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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 April 3, 2020
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
 

Annapolis Junction,
Maryland
 
20701
(Address of principal executive offices)
 
(Zip Code)
(301)
323-9000
(Registrant’s telephone number, including area code)
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
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  
As of April 3, 2020, there were 118,327,405 shares of the registrant’s common stock, par value $.001 per share, outstanding.



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 Income (Loss) Per Share from Continuing Operations
                 Note 7. Income Taxes
                 Note 8. Equity
                 Note 9. Inventories, Net
                 Note 10. Debt
                 Note 11. Accrued Liabilities
                 Note 12. Financial Instruments and Fair Value Measurements
                 Note 13. Commitments and Contingencies
                 Note 14. Segment Information
                 Note 15. Subsequent Events
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
 
April 3, 2020
 
March 29, 2019
 
 
 
 
Net sales
$
816,356

 
$
683,919

Cost of sales
468,142

 
422,906

Gross profit
348,214

 
261,013

Selling, general and administrative expense
291,297

 
247,849

Restructuring and other related charges
10,080

 
10,831

Operating income
46,837

 
2,333

Interest expense, net
24,796

 
21,821

Income (loss) from continuing operations before income taxes
22,041

 
(19,488
)
Income tax expense
13,173

 
2,042

Net income (loss) from continuing operations
8,868

 
(21,530
)
Loss from discontinued operations, net of taxes
(3,360
)
 
(26,472
)
Net income (loss)
5,508

 
(48,002
)
Less: income attributable to noncontrolling interest, net of taxes
1,027

 
4,021

Net income (loss) attributable to Colfax Corporation
$
4,481

 
$
(52,023
)
Net income (loss) per share - basic
 
 
 
Continuing operations
$
0.06

 
$
(0.17
)
Discontinued operations
$
(0.02
)
 
$
(0.22
)
Consolidated operations
$
0.03

 
$
(0.39
)
Net income (loss) per share - diluted

 

Continuing operations
$
0.06

 
$
(0.17
)
Discontinued operations
$
(0.02
)
 
$
(0.22
)
Consolidated operations
$
0.03

 
$
(0.39
)
    

See Notes to Condensed Consolidated Financial Statements.


2


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

 
Three Months Ended
 
April 3, 2020
 
March 29, 2019
Net income (loss)
$
5,508

 
$
(48,002
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation, net of tax of $519 and $(365)
(172,792
)
 
26,402

Unrealized gain on hedging activities, net of tax of $3,873 and $1,878
11,036

 
5,352

Amounts reclassified from Accumulated other comprehensive loss:
 
 
 
Amortization of pension and other post-retirement net actuarial gain (loss), net of tax of $252 and $(1,926)
866

 
(9,614
)
Amortization of pension and other post-retirement prior service cost

 
32

Other comprehensive income (loss)
(160,890
)
 
22,172

Comprehensive loss
(155,382
)
 
(25,830
)
Less: comprehensive income (loss) attributable to noncontrolling interest
(1,567
)
 
8,140

Comprehensive loss attributable to Colfax Corporation
$
(153,815
)
 
$
(33,970
)


See Notes to Condensed Consolidated Financial Statements.


3


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

 
April 3, 2020
 
December 31, 2019
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
365,604

 
$
109,632

Trade receivables, less allowance for credit losses of $30,559 and $32,634
499,402

 
561,865

Inventories, net
561,675

 
571,558

Other current assets
154,929

 
161,190

Total current assets
1,581,610

 
1,404,245

Property, plant and equipment, net
468,241

 
491,241

Goodwill
3,191,312

 
3,202,517

Intangible assets, net
1,648,328

 
1,719,019

Lease asset - right of use
173,997

 
173,320

Other assets
392,084

 
396,490

Total assets
$
7,455,572

 
$
7,386,832

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt
$
26,885

 
$
27,642

Accounts payable
368,001

 
359,782

Accrued liabilities
424,213

 
469,890

Total current liabilities
819,099

 
857,314

Long-term debt, less current portion
2,513,022

 
2,284,184

Non-current lease liability
135,569

 
136,399

Other liabilities
650,118

 
619,307

Total liabilities
4,117,808

 
3,897,204

Equity:
 
 
 
Common stock, $0.001 par value; 400,000,000 shares authorized; 118,327,405 and 118,059,082 issued and outstanding as of April 3, 2020 and December 31, 2019, respectively
118

 
118

Additional paid-in capital
3,453,941

 
3,445,597

Retained earnings
479,223

 
479,560

Accumulated other comprehensive loss
(642,142
)
 
(483,845
)
Total Colfax Corporation equity
3,291,140

 
3,441,430

Noncontrolling interest
46,624

 
48,198

Total equity
3,337,764

 
3,489,628

Total liabilities and equity
$
7,455,572

 
$
7,386,832



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, 2019
118,059,082

$
118

$
3,445,597

$
479,560

$
(483,845
)
$
48,198

$
3,489,628

Cumulative effect of accounting change



(4,818
)


(4,818
)
Net income



4,481


1,027

5,508

Distributions to noncontrolling owners





(8
)
(8
)
Other comprehensive loss, net of tax of $4,644




(158,297
)
(2,593
)
(160,890
)
Common stock-based award activity
268,323


8,344




8,344

Balance at April 3, 2020
118,327,405

$
118

$
3,453,941

$
479,223

$
(642,142
)
$
46,624

$
3,337,764



 
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 income (loss)



(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



See Notes to Condensed Consolidated Financial Statements.



5


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(Unaudited)
 
Three Months Ended
 
April 3, 2020
 
March 29, 2019
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income (loss)
$
5,508

 
$
(48,002
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
58,336

 
44,832

Stock-based compensation expense
6,124

 
5,238

Non-cash interest expense
1,311

 
1,821

Deferred income tax expense (benefit)
(567
)
 
(9,185
)
Loss on sale of property, plant and equipment
976

 
218

Pension settlement loss

 
43,774

Changes in operating assets and liabilities:
 
 
 
Trade receivables, net
29,445

 
1,876

Inventories, net
(16,431
)
 
(36,131
)
Accounts payable
30,592

 
(45,749
)
Changes in other operating assets and liabilities
(59,065
)
 
(30,980
)
Net cash provided by (used in) operating activities
56,229

 
(72,288
)
Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(31,113
)
 
(24,356
)
Proceeds from sale of property, plant and equipment
1,688

 
1,283

Acquisitions, net of cash received
(7,830
)
 
(3,147,835
)
Net cash used in investing activities
(37,255
)
 
(3,170,908
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings on term credit facility

 
1,725,000

Payments under term credit facility

 
(502,813
)
Proceeds from borrowings on revolving credit facilities and other
608,673

 
1,233,735

Repayments of borrowings on revolving credit facilities and other
(364,403
)
 
(477,045
)
Proceeds from borrowings on senior unsecured notes

 
1,000,000

Payment of debt issuance costs

 
(24,280
)
Proceeds from prepaid stock purchase contracts

 
377,814

Proceeds from issuance of common stock, net
2,220

 
2,439

Payment for noncontrolling interest share repurchase

 
(92,721
)
Other
(1,353
)
 
(3,103
)
Net cash provided by financing activities
245,137

 
3,239,026

Effect of foreign exchange rates on Cash and cash equivalents
(8,139
)
 
1,569

Increase (decrease) in Cash and cash equivalents
255,972

 
(2,601
)
Cash and cash equivalents, beginning of period
109,632

 
245,019

Cash and cash equivalents, end of period
$
365,604

 
$
242,418


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 fabrication technology and medical device products and services to customers around the world, principally under the ESAB and DJO brands.

On September 30, 2019, Colfax completed the sale of its Air and Gas Handling business for an aggregate purchase price of $1.8 billion, including $1.67 billion of cash paid at closing, subject to certain adjustments pursuant to the purchase agreement, and the assumption of certain liabilities and minority interests. Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as discontinued operations. See Note 3, “Discontinued Operations”, for further information.

On February 22, 2019, Colfax completed the purchase of DJO Global, Inc. (“DJO”) for $3.15 billion. 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.

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, 2019 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, 2019 (the “2019 Form 10-K”), filed with the SEC on February 21, 2020.

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 as of 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 months ended April 3, 2020 are not necessarily indicative of the results of operations that may be achieved for the full year. Quarterly results are affected by seasonal variations in the Company’s businesses, and European operations typically experience a slowdown during the July, August and December holiday seasons. DJO sales typically peak in the fourth quarter. General economic conditions may, however, impact future seasonal variations.

In December 2019, a novel coronavirus disease (“COVID-19”) was first reported in China. On March 11, 2020, due to worldwide spread of the virus, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 global pandemic has resulted in a widespread health crisis, and the resulting impact on governments, businesses and individuals and actions taken by them in response to the situation have resulted in widespread economic disruptions, significantly affecting broader economies, financial markets, and overall demand for the Company’s products. The COVID-19 outbreak also has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities in the Condensed Consolidated Financial Statements as the extent and period of recovery from the COVID-19 outbreak and related economic disruption is difficult to forecast.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to, the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions, the speed of the anticipated recovery, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts COVID-19 as of April 3, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for

7

COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


credit losses and the carrying value of the goodwill and other long-lived assets. While there was not an impact to the Company’s consolidated financial statements as of and for the three months ended April 3, 2020, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

8

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




2. Recently Issued Accounting Pronouncements

Accounting Guidance Implemented in 2020

Standards Adopted
 
Description
 
Effective 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 GAAP and broadens the information an entity must consider when developing its expected credit loss estimates to include forward-looking information. The standard applies to most financial assets held at amortized costs, as well as certain other instruments. Under the current expected credit loss (“CECL”) model, entities must estimate losses over the entire contractual term of the asset from the date of initial recognition. In determining expected losses, consideration must be given to historical loss experience, current conditions, and reasonable and supportable forecasts incorporating forward looking information. The Company adopted Topic 326 on January 1, 2020 using a modified retrospective transition method, which requires a cumulative-effect adjustment to the opening balance sheet of retained earnings to be recognized on the date of adoption without restating prior periods. The cumulative-effect adjustment, net of tax, on January 1, 2020 is $4.8 million.
 
January 1, 2020

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement 
 
The ASU modified the disclosure requirements for fair value measurements. The adoption of this standard does not result in any changes to the current disclosures, as the requirements modified by the ASU are not applicable or are immaterial for disclosure.
 
January 1, 2020

9

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 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.

 
This accounting standard update impacts disclosures only. The Company is currently evaluating the impact of this ASU on its consolidated financial statement disclosures and the timing of adoption.

 
January 1, 2021
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
 
The ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of accounting for income taxes.
 
The Company is currently evaluating the impact of this ASU on its consolidated financial statements and the timing of adoption.
 
January 1, 2021




10

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





3. Discontinued Operations

The Company has retained certain asbestos-related contingencies and insurance coverages from divested businesses for which it did not retain an interest in the ongoing operations subject to the contingencies. The Company has classified asbestos-related selling, general and administrative activity in its Condensed Consolidated Statements of Operations as part of Loss from discontinued operations. See Note 13, “Commitments and Contingencies” for further information.

Sale of Air and Gas Handling Business

The Company sold its Air and Gas Handling business on September 30, 2019. Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as a discontinued operation.

The total consideration for the sale was $1.8 billion, including $1.67 billion in cash paid at closing, subject to certain adjustments pursuant to the purchase agreement, and the assumption of certain liabilities and minority interests. Based on the purchase price and the carrying value of the net assets being sold, the Company recorded an impairment loss of $481 million in the second quarter of 2019. The impairment loss included a $449 million goodwill impairment charge and a $32 million valuation allowance charge on assets held for sale relating to the initial estimated cost to sell the business. An 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.

The Company recorded a pre-tax gain on disposal of $14.2 million in the fourth quarter of 2019. The total divestiture-related expenses incurred for the Air and Gas Handling sale were $48.6 million in the year ended December 31, 2019.

In connection with the purchase agreement, the Company and the purchaser entered into various agreements to provide a framework for their relationship after the disposition, including a transition services agreement. The transition services under the above agreements are not 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 months ended April 3, 2020 and March 29, 2019 were as follows:
 
Three Months Ended
 
April 3, 2020
 
March 29, 2019
 
(In thousands)
Net sales
$

 
$
323,749

Cost of sales

 
226,472

Selling, general and administrative expense

 
67,740

Restructuring and other related charges

 
4,555

Divestiture-related expense(1)
2,285

 
2,555

Operating income (loss)
(2,285
)
 
22,427

Interest expense(2)

 
7,300

Pension settlement loss

 
43,774

Loss from discontinued operations before income taxes
(2,285
)
 
(28,647
)
Income tax benefit
(316
)
 
(5,620
)
Loss from discontinued operations, net of taxes
$
(1,969
)
 
$
(23,027
)
(1) Primarily related to professional and consulting fees associated with the divestiture including seller due diligence and preparation of regulatory filings, as well as other disposition-related activities.
(2) The Company reclassified a portion of interest expense from its Term Loan Facilities associated with the mandatory repayment using net proceeds from the sale of the business.

Total income attributable to noncontrolling interest related to the Air and Gas Handling business, net of taxes was $2.7 million for the three months ended March 29, 2019.



11

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





Cash used in operating activities related to the discontinued operations of the divested Air and Gas Handling business for the three months ended April 3, 2020 and March 29, 2019 was $2.1 million and $2.8 million, respectively. Cash used in investing activities related to the discontinued operations of the divested Air and Gas Handling business for the three months ended March 29, 2019 was $10.3 million.



12

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




4. Acquisition

On February 22, 2019, Colfax completed the purchase of DJO for $3.15 billion, subject to certain adjustments set forth in the Merger Agreement.

During the three months ended April 3, 2020 and March 29, 2019, the Company incurred $0.9 million and $53.3 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.

The DJO acquisition was accounted for using the acquisition method of accounting and accordingly, the Condensed Consolidated Financial Statements include the 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, 2019. These amounts are presented in accordance with GAAP, consistent with the Company’s accounting policies.

 
Three Months Ended
 
April 3, 2020
 
March 29, 2019
 
(Unaudited, in thousands)
Net sales
$
816,356

 
$
853,085

Net income from continuing operations attributable to Colfax Corporation
10,115

 
14,135



During the first quarter of 2020, as part of the fair value adjustments to the assets and liabilities acquired, the Company increased the valuation allowance on U.S. deferred taxes, presented net within Other liabilities, by $51.4 million as of the acquisition date, with a corresponding increase to Goodwill. The accounting related to the DJO acquisition has been finalized, and the assets and liabilities acquired are no longer subject to adjustment.

13

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




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 disaggregates its Fabrication Technology revenue into the following product groups:

Three Months Ended
 
April 3, 2020
 
March 29, 2019
 
(In thousands)
Equipment
$
156,800

 
$
174,003

Consumables
368,737

 
386,381

Total
$
525,537


$
560,384



Contracts with customers in the consumables product grouping generally have a shorter fulfillment period than equipment contracts.

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
 
April 3, 2020
 
March 29, 2019(1)
 
(In thousands)
Prevention & Rehabilitation
$
201,493

 
$
87,736

Reconstructive
89,326

 
35,799

Total
$
290,819

 
$
123,535

             
(1) For the three months ended March 29, 2019, the Medical Technology segment includes results from the acquisition date of February 22, 2019.

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 April 3, 2020 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, 2019 and 2018, total contract liabilities were $14.8 million and $13.0 million, respectively. During the three months ended April 3, 2020 and March 29, 2019, revenue recognized that was included in the contract liability balance at the beginning of the year was $4.9 million and $3.9 million, respectively. As of April 3, 2020 and March 29, 2019, total contract liabilities were $17.0 million and $18.3 million, respectively.

Allowance for Credit Losses

The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1, 2020. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type.


14

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




The Company evaluated multiple approaches before concluding that a loss rate methodology best matched data capabilities. The Company leveraged historical write offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts through the use of an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses, giving consideration to the location and risks associated with the Company.

The changes in the allowance for credit losses for the three months ended April 3, 2020 were as follows:
 
Balance at
Beginning
of Period
 
Charged to Expense
 
Write-Offs and Deductions
 
Foreign
Currency
Translation
 
Balance at
End of
Period
 
(Dollars in thousands)
Three Months Ended April 3, 2020
 
 
 
 
 
 
 
 
 
Allowance for credit losses
$
36,009

 
$
(652
)
 
$
(1,862
)
 
$
(2,936
)
 
$
30,559




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

Net income (loss) per share from continuing operations was computed as follows:
 
Three Months Ended
 
April 3, 2020
 
March 29, 2019
 
(In thousands, except share and per share data)
Computation of Net income (loss) per share from continuing operations - basic:
 
 
 
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
$
7,841

 
$
(22,860
)
Weighted-average shares of Common stock outstanding - basic
136,601,111

 
133,713,815

Net income (loss) per share from continuing operations - basic
$
0.06

 
$
(0.17
)
 
 
 
 
Computation of Net income (loss) per share from continuing operations - diluted:
 
 
 
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
$
7,841

 
$
(22,860
)
Weighted-average shares of Common stock outstanding - basic
136,601,111

 
133,713,815

Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units
4,868,927

 

Weighted-average shares of Common stock outstanding - diluted
141,470,038

 
133,713,815

Net income (loss) per share from continuing operations - diluted
$
0.06

 
$
(0.17
)
              
(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 $1.0 million and $1.3 million for the three months ended April 3, 2020 and March 29, 2019, respectively.

For both periods presented, 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. For the three months ended April 3, 2020, the weighted-average shares of Common stock outstanding - diluted includes the impact of 3.7 million potentially issuable dilutive shares related to 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 April 3, 2020 excludes 3.9 million of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.

15

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





7. Income Taxes

During the three months ended April 3, 2020, Income (loss) from continuing operations before income taxes was $22.0 million, while the income tax expense was $13.2 million. The effective tax rate was 59.8% for the three months ended April 3, 2020. The effective tax rate for the three months ended April 3, 2020 differed from the 2020 U.S. federal statutory rate of 21% mainly due to the impact of additional U.S. tax on international operations and taxable foreign exchange gains offset in part by a discrete tax benefit associated with the enactment of a tax law change in India. Income taxes for the three months ended April 3, 2020 were calculated using the actual year-to-date effective tax rate, also known as the discrete method. The discrete method was used because of the high degree of uncertainty in estimating annual pretax earnings caused by the ongoing COVID-19 pandemic market conditions.

During the three months ended March 29, 2019, Income (loss) from continuing operations before income taxes was $(19.5) million, while the income tax expense was $2.0 million. The effective tax rate was (10.5)% for the three months ended March 29, 2019. The effective tax rate for the three months ended March 29, 2019 differs from the 2019 U.S. federal statutory rate of 21% mainly due to non-deductible deal costs and an aggregate discrete U.S. tax expense due to a change in valuation allowance associated with the acquisition of DJO.

16

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




8. Equity

Share Repurchase Program

In 2018, the Company’s Board of Directors authorized the repurchase of shares of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. No repurchases of the Company’s Common stock have been made under this plan since the third quarter of 2018. As of April 3, 2020, the remaining stock repurchase authorization provided by the Board of Directors was $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 is no term associated with the remaining repurchase authorization.

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 three months ended April 3, 2020 and March 29, 2019. 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, 2020
$
(106,500
)
 
$
(421,889
)
 
$
44,544

 
$
(483,845
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
Foreign currency translation adjustment
1,672

 
(170,679
)
 
(1,310
)
 
(170,317
)
Loss on long-term intra-entity foreign currency transactions

 
(1,027
)
 

 
(1,027
)
Gain on net investment hedges

 

 
12,180

 
12,180

Other comprehensive income (loss) before reclassifications
1,672

 
(171,706
)
 
10,870

 
(159,164
)
Amounts reclassified from Accumulated other comprehensive loss
867

 

 

 
867

Net Other comprehensive (loss) income
2,539

 
(171,706
)
 
10,870

 
(158,297
)
Balance at April 3, 2020
$
(103,961
)
 
$
(593,595
)
 
$
55,414

 
$
(642,142
)




17

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





 
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 income (loss) before reclassifications:
 
 
 
 
 
 
 
Foreign currency translation adjustment
824

 
8,803

 
10

 
9,637

Gain on long-term intra-entity foreign currency transactions

 
12,621

 

 
12,621

Gain on net investment hedges

 

 
5,453

 
5,453

Unrealized loss on cash flow hedges

 

 
(76
)
 
(76
)
Other comprehensive income (loss) before reclassifications
824

 
21,424

 
5,387

 
27,635

Amounts reclassified from Accumulated other comprehensive loss
(9,582
)
 

 

 
(9,582
)
Noncontrolling interest share repurchase

 
(21,372
)
 

 
(21,372
)
Net Other comprehensive income (loss)
(8,758
)
 
52

 
5,387

 
(3,319
)
Balance at March 29, 2019
$
(89,552
)
 
$
(752,937
)
 
$
43,625

 
$
(798,864
)


Tangible equity unit (“TEU”) offering

On January 11, 2019, the Company issued $460 million in tangible equity units. The Company offered 4 million of its 5.75% tangible equity units at the stated amount of $100 per unit. An option to purchase up to an additional 600,000 tangible equity units at the stated amount of $100 per unit was exercised in full at settlement. Total cash of $447.7 million was received upon closing.
The proceeds from the issuance of the TEUs were allocated initially to equity and debt based on the relative fair value of the respective components of each TEU as follows:
 
TEU prepaid stock purchase contracts
 
TEU amortizing notes
 
Total
 
(In millions, except per unit amounts)
Fair value per unit
$
84.39

 
$
15.61

 
$
100.00

 
 
 
 
 
 
Gross proceeds
$
388.2

 
$
71.8

 
$
460.0

Less: Issuance costs
10.4

 
1.9

 
12.3

Net proceeds
$
377.8

 
$
69.9

 
$
447.7



The $377.8 million fair value of the prepaid stock purchase contracts was recorded in Additional paid-in capital in the Condensed Consolidated Balance Sheets. The fair value of the $69.9 million of TEU amortizing notes due January 2022 has both a short-term and a long-term component. Upon the issuance of the TEUs, $47.3 million was initially recorded in Long-term debt, less current portion, and $22.6 million was initially recorded in Current portion of long-term debt in the Condensed Consolidated Balance Sheets. The Company deferred certain debt issuance costs associated with the debt component of the TEUs. These amounts offset the debt liability balance in the Condensed Consolidated Balance Sheets and are being amortized over its term.



18

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




TEU prepaid stock purchase contracts
Unless previously settled at the holder’s option, for each purchase contract the Company will deliver to holders on January 15, 2022 (subject to postponement in certain limited circumstances, the “mandatory settlement date”) a number of shares of common stock. The number of shares of common stock issuable upon settlement of each purchase contract (the “settlement rate”) will be determined using the arithmetic average of the volume average weighted price for the 20 consecutive trading days beginning on, and including, the 21st scheduled trading day immediately preceding January 15, 2022 (“the Applicable Market Value”) with reference to the following settlement rates:

if the Applicable Market Value of the common stock is greater than the threshold appreciation price of $25.00, then the holder will receive 4.0000 shares of common stock for each purchase contract (the “minimum settlement rate”);
if the Applicable Market Value of the common stock is greater than or equal to the reference price of $20.81, but less than or equal to the threshold appreciation price of $25.00, then the holder will receive a number of shares of common stock for each purchase contract having a value, based on the Applicable Market Value, equal to $100; and
if the Applicable Market Value of the common stock is less than the reference price of $20.81, then the holder will receive 4.8054 shares of common stock for each purchase contract (the “maximum settlement rate”).
TEU amortizing notes
Each TEU amortizing note has an initial principal amount of $15.6099, bears interest at a rate of 6.50% per annum and has a final installment payment date of January 15, 2022. On each January 15, April 15, July 15 and October 15, commencing on April 15, 2019, the Company pays equal quarterly cash installments of $1.4375 per TEU amortizing note (except for the April 15, 2019 installment payment, which was $1.5014 per TEU amortizing note), which will constitute a payment of interest and a partial repayment of principal, and which cash payment in the aggregate per year will be equivalent to 5.75% per year with respect to the $100 stated amount per unit. The Company paid $6.6 million representing a partial payment of principal and interest on the TEU amortizing notes in the first quarter of 2020. The TEU amortizing notes are the direct, unsecured and unsubordinated obligations of the Company and rank equally with all of the existing and future other unsecured and unsubordinated indebtedness of the Company.
Earnings per share
Unless the 4.6 million stock purchase contracts are redeemed by the Company or settled earlier at the unit holder’s option, they are mandatorily convertible into shares of Colfax common stock at not less than 4.0 shares per purchase contract or more than 4.8054 shares per purchase contract on January 15, 2022. This corresponds to not less than 18.4 million shares and not more than 22.1 million shares at the maximum. The 18.4 million minimum shares are included in the calculation of weighted-average shares of Common stock outstanding - basic. The difference between the minimum and maximum shares represents potentially dilutive securities. The Company includes them in its calculation of weighted-average shares of Common stock outstanding - diluted on a pro rata basis to the extent the average Applicable Market Value is higher than the reference price but is less than the conversion price.
Repurchase of noncontrolling interest shares
During 2019, the Company repurchased all of the noncontrolling interest shares of its South Africa consolidated subsidiary from existing shareholders under a general offer. As a part of the Air and Gas Handling business, the subsidiary was subsequently sold on September 30, 2019, and its results of operations are included in discontinued operations for all periods presented.

9. Inventories, Net

Inventories, net consisted of the following:
 
April 3, 2020
 
December 31, 2019
 
(In thousands)
Raw materials
$
108,586

 
$
115,587

Work in process
39,061

 
37,019

Finished goods
475,970

 
475,933

 
623,617

 
628,539

Less: allowance for excess, slow-moving and obsolete inventory
(61,942
)
 
(56,981
)
Inventories, net
$
561,675

 
$
571,558



19

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


10. Debt

Long-term debt consisted of the following:
 
April 3, 2020
 
December 31, 2019
 
(In thousands)
Term loan
$
823,048

 
$
822,945

Euro senior notes
374,191

 
388,925

2024 and 2026 notes
989,757

 
989,236

TEU amortizing notes
48,522

 
54,044

Revolving credit facilities and other
304,389

 
56,676

Total debt
2,539,907

 
2,311,826

Less: current portion
(26,885
)
 
(27,642
)
Long-term debt
$
2,513,022

 
$
2,284,184


    
Term Loan and Revolving Credit Facility

The Company’s credit agreement (the “Credit Facility”) by and among the Company, as the borrower, certain U.S. subsidiaries of the Company, as guarantors, each of the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A., as syndication agent, and the co-documentation agents named therein consists of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan in an aggregate principal amount of $825 million (the “Term Loan”), each with a maturity date of December 6, 2024. The Revolver contains a $50 million swing line loan sub-facility.

The Company has $7.7 million in deferred financing fees recorded in conjunction with the Credit Facility as of April 3, 2020, which is being accreted to Interest expense, net primarily using the effective interest method over the life of the facility.

The Term Loan and the Revolver bear interest either at the Eurocurrency rate or the base rate, in each case, plus the applicable interest rate margin, whichever results in the lower applicable interest rate margin (subject to certain exceptions), based upon either the total leverage ratio or corporate family rating of the Company as determined by Standard & Poor’s and Moody’s (ranging from 1.25% to 2.00%, in the case of the Eurocurrency margin, and 0.25% to 1.00%, in the case of the base rate margin). Each swing line loan denominated in dollars will bear interest at the base rate plus the applicable interest rate margin, and each swing line loan denominated in any other currency available under the Credit Facility will bear interest at the Eurocurrency rate plus the applicable interest rate margin.

Certain of the Company’s U.S. subsidiaries agreed to guarantee the Company’s obligations under the Credit Facility.

The Credit Facility contains customary covenants limiting the ability of Colfax 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 Facility contains financial covenants requiring Colfax to maintain (subject to certain exceptions) (i) a maximum total leverage ratio, calculated as the ratio of Consolidated Total Debt (as defined in the Credit Facility) to EBITDA (as defined in the Credit Facility), of 4.75:1.00 as of March 31, 2020, 4.25:1.00 as of June 30, 2020, 4.00:1.00 as of each fiscal quarter ending during the period from September 30, 2020 through September 30, 2021, and 3.50:1.00 as of December 31, 2021 and for each fiscal quarter ending thereafter, and (ii) a minimum interest coverage ratio of 3.00:1:00. The Credit Facility contains various events of default (including failure to comply with the covenants under the Credit Facility 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 and the Revolver. As of April 3, 2020, the Company is in compliance with the covenants under the Credit Facility.

As of April 3, 2020, the weighted-average interest rate of borrowings under the Credit Facility was 2.95%, excluding accretion of original issue discount and deferred financing fees, and there was $675 million available on the Revolver.

On May 1, 2020, the Company entered into an amendment to its Credit Facility. See Note 15, “Subsequent Events” for further information.




20

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




Euro Senior Notes

On April 19, 2017, the Company issued senior unsecured notes with an aggregate principal amount of 350 million (the “Euro Notes”). The Euro Notes are due in April 2025, have an interest rate of 3.25% and are guaranteed by certain of our domestic subsidiaries (the “Guarantees”). The proceeds from the Euro Notes offering were used to repay borrowings under our previous credit facilities totaling 283.5 million, as well as for general corporate purposes. In conjunction with the issuance of the Euro notes, the Company recorded $6.0 million of deferred financing fees. The Euro Notes and the Guarantees have not been, and will not be, registered under the Securities Act of 1933, as amended, or the securities laws of any other jurisdiction.

TEU Amortizing Notes

On January 11, 2019, the Company issued $460 million in tangible equity units. The Company offered 4 million of its 5.75% tangible equity units at the stated amount of $100 per unit and an option to purchase up to an additional 600,000 tangible equity units at the stated amount of $100 per unit, which was exercised in full at settlement. Total cash of $447.7 million was received upon closing, comprised of $377.8 million TEU prepaid stock purchase contracts and $69.9 million of TEU amortizing notes due January 2022. The proceeds were used to finance a portion of the purchase price for the DJO acquisition and for general corporate purposes. For more information, refer to Note 8, “Equity.”

2024 Notes and 2026 Notes

On February 5, 2019, two tranches of senior notes with aggregate principal amounts of $600 million (the “2024 Notes”) and $400 million (the “2026 Notes”) were issued to finance a portion of the purchase price for the DJO acquisition. The 2024 Notes are due on February 15, 2024 and have an interest rate of 6.0%. The 2026 Notes are due on February 15, 2026 and have an interest rate of 6.375%. Each tranche of notes is guaranteed by certain of the Company’s domestic subsidiaries.

Other Indebtedness

In addition to the debt agreements discussed above, the Company is party to various bilateral credit facilities with a borrowing capacity of $241.7 million. As of April 3, 2020, there were no outstanding borrowings under these facilities.

The Company is also party to letter of credit facilities with an aggregate capacity of $412.1 million. Total letters of credit of $119.8 million were outstanding as of April 3, 2020.

In total, the Company had deferred financing fees of $22.4 million included in its Condensed Consolidated Balance Sheet as of April 3, 2020, which will be charged to Interest expense, net, primarily using the effective interest method, over the life of the applicable debt agreements.

11. Accrued Liabilities

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

 
April 3, 2020
 
December 31, 2019
 
(In thousands)
Accrued compensation and related benefits
$
84,061

 
$
100,290

Accrued taxes
52,176

 
55,258

Accrued asbestos-related liability
68,102

 
64,394

Warranty liability - current portion
13,702

 
15,513

Accrued restructuring liability - current portion
4,437

 
6,961

Accrued third-party commissions
23,168

 
30,768

Customer advances and billings in excess of costs incurred
18,092

 
16,009

Lease liability - current portion
38,428

 
40,021

Accrued interest
17,924

 
27,333

Other
104,123

 
113,343

Accrued liabilities
$
424,213

 
$
469,890



21

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





Warranty Liability
 
The activity in the Company’s warranty liability consisted of the following:
 
Three Months Ended
 
April 3, 2020
 
March 29, 2019
 
(In thousands)
Warranty liability, beginning of period
$
15,528

 
$
12,312

Accrued warranty expense
1,121

 
1,704

Changes in estimates related to pre-existing warranties
318

 
406

Cost of warranty service work performed
(1,910
)
 
(2,415
)
Acquisition-related liability

 
2,252

Foreign exchange translation effect
(1,309
)
 
9

Warranty liability, end of period
$
13,748

 
$
14,268



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 Condensed Consolidated Balance Sheets is as follows:
 
Three months ended April 3, 2020
 
Balance at Beginning of Period
 
Provisions
 
Payments
 
Foreign Currency Translation
 
Balance at End of Period(3)
 
(In thousands)
Restructuring and other related charges:
 
 
 
 
 
 
 
 
 
Fabrication Technology:
 
 
 
 
 
 
 
 
 
Termination benefits(1)
$
1,638

 
$
940

 
$
(1,401
)
 
$
(77
)
 
$
1,100

Facility closure costs(2)
1,284

 
1,869

 
(3,134
)
 

 
19

 
2,922

 
2,809

 
(4,535
)
 
(77
)
 
1,119

Medical Technology:
 
 
 
 
 
 
 
 
 
Termination benefits(1)
3,919

 
958

 
(1,750
)
 

 
3,127

Facility closure costs(2)
257

 
8,158

 
(8,170
)
 

 
245

 
4,176

 
9,116

 
(9,920
)
 

 
3,372

Total
$
7,098

 
$
11,925

 
$
(14,455
)
 
$
(77
)
 
$
4,491

 
(1) Includes severance and other termination benefits, including outplacement services.
(2) Includes the cost of relocating associates, relocating equipment and lease termination expense in connection with the closure of facilities. Restructuring charges in the Medical Technology segment during the three months ended April 3, 2020 includes costs related to product and distribution channel transformations, facilities optimization, and integration charges. Restructuring charges in the Medical Technology segment also includes $1.8 million classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three months ended April 3, 2020.
(3) As of April 3, 2020, $4.4 million and $0.1 million of the Company’s restructuring liability was included in Accrued liabilities and Other liabilities, respectively.



22

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




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 $2.5 billion and $2.3 billion estimated fair value of the Company’s debt as of April 3, 2020 and December 31, 2019, respectively, was based on current interest rates for similar types of borrowings and is in Level Two of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.

A summary of the Company’s assets and liabilities that are measured at fair value for each fair value hierarchy level for the periods presented is as follows:
 
April 3, 2020
 
Level
One
 
Level
Two
 
Level
Three
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
 Cash equivalents
$
12,058

 
$

 
$

 
$
12,058

 Foreign currency contracts related to sales - not designated as hedges

 
2,411

 

 
2,411

 Foreign currency contracts related to purchases - not designated as hedges

 
2,374

 

 
2,374

 Deferred compensation plans

 
7,354

 

 
7,354

 
$
12,058

 
$
12,139

 
$

 
$
24,197

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 Foreign currency contracts related to sales - not designated as hedges
$

 
$
3,022

 
$

 
$
3,022

 Foreign currency contracts related to purchases - not designated as hedges

 
50

 

 
50

 Deferred compensation plans

 
7,354

 

 
7,354

 
$

 
$
10,426

 
$

 
$
10,426


 
December 31, 2019
 
Level
One
 
Level
Two
 
Level
Three
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
 Cash equivalents
$
13,125

 
$

 
$

 
$
13,125

 Foreign currency contracts related to sales - not designated as hedges

 
74

 

 
74

 Foreign currency contracts related to purchases - not designated as hedges

 
408

 

 
408

 Deferred compensation plans

 
8,870

 

 
8,870

 
$
13,125

 
$
9,352

 
$

 
$
22,477

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 Foreign currency contracts related to sales - not designated as hedges
$

 
$
328

 
$

 
$
328

 Foreign currency contracts related to purchases - not designated as hedges