Fair Value Measurements
                 Note 15. Commitments and Contingencies
                 Note 16. Segment Information
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
 
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
 
 
SIGNATURES


1


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands, except per share amounts
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
 
Net sales
$
908,647

 
$
560,857

 
$
1,592,566

 
$
1,094,130

Cost of sales
532,589

 
368,932

 
955,495

 
717,622

Gross profit
376,058

 
191,925

 
637,071

 
376,508

Selling, general and administrative expense
307,939

 
135,948

 
555,788

 
273,812

Restructuring and other related charges
26,585

 
10,553

 
37,416

 
12,984

Operating income
41,534

 
45,424

 
43,867

 
89,712

Interest expense, net
33,171

 
12,936

 
54,992

 
21,844

(Gain) loss on short-term investments

 
(4,591
)
 

 
10,128

Income (loss) from continuing operations before income taxes
8,363

 
37,079

 
(11,125
)
 
57,740

Provision (benefit) for income taxes
6,151

 
(10,764
)
 
8,193

 
(10,863
)
Net income (loss) from continuing operations
2,212

 
47,843

 
(19,318
)
 
68,603

(Loss) income from discontinued operations, net of taxes
(468,817
)
 
(6,064
)
 
(495,289
)
 
2,218

Net (loss) income
(466,605
)
 
41,779

 
(514,607
)
 
70,821

Less: income attributable to noncontrolling interest, net of taxes
2,629

 
3,322

 
6,650

 
7,829

Net (loss) income attributable to Colfax Corporation
$
(469,234
)
 
$
38,457

 
$
(521,257
)
 
$
62,992

Net income (loss) per share - basic
 
 
 
 
 
 
 
Continuing operations
$
0.01

 
$
0.38

 
$
(0.16
)
 
$
0.55

Discontinued operations
$
(3.46
)
 
$
(0.07
)
 
$
(3.70
)
 
$
(0.03
)
Consolidated operations
$
(3.45
)
 
$
0.31

 
$
(3.86
)
 
$
0.51

Net income (loss) per share - diluted
 
 
 
 
 
 
 
Continuing operations
$
0.01

 
$
0.38

 
$
(0.16
)
 
$
0.54

Discontinued operations
$
(3.46
)
 
$
(0.07
)
 
$
(3.70
)
 
$
(0.03
)
Consolidated operations
$
(3.45
)
 
$
0.31

 
$
(3.86
)
 
$
0.51

    


See Notes to Condensed Consolidated Financial Statements.


2


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Dollars in thousands
(Unaudited)

 
Three Months Ended
Six Months Ended
 
June 28, 2019
 
June 29, 2018
June 28, 2019
 
June 29, 2018
Net (loss) income
$
(466,605
)
 
$
41,779

$
(514,607
)
 
$
70,821

Other comprehensive (loss) income:
 
 
 
 
 
 
Foreign currency translation, net of tax of $(47), $5,412, $(412) and $4,569
(19,865
)
 
(222,473
)
6,537

 
(140,798
)
Unrealized (loss) gain on hedging activities, net of tax of $(2,188), $6,033, $(310) and $3,100
(3,696
)
 
12,154

1,656

 
7,020

Amounts reclassified from Accumulated other comprehensive income:
 
 
 
 
 
 
Amortization of pension and other post-retirement net actuarial gain (loss), net of tax of $207, $273, $(1,719) and $476
654

 
876

(8,960
)
 
1,833

Amortization of pension and other post-retirement prior service cost, net of tax of $0, $0, $0 and $0

 

32

 
1

Other comprehensive loss
(22,907
)
 
(209,443
)
(735
)
 
(131,944
)
Comprehensive loss
(489,512
)
 
(167,664
)
(515,342
)
 
(61,123
)
Less: comprehensive income (loss) attributable to noncontrolling interest
516

 
(15,518
)
8,656

 
(4,959
)
Comprehensive loss attributable to Colfax Corporation
$
(490,028
)
 
$
(152,146
)
$
(523,998
)
 
$
(56,164
)


See Notes to Condensed Consolidated Financial Statements.


3


COLFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share amounts
(Unaudited)

 
June 28, 2019
 
December 31, 2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
131,925

 
$
77,153

Trade receivables, less allowance for doubtful accounts of $31,678 and $26,844
616,263

 
386,588

Inventories, net
594,800

 
359,655

Other current assets
171,622

 
137,801

Current portion of assets held for sale
2,121,983

 
997,244

Total current assets
3,636,593

 
1,958,441

Property, plant and equipment, net
488,956

 
327,155

Goodwill
2,822,093

 
1,497,832

Intangible assets, net
2,314,420

 
628,300

Lease asset - right of use
153,924

 

Other assets
483,267

 
463,525

Assets held for sale, less current portion

 
1,740,705

Total assets
$
9,899,253

 
$
6,615,958

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt
$
39,524

 
$
5,020

Accounts payable
399,812

 
291,233

Customer advances and billings in excess of costs incurred
16,277

 
16,827

Accrued liabilities
448,558

 
274,017

Current portion of liabilities held for sale
694,384

 
612,248

Total current liabilities
1,598,555

 
1,199,345

Long-term debt, less current portion
4,078,232

 
1,192,408

Non-current lease liability
119,398

 

Other liabilities
846,719

 
651,864

Liabilities held for sale, less current portion

 
95,395

Total liabilities
6,642,904

 
3,139,012

Equity:
 
 
 
Common stock, $0.001 par value; 400,000,000 shares authorized; 117,667,359 and 117,275,217 issued and outstanding
118

 
117

Additional paid-in capital
3,427,979

 
3,057,982

Retained earnings
485,949

 
991,838

Accumulated other comprehensive loss
(819,248
)
 
(780,177
)
Total Colfax Corporation equity
3,094,798

 
3,269,760

Noncontrolling interest
161,551

 
207,186

Total equity
3,256,349

 
3,476,946

Total liabilities and equity
$
9,899,253

 
$
6,615,958



See Notes to Condensed Consolidated Financial Statements.


4



COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Dollars in thousands, except share amounts and as noted
(Unaudited)
 
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interest
Total
 
Shares
$ Amount
Balance at December 31, 2018
117,275,217

$
117

$
3,057,982

$
991,838

$
(780,177
)
$
207,186

$
3,476,946

Cumulative effect of accounting change



15,368

(15,368
)


Net (loss) income



(52,023
)

4,021

(48,002
)
Distributions to noncontrolling owners





(2,170
)
(2,170
)
Noncontrolling interest share repurchase


(22,409
)

(21,372
)
(48,940
)
(92,721
)
Other comprehensive income, net of tax of $(413)




18,053

4,119

22,172

Issuance of Tangible Equity Units


377,814




377,814

Common stock-based award activity
283,197

1

7,676




7,677

Balance at March 29, 2019
117,558,414

$
118

$
3,421,063

$
955,183

$
(798,864
)
$
164,216

$
3,741,716

Cumulative effect of accounting change







Net (loss) income



(469,234
)

2,629

(466,605
)
Distributions to noncontrolling owners





(2,970
)
(2,970
)
Noncontrolling interest share repurchase


(565
)

410

(211
)
(366
)
Other comprehensive loss, net of tax of $(1,981)




(20,794
)
(2,113
)
(22,907
)
Common stock-based award activity
108,945


7,481




7,481

Balance at June 28, 2019
117,667,359

$
118

$
3,427,979

$
485,949

$
(819,248
)
$
161,551

$
3,256,349


 
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interest
Total
 
Shares
$ Amount
Balance at December 31, 2017
123,245,827

$
123

$
3,228,174

$
846,490

$
(574,372
)
$
226,849

$
3,727,264

Cumulative effect of accounting change, net of tax of $2,808



5,152

(5,152
)


Net income



24,535


4,507

29,042

Distributions to noncontrolling owners





(721
)
(721
)
Other comprehensive income, net of tax of $(3,573)




71,447

6,052

77,499

Common stock-based award activity
231,908


8,160




8,160

Balance at March 30, 2018
123,477,735

$
123

$
3,236,334

$
876,177

$
(508,077
)
$
236,687

$
3,841,244

Net income



38,457


3,322

41,779

Distributions to noncontrolling owners





(3
)
(3
)
Other comprehensive loss, net of tax of $11,718




(190,603
)
(18,840
)
(209,443
)
Common stock repurchases
(4,604,974
)
(4
)
(143,898
)



(143,902
)
Common stock-based award activity
53,153


7,765




7,765

Balance at June 29, 2018
118,925,914

$
119

$
3,100,201

$
914,634

$
(698,680
)
$
221,166

$
3,537,440


See Notes to Condensed Consolidated Financial Statements.

5


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(Unaudited)
 
Six Months Ended
 
June 28, 2019
 
June 29, 2018
 
 
 
 
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(514,607
)
 
$
70,821

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Held for sale impairment loss
481,000

 

Depreciation, amortization and other impairment charges
120,469

 
71,958

Stock-based compensation expense
11,169

 
12,835

Non-cash interest expense
3,947

 
2,243

Loss on short-term investments

 
10,128

Deferred income tax benefit
(17,412
)
 
(19,656
)
Loss (gain) on sale of property, plant and equipment
878

 
(7,839
)
Loss on sale of business

 
4,337

Pension settlement loss
43,774

 

Changes in operating assets and liabilities:
 
 
 
Trade receivables, net
(6,589
)
 
(65,186
)
Inventories, net
(39,400
)
 
(53,993
)
Accounts payable
(62,831
)
 
19,878

Customer advances and billings in excess of costs incurred
26,819

 
17,462

Changes in other operating assets and liabilities
(36,785
)
 
(29,326
)
Net cash provided by operating activities
10,432

 
33,662

Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(63,956
)
 
(24,808
)
Proceeds from sale of property, plant and equipment
3,256

 
14,634

Acquisitions, net of cash received
(3,147,835
)
 
(50,912
)
Sale of short-term investments, net

 
139,480

Proceeds from sale of business, net

 
18,603

Net cash (used in) provided by investing activities
(3,208,535
)
 
96,997

Cash flows from financing activities:
 
 
 
Payments under term credit facility
(518,125
)
 
(56,250
)
Proceeds from borrowings under notes and term credit facility
2,725,000

 

Proceeds from borrowings on revolving credit facilities and other
1,575,486

 
504,518

Repayments of borrowings on revolving credit facilities and other
(865,357
)
 
(422,361
)
Payment of debt issuance costs
(24,280
)
 

Proceeds from tangible equity units, net
377,814

 

Proceeds from issuance of common stock, net
3,988

 
3,090

Payment for noncontrolling interest share repurchase
(93,087
)
 

Payments for common stock repurchases

 
(143,902
)
Other
(2,417
)
 
(838
)
Net cash provided by (used in) financing activities
3,179,022

 
(115,743
)
Effect of foreign exchange rates on Cash and cash equivalents
6,268

 
(19,235
)
Decrease in Cash and cash equivalents
(12,813
)
 
(4,319
)
Cash and cash equivalents, beginning of period
245,019

 
262,019

Cash and cash equivalents, end of period
$
232,206

 
$
257,700

See Notes to Condensed Consolidated Financial Statements.

6

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. General
 
Colfax Corporation (the “Company” or “Colfax”) is a leading diversified technology company that provides air and gas handling, fabrication technology, and medical device products and services to customers around the world under the Howden, ESAB, and DJO brands.

On May 15, 2019, the Company entered into a definitive equity and asset purchase agreement (the “Purchase Agreement”) with Granite Holdings US Acquisition Co., a Delaware corporation, and Brillant 3047, GmbH, a company organized under the laws of Germany (collectively, “Purchaser”), which are affiliates of KPS Capital Partners, LP (“KPS”), pursuant to which Purchaser has agreed to purchase certain subsidiaries and assets comprising Colfax’s Air and Gas Handling business (the “Business”) for an enterprise value of $1.8 billion, including $1.66 billion in cash consideration and $140.0 million in assumed liabilities and minority interest (the “Transaction”). The purchase price is subject to certain adjustments pursuant to the Purchase Agreement. Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as a discontinued operation. See Note 3, “Discontinued Operations”, for further information.

On February 22, 2019, Colfax completed the purchase of DJO Global, Inc. (“DJO”, “DJO Acquisition”) pursuant to the previously disclosed Agreement and Plan of Merger (the “Merger Agreement”), dated November 19, 2018. Colfax paid an aggregate purchase price of $3.15 billion, subject to certain adjustments set forth in the Merger Agreement (the “Purchase Price”). DJO is a global leader in orthopedic solutions, providing orthopedic devices, reconstructive implants, software and services spanning the full continuum of patient care, from injury prevention to rehabilitation.

On December 11, 2017, the Company completed the sale of its Fluid Handling business (“Fluid Handling”). Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Fluid Handling business as a discontinued operation. See Note 3, “Discontinued Operations”, for further information.

The Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements.

The Condensed Consolidated Balance Sheet as of December 31, 2018 is derived from the Company’s audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim financial statements. The Condensed Consolidated Financial Statements included herein should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”), filed with the SEC on February 21, 2019.

The Condensed Consolidated 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 Condensed Consolidated 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 Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.

The results of operations for the three and six months ended June 28, 2019 are not necessarily indicative of the results of operations that may be achieved for the full year. Quarterly results are affected by seasonal variations in the Company’s business, and our European operations typically experience a slowdown during the July, August and December holiday seasons. General economic conditions may, however, impact future seasonal variations.


7

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




2. Recently Issued Accounting Pronouncements

Accounting Guidance Implemented in 2019

Standards Adopted
 
Description
 
Effective Date
ASU 2016-02, Leases (Topic 842)

 
The standard requires a lessee to recognize assets and liabilities associated with the rights and obligations attributable to most leases but also recognize expenses similar to current lease accounting. The standard also requires certain qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases, along with additional key information about leasing arrangements. The new guidance can be adopted using a modified retrospective transition and provides for certain practical expedients. The Company adopted ASU No. 2016-02, “Leases (Topic 842)”, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach without restating prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed historical lease classification to be carried forward. Additionally, the Company elected the practical expedient to consolidate less significant non-lease components into the lease component for all asset classes. The Company made an accounting policy election, as permitted by Topic 842 to only record a right-of-use asset and related liability for leases with an initial term in excess of 12 months. The Company will recognize those lease payments in the Consolidated Statement of Operations on a straight-line basis over the lease term. The Company recognized a right-of-use asset of $153.9 million, with corresponding related lease liabilities on the Condensed Consolidated Balance Sheet. For more information, refer to Note 10, “Leases”.
 
January 1, 2019

ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 
The standard provides entities the option to reclassify to retained earnings the tax effects resulting from the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) related to items stranded in accumulated other comprehensive income. The new guidance was applied retrospectively as of January 1, 2019. As a result of this new accounting guidance, $15.4 million of tax benefit formerly booked to Other Comprehensive Income was reclassified to retained earnings.

 
January 1, 2019


8

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)





New Accounting Guidance to be Implemented
Standards Pending Adoption
 
Description
 
Anticipated Impact
 
Effective/Adoption Date
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
The ASU eliminates the probable initial recognition threshold under current U.S. GAAP and broadens the information an entity must consider when developing its expected credit loss estimates to include forward-looking information.
 
The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
 
January 1, 2020

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement 
 
The ASU modifies the disclosure requirements for fair value measurements.
 
The Company is currently evaluating the impact of this ASU on its consolidated financial statements and the timing of adoption.

 
January 1, 2020
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
 
The ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

 
The Company is currently evaluating the impact of this ASU on its consolidated financial statements and the timing of adoption.

 
January 1, 2021



9

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




3. Discontinued Operations

Sale of Air and Gas Handling Business

As discussed previously in Note 1, “General,” the Company entered into the Purchase Agreement to sell its Air and Gas Handling business to KPS. The sale is expected to close during the year ending December 31, 2019.

The accounting requirements for reporting a business to be divested as a discontinued operation were met during the three months ended June 28, 2019. Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as a discontinued operation. The Air and Gas Handling business had revenues of $659.9 million for the six-month period ended June 28, 2019 and $1,473.7 million for the year ended December 31, 2018.

The total consideration for the sale is $1.8 billion, including $1.66 billion in cash consideration and $140.0 million in assumed liabilities and minority interest. The purchase price is subject to certain adjustments pursuant to the Purchase Agreement.

Based on the purchase price and the carrying value of the net assets being sold, the Company recorded an impairment loss of $481 million which is included in Loss from discontinued operations, net of taxes in the Condensed Consolidated Statement of Operations. The impairment loss includes a $449.0 million goodwill impairment charge and a $32.0 million valuation allowance on assets held for sale relating to the estimated cost to sell the disposal group. Accumulated other comprehensive loss of approximately $350 million associated with the Air and Gas Handling business was included in the determination of the goodwill impairment charge, which is mostly attributable to the recognition of cumulative foreign currency translation effects from the long-term strengthening of the U.S. Dollar.

In connection with the Purchase Agreement, the Company and KPS entered into various agreements to provide a framework for their relationship after the disposition, including a transition services agreement. The amount to be billed for future transition services under the above agreements is not expected to be material to the Company’s results of operations.

The key components of Loss from discontinued operations, net of taxes related to the Air and Gas Handling business for the three and six months ended June 28, 2019 and June 29, 2018 were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
 
(In thousands)
Net sales
$
336,159

 
$
364,431

 
$
659,908

 
$
712,083

Cost of sales
231,840

 
268,922

 
458,312

 
530,537

Selling, general and administrative expense
61,705

 
68,836

 
129,445

 
131,491

Restructuring and other related charges
3,812

 
6,393

 
8,367

 
11,891

Held for sale impairment loss
481,000

 

 
481,000

 

Divestiture-related expense, net(1)
4,656

 

 
7,211

 

Operating income
(446,854
)
 
20,280

 
(424,427
)
 
38,164

Interest expense (income)(2)
18,820

 
(3,256
)
 
26,120

 
(2,576
)
Pension settlement loss

 

 
43,774

 

(Loss) income from discontinued operations before income taxes
(465,674
)
 
23,536

 
(494,321
)
 
40,740

Income tax expense (benefit)
1,198

 
3,871

 
(4,422
)
 
9,956

(Loss) income from discontinued operations, net of taxes
$
(466,872
)
 
$
19,665

 
$
(489,899
)
 
$
30,784

(1) Primarily related to professional and consulting fees associated with the divestiture including due diligence and preparation of regulatory filings, as well as other disposition-related activities.
(2) The Company reclassified interest expense associated with its New Term Loan Facilities, which requires mandatory repayment using the net proceeds from the sale of the Air and Gas Handling business.

10

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




Total income attributable to noncontrolling interest related to our Air and Gas Handling business, net of taxes was $1.7 million, $2.7 million, $4.4 million, and $6.5 million for the three months ended June 28, 2019 and June 29, 2018 and the six months ended June 28, 2019 and June 29, 2018, respectively.

The following table summarizes the major classes of assets and liabilities held for sale that were included in the Company’s consolidated balance sheets as of June 28, 2019 and December 31, 2018:
 
June 28, 2019
December 31, 2018
 
(In thousands)
ASSETS HELD FOR SALE
 
 
Cash and cash equivalents
$
100,281

$
167,866

Trade receivables, less allowance for doubtful accounts of $9,738 and $8,308
547,038

602,830

Inventories, net
149,799

136,880

Other current assets
49,714

89,668

Property, plant, and equipment, net
180,952

176,189

Goodwill
633,419

1,078,785

Intangible assets, net
375,285

384,613

Other assets
117,495

101,118

Valuation allowance on assets held for sale
(32,000
)

Total assets held for sale
2,121,983

2,737,949

Less: current portion
2,121,983

997,244

Total assets held for sale, less current portion
$

$
1,740,705

 
 
 
LIABILITIES HELD FOR SALE
 
 
Current portion of long-term debt
$
2,256

$
1,314

Accounts payable
288,974

349,434

Customer advances and billings in excess of costs incurred
158,039

130,480

Accrued liabilities
94,597

131,020

Other liabilities
150,518

95,395

Total liabilities held for sale
694,384

707,643

Less: current portion
694,384

612,248

Total liabilities held for sale, less current portion
$

$
95,395



Cash provided by operating activities of discontinued operations related to the sale of the Air and Gas Handling business for the six months ended June 28, 2019 and June 29, 2018 was $23.9 million and $32.1 million, respectively. Cash used in investing activities of discontinued operations related to the sale of the Air and Gas Handling business was $19.3 million for the six months ended June 28, 2019. Cash provided by investing activities of discontinued operations related to the sale of the Air and Gas Handling business was $7.9 million for the six months ended June 29, 2018.


Sale of Fluid Handling Business

The Company sold its Fluid Handling business to CIRCOR International, Inc. (“CIRCOR”) on December 11, 2017. After certain post-closing adjustments, total consideration for the sale was $860.6 million, consisting of $551.0 million of cash, 3.3 million shares of CIRCOR common stock (“CIRCOR Shares”), and assumption of $168.0 million of net retirement liabilities. All cash consideration was collected as of June 29, 2018.

During the three months ended June 29, 2018, the Company sold its CIRCOR Shares for $139.5 million, net of $5.8 million of underwriters' fees. A related gain of $4.6 million was recorded in the Consolidated Statements of Operations for the three months ended June 29, 2018.


11

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




The key components of Loss from discontinued operations related to the Fluid Handling business for the three and six months ended June 28, 2019 and June 29, 2018 were as follows:

 
Three months ended
 
Six Months Ended
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
 
(In thousands)
Selling, general and administrative expense(1)
$
2,120

 
$
2,123

 
$
4,427

 
$
4,594

Divestiture-related expense, net(2)
455

 
1,283

 
581

 
2,358

Operating loss
(2,575
)
 
(3,406
)
 
(5,008
)
 
(6,952
)
Loss on disposal

 
(4,337
)
 

 
(4,337
)
Loss from discontinued operations before income taxes
(2,575
)
 
(7,743
)
 
(5,008
)
 
(11,289
)
Income tax (benefit) expense(3)
(630
)
 
17,986

 
382

 
17,277

Loss from discontinued operations, net of taxes
$
(1,945
)
 
$
(25,729
)
 
$
(5,390
)
 
$
(28,566
)
             
(1) Pursuant to the purchase agreement, the Company retained its asbestos-related contingencies and insurance coverages. However, as the Company did not retain an interest in the ongoing operations of the business subject to the contingencies, the Company has classified asbestos-related activity in its Condensed Consolidated Statements of Operations as part of Loss from discontinued operations. See Note 15, “Commitments and Contingencies” for further information.
(2) Primarily related to professional and consulting fees associated with the divestiture including due diligence and preparation of regulatory filings, as well as employee benefit arrangements and other disposition-related activities.
(3) Income tax expense for the three months ended June 29, 2018 was primarily related to incremental tax expense recognized due to changes in the estimated gain allocation by jurisdiction.

The Company did not have material cash flows for discontinued operations related to the sale of the Fluid Handling business during the six-month periods ended June 28, 2019 and June 29, 2018.


12

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




4. Acquisition

On February 22, 2019, Colfax completed the purchase of DJO Global, Inc. (“DJO”, “DJO Acquisition”) pursuant to the previously disclosed Agreement and Plan of Merger (the “Merger Agreement”), dated November 19, 2018. Colfax paid an aggregate net purchase price of $3.15 billion, subject to certain adjustments set forth in the Merger Agreement (the “Purchase Price”). See Note 8, “Equity” and Note 11, “Debt” for a discussion of the respective financing components of the DJO Acquisition.

DJO is a global leader in orthopedic solutions, providing orthopedic devices, reconstructive implants, software and services spanning the full continuum of patient care, from injury prevention to rehabilitation. DJO has approximately 5,000 employees across 18 locations around the world. The acquisition is expected to evolve the Company to higher margins, faster growth, and lower cyclicality, while providing opportunities for significant bolt-on and adjacent acquisitions over time. The value included as Goodwill for this acquisition is reflective of these expected benefits in conjunction with anticipated synergies as the Company uses Colfax Business System (“CBS”) to drive further operating improvement, margin expansion, and long-term growth. CBS is the Company’s business management system, combining a comprehensive set of tools and repeatable, teachable processes, that the Company uses to create superior value for its customers, shareholders and associates.
 
During the three and six months ended June 28, 2019, the Company incurred $2.7 million and $56.0 million, respectively, of advisory, legal, audit, valuation and other professional service fees in connection with the DJO Acquisition, which are included in Selling, general and administrative expense in the Condensed Consolidated Statement of Operations. As of June 28, 2019, there is $0.5 million related to these expenses included in Accrued liabilities in the Condensed Consolidated Balance Sheet.

The DJO Acquisition was accounted for using the acquisition method of accounting and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the date of acquisition. The following unaudited proforma financial information presents Colfax’s consolidated financial information assuming the acquisition had taken place on January 1, 2018. These amounts are presented in accordance with GAAP, consistent with the Company’s accounting policies.
 
Three Months Ended
 
Six Months Ended
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
 
(Unaudited, in thousands)
Net sales
$
908,647

 
$
865,694

 
$
1,761,732

 
$
1,691,596

Net income from continuing operations attributable to Colfax Corporation
51,046

 
40,904

 
65,181

 
42,607



The following table summarizes the Company’s best initial estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition. These amounts, including inventories, deferred taxes, intangible assets, useful lives of the intangible assets, and property, plant and equipment, are determined based upon certain valuations and studies that have yet to be finalized. Accordingly, the assets acquired and liabilities assumed, as detailed below, are subject to adjustment once the detailed analyses are completed, which could be material. Substantially all of the Goodwill recognized is not expected to be deductible for income tax purposes.
 
February 22, 2019
 
(In thousands)
Trade receivables
$
160,254

Inventories
208,736

Property, plant and equipment
171,232

Goodwill
1,380,237

Intangible assets
1,737,000

Accounts payable
(108,503
)
Other assets and liabilities, net
(401,993
)
Total
3,146,963

Less: net assets attributable to noncontrolling interest
(1,862
)
Consideration, net of cash acquired
$
3,145,101



13

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




The following table summarizes preliminary Intangible assets acquired, excluding Goodwill, as of February 22, 2019:
 
Intangible
Asset
(In thousands)
Weighted-Average Amortization Period (Years)
 
 
 
Trademarks
$
479,000

16
Customer relationships
954,000

14
Acquired technology
304,000

12
Intangible assets
$
1,737,000

 


5. Revenue

The Company’s Fabrication Technology segment formulates, develops, manufactures and supplies consumable products and equipment. Substantially all revenue from the Fabrication Technology business is recognized at a point in time. The Company further disaggregates its Fabrication Technology revenue into the following product groups:

Three Months Ended
 
Six Months Ended
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
 
(in thousands)
Equipment
$
188,614

 
$
155,140

 
$
362,617

 
$
298,864

Consumables
404,121

 
405,717

 
790,502

 
795,266

Total
$
592,735


$
560,857

 
$
1,153,119

 
$
1,094,130



Contracts with customers in the consumables product grouping tend to have a shorter run rate, while equipment contracts can sometimes be longer-term in nature.

The Company’s Medical Technology segment provides products and services spanning the full continuum of patient care, from injury prevention to rehabilitation. While the Company’s Medical Technology sales are primarily derived from three sales channels including dealers and distributors, insurance, and direct to consumers and hospitals, substantially all its revenue is recognized at a point in time. The Company disaggregates its Medical Technology revenue into the following product groups:

 
Three Months Ended
June 28, 2019
 
Six Months Ended
June 28, 2019
 
 
Prevention & Rehabilitation
$
224,936

 
$
312,672

Reconstructive
90,976

 
126,775

Total
$
315,912

 
$
439,447


Given the nature of the Fabrication Technology and Medical Technology businesses, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of June 28, 2019 is immaterial.

The nature of the Company’s contracts gives rise to certain types of variable consideration, including rebates, implicit price concessions, and other discounts. The Company includes estimated amounts of variable consideration in the transaction price to the extent that it is probable there will not be a significant reversal of revenue.

In some circumstances for both over time and point in time contracts, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 2018 and 2017, total contract liabilities were $13.0 million and $17.3 million, respectively. During the three and six months ended June 28, 2019, revenue recognized that was included in the contract liability balance at the beginning of the year was $4.3 million and $8.2 million, respectively. During the three and six months ended June 29, 2018, revenue recognized that was included in the contract liability balance at the beginning of the year was $8.4 million and $16.4 million, respectively. As of June 28, 2019 and June 29, 2018, total contract liabilities were $14.7 million and $15.5 million, respectively.

14

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)





6. Net (Loss) Income Per Share from Continuing Operations

Net (loss) income per share from continuing operations was computed as follows:
 
Three Months Ended
 
Six Months Ended
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
 
(In thousands, except share data)
Computation of Net income (loss) per share from continuing operations:
 
 
 
 
 
 
 
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
$
1,323

 
$
47,179

 
$
(21,537
)
 
$
67,289

Weighted-average shares of Common stock outstanding - basic
136,025,710

 
122,685,878

 
134,991,844

 
123,106,702

Net income (loss) per share from continuing operations - basic
$
0.01

 
$
0.38

 
$
(0.16
)
 
$
0.55

Computation of Net income (loss) per share from continuing operations - diluted:
 
 
 
 
 
 
 
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
$
1,323

 
$
47,179

 
$
(21,537
)
 
$
67,289

Weighted-average shares of Common stock outstanding - basic
136,025,710

 
122,685,878

 
134,991,844

 
123,106,702

Net effect of potentially dilutive securities - stock options and restricted stock units
919,776

 
286,867

 

 
403,664

Weighted-average shares of Common stock outstanding - diluted
136,945,486

 
122,972,745

 
134,991,844

 
123,510,366

Net income (loss) per share from continuing operations - diluted
$
0.01

 
$
0.38

 
$
(0.16
)
 
$
0.54

              
(1) Net income (loss) from continuing operations attributable to Colfax Corporation for the respective periods is calculated using Net income (loss) from continuing operations less the continuing operations component of the income attributable to noncontrolling interest, net of taxes of $0.9 million and $2.2 million for the three and six months ended June 28, 2019 and $0.7 million and $1.3 million for the three and six months ended June 29, 2018, respectively.

For the three and six months ended June 28, 2019, the weighted-average shares of Common stock outstanding - basic includes the impact of 18.4 million shares related to the issuance of Colfax’s tangible equity units. See Note 8, “Equity” for details.

The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three months ended June 29, 2018 excludes 3.8 million of outstanding stock-based compensation awards as their inclusion would be anti-dilutive. The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the six months ended June 29, 2018 excludes 3.4 million of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.

7. Income Taxes

During the three and six months ended June 28, 2019, Income (loss) from continuing operations before income taxes was $8.4 million and $(11.1) million, respectively, while the Provision for income taxes was $6.2 million and $8.2 million, respectively. The effective tax rates were 73.6% and (73.6)% for the three and six months ended June 28, 2019, respectively. The effective tax rate for the three months ended June 28, 2019 differed from the 2019 U.S. federal statutory rate of 21% mainly due to losses in certain jurisdictions where a tax benefit is not expected to be recognized in 2019 and non-deductible deal costs. The effective tax rate for the six months ended June 28, 2019 differed from the 2019 U.S. federal statutory rate of 21% mainly due to losses in certain jurisdictions where a tax benefit is not expected to be recognized in 2019, non-deductible deal costs, and an aggregate $9.2 million unfavorable discrete U.S. income tax expense due to a change in valuation allowance and state tax expense as a result of the DJO Acquisition.

15

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




During the three and six months ended June 29, 2018, Income from continuing operations before income taxes was $37.1 million and $57.7 million, respectively, while the income tax benefit was $10.8 million and $10.9 million, respectively. The effective tax rates were (29.0)% and (18.8)% for the three and six months ended June 29, 2018, respectively. The effective tax rates differ from the 2018 U.S. federal statutory rate of 21% mainly due to the effective settlement of uncertain tax positions, an enacted tax rate change in a foreign jurisdiction, valuation allowance reversals and the expected realization of certain US tax credits, offset in part by losses in certain jurisdictions where a tax benefit is not expected to be recognized in 2018. The provision for income taxes for the three and six months ended June 29, 2018 includes $19.4 million and $25.4 million of net discrete tax benefits, respectively.

8. Equity

Share Repurchase Program

On February 12, 2018, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. The Board of Directors increased the repurchase authorization by an additional $100 million on June 6, 2018. On July 19, 2018, the Board of Directors increased the repurchase authorization by another $100 million. The timing, amount and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors.

There were no repurchases made during the six months ended June 28, 2019. As of June 28, 2019, the remaining stock repurchase authorization provided by the Company’s Board of Directors was $100.0 million.

Accumulated Other Comprehensive Loss

The following tables present the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the six months ended June 28, 2019 and June 29, 2018. 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
 
Unrealized Gain on Hedging Activities
 
Total
 
(In thousands)
Balance at January 1, 2019
$
(80,794
)
 
$
(752,989
)
 
$
38,238

 
$
(795,545
)
Other comprehensive (loss) income before reclassifications:
 
 
 
 
 
 
 
Foreign currency translation adjustment
582

 
12,802

 
42

 
13,426

Loss on long-term intra-entity foreign currency transactions

 
(9,258
)
 

 
(9,258
)
Gain on net investment hedges

 

 
1,451

 
1,451

Unrealized gain on cash flow hedges