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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 October 2, 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,Maryland20701
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCFXNew York Stock Exchange
5.75% Tangible Equity UnitsCFXANew 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, a 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 October 2, 2020, there were 118,457,179 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 Income (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
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 EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020September 27, 2019
Net sales$805,931 $846,519 $2,242,647 $2,439,085 
Cost of sales461,811 478,377 1,309,227 1,433,872 
Gross profit344,120 368,142 933,420 1,005,213 
Selling, general and administrative expense278,060 290,500 805,984 846,288 
Restructuring and other related charges4,129 9,781 23,589 47,197 
Operating income61,931 67,861 103,847 111,728 
Pension settlement loss 33,616  33,616 
Interest expense, net25,567 31,828 78,647 86,820 
Income (loss) from continuing operations before income taxes36,364 2,417 25,200 (8,708)
Income tax expense (benefit)19,528 (1,353)2,638 6,840 
Net income (loss) from continuing operations16,836 3,770 22,562 (15,548)
Income (loss) from discontinued operations, net of taxes(2,641)9,024 (10,906)(486,265)
Net income (loss)14,195 12,794 11,656 (501,813)
Less: income attributable to noncontrolling interest, net of taxes789 2,320 2,243 8,970 
Net income (loss) attributable to Colfax Corporation$13,406 $10,474 $9,413 $(510,783)
Net income (loss) per share - basic & diluted
Continuing operations$0.12 $0.02 $0.15 $(0.14)
Discontinued operations$(0.02)$0.06 $(0.08)$(3.63)
Consolidated operations$0.10 $0.08 $0.07 $(3.77)
    

See Notes to Condensed Consolidated Financial Statements.

2


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Dollars in thousands
(Unaudited)
Three Months EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020September 27, 2019
Net income (loss)$14,195 $12,794 $11,656 $(501,813)
Other comprehensive income (loss):
Foreign currency translation, net of tax expense of $258, $1,787, $652 and $1,375
51,610 (135,157)(49,316)(128,620)
Unrealized gain (loss) on hedging activities, net of tax expense (benefit) of $(4,344), $4,411, $(4,448) and $4,102
(12,076)11,757 (12,700)13,413 
Amounts reclassified from Accumulated other comprehensive loss:
Amortization of pension and other post-retirement net actuarial gain (loss), net of tax expense (benefit) of $330, $(5,960), $767 and $(7,679)
1,152 (12,206)2,814 (21,166)
Amortization of pension and other post-retirement prior service cost   32 
Other comprehensive income (loss)40,686 (135,606)(59,202)(136,341)
Comprehensive income (loss)54,881 (122,812)(47,546)(638,154)
Less: comprehensive income (loss) attributable to noncontrolling interest1,987 (3,384)1,192 5,272 
Comprehensive income (loss) attributable to Colfax Corporation$52,894 $(119,428)$(48,738)$(643,426)


See Notes to Condensed Consolidated Financial Statements.

3


COLFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share amounts
(Unaudited)
October 2, 2020December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$66,423 $109,632 
Trade receivables, less allowance for credit losses of $34,975 and $32,634
498,357 561,865 
Inventories, net536,052 571,558 
Other current assets186,680 161,190 
Total current assets1,287,512 1,404,245 
Property, plant and equipment, net463,775 491,241 
Goodwill3,245,042 3,202,517 
Intangible assets, net1,635,706 1,719,019 
Lease asset - right of use170,580 173,320 
Other assets351,619 396,490 
Total assets$7,154,234 $7,386,832 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt$26,954 $27,642 
Accounts payable306,314 359,782 
Accrued liabilities451,265 469,890 
Total current liabilities784,533 857,314 
Long-term debt, less current portion2,191,725 2,284,184 
Non-current lease liability130,947 136,399 
Other liabilities589,560 619,307 
Total liabilities3,696,765 3,897,204 
Equity:
Common stock, $0.001 par value; 400,000,000 shares authorized; 118,457,179 and 118,059,082 issued and outstanding as of October 2, 2020 and December 31, 2019, respectively
118 118 
Additional paid-in capital3,470,169 3,445,597 
Retained earnings484,155 479,560 
Accumulated other comprehensive loss(541,996)(483,845)
Total Colfax Corporation equity3,412,446 3,441,430 
Noncontrolling interest45,023 48,198 
Total equity3,457,469 3,489,628 
Total liabilities and equity$7,154,234 $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 StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossNoncontrolling InterestTotal
SharesAmount
Balance at December 31, 2019118,059,082 $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 activity268,323 — 8,344 — — — 8,344 
Balance at April 3, 2020118,327,405 $118 $3,453,941 $479,223 $(642,142)$46,624 $3,337,764 
Net income (loss)— — — (8,474)— 427 (8,047)
Distributions to noncontrolling owners— — — — — (3,734)(3,734)
Other comprehensive income, net of tax of $(3,917)
— — — — 60,658 344 61,002 
Common stock-based award activity61,608 — 8,591 — — — 8,591 
Balance at July 3, 2020118,389,013 $118 $3,462,532 $470,749 $(581,484)$43,661 $3,395,576 
Net income— — — 13,406 — 789 14,195 
Distributions to noncontrolling owners— — — — — (625)(625)
Other comprehensive income, net of tax of $(3,756)
— — — — 39,488 1,198 40,686 
Common stock-based award activity68,166 — 7,637 — — — 7,637 
Balance at October 2, 2020118,457,179 $118 $3,470,169 $484,155 $(541,996)$45,023 $3,457,469 


See Notes to Condensed Consolidated Financial Statements.

5


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
Dollars in thousands, except share amounts and as noted
(Unaudited)
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossNoncontrolling InterestTotal
SharesAmount
Balance at December 31, 2018117,275,217 $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 activity283,197 1 7,676 — — — 7,677 
Balance at March 29, 2019117,558,414 $118 $3,421,063 $955,183 $(798,864)$164,216 $3,741,716 
Net income (loss)— — — (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 activity108,945 — 7,481 — — — 7,481 
Balance at June 28, 2019117,667,359 $118 $3,427,979 $485,949 $(819,248)$161,551 $3,256,349 
Net income— — — 10,474 — 2,320 12,794 
Distributions to noncontrolling owners— — — — — (7,237)(7,237)
Other comprehensive loss, net of tax of 193
— — — — (129,902)(5,704)(135,606)
Common stock-based award activity89,371 — 6,638 — — — 6,638 
Balance at September 27, 2019117,756,730 $118 $3,434,617 $496,423 $(949,150)$150,930 $3,132,938 


See Notes to Condensed Consolidated Financial Statements.


6


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(Unaudited)
Nine Months Ended
October 2, 2020September 27, 2019
Cash flows from operating activities:
Net income (loss)$11,656 $(501,813)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Divestiture impairment loss 481,000 
Depreciation, amortization and other impairment charges181,114 190,577 
Stock-based compensation expense21,642 17,005 
Non-cash interest expense4,253 5,674 
Deferred income tax benefit(30,946)(18,673)
(Gain) loss on sale of property, plant and equipment523 (140)
Pension settlement loss 77,390 
Changes in operating assets and liabilities:
Trade receivables, net44,592 29,071 
Inventories, net28,556 (54,256)
Accounts payable(42,869)(98,920)
Income taxes(9,722)(39,909)
Other operating assets and liabilities(35,666)(21,257)
Net cash provided by operating activities173,133 65,749 
Cash flows from investing activities:
Purchases of property, plant and equipment(81,583)(100,383)
Proceeds from sale of property, plant and equipment4,929 7,474 
Acquisitions, net of cash received(7,477)(3,136,777)
Net cash used in investing activities(84,131)(3,229,686)
Cash flows from financing activities:
Proceeds from borrowings on term credit facility 2,725,000 
Payments under term credit facility(40,000)(533,437)
Proceeds from borrowings on revolving credit facilities and other794,678 1,780,085 
Repayments of borrowings on revolving credit facilities and other(866,215)(1,136,186)
Payment of debt issuance costs(4,560)(24,402)
Proceeds from prepaid stock purchase contracts 377,814 
Proceeds from issuance of common stock, net2,930 4,787 
Payment for noncontrolling interest share repurchase (93,087)
Deferred consideration payments and other(12,411)(9,680)
Net cash provided by (used in) financing activities(125,578)3,090,894 
Effect of foreign exchange rates on Cash and cash equivalents(6,633)(5,216)
Decrease in Cash and cash equivalents(43,209)(78,259)
Cash and cash equivalents, beginning of period109,632 245,019 
Cash and cash equivalents, end of period$66,423 $166,760 


See Notes to Condensed Consolidated Financial Statements.
7

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. The Company conducts its operations through two operating segments, “Fabrication Technology”, which incorporates the operations of ESAB and its related brands, and “Medical Technology”, which incorporates the operations of DJO and its related 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 24, 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.

In the normal course of business, the Company incurs research and development costs related to new product development which are expensed as incurred. Research and development costs were $16.8 million and $49.4 million during the three and nine months ended October 2, 2020, and $16.3 million and $44.8 million during the three and nine months ended September 27, 2019, respectively, which are included in Selling, general and administrative expenses on the Company’s Condensed Consolidated Statements of Operations.

The results of operations for the three and nine months ended October 2, 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. Medical Technology 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 has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities in the Condensed
8

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



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 of COVID-19 as of October 2, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses, the carrying value of the goodwill, intangibles, and other long-lived assets and the realizability of deferred tax assets. While there was not an impact from these valuation items to the Company’s consolidated financial statements as of and for the three and nine months ended October 2, 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.










































9

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



2. Recently Issued Accounting Pronouncements

Accounting Guidance Implemented in 2020
StandardDescriptionEffective 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 was $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 modifies the disclosure requirements for fair value measurements. The adoption of this standard did 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

New Accounting Guidance to be Implemented
StandardDescriptionAnticipated ImpactEffective Date
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit PlansThe 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 TaxesThe 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 and nine months ended October 2, 2020 and September 27, 2019 were as follows:
Three Months EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020September 27, 2019
(In thousands)
Net sales$ $338,885 $ $998,793 
Cost of sales 230,692  689,004 
Selling, general and administrative expense 65,117  194,562 
Restructuring and other related charges 4,987  13,354 
Goodwill impairment charge   481,000 
Divestiture-related expense(1)
846 4,481 7,419 11,692 
Operating loss(846)33,608 (7,419)(390,819)
Interest expense(2)
 12,779  38,899 
Pension settlement loss   43,774 
Loss from discontinued operations before income taxes(846)20,829 (7,419)(473,492)
Income tax expense (benefit)(198)9,809 (1,267)5,387 
Loss from discontinued operations, net of taxes$(648)$11,020 $(6,152)$(478,879)
(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 $1.5 million and $5.9 million for the three and nine months ended September 27, 2019, respectively.

Cash used in operating activities related to the discontinued operations of the divested Air and Gas Handling business for the nine months ended October 2, 2020 was $7.2 million. Cash provided by operating activities related to the discontinued
11

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



operations of the divested Air and Gas Handling business for the nine months ended September 27, 2019 was $18.0 million. Cash used in investing activities related to the discontinued operations of the divested Air and Gas Handling business for the nine months ended September 27, 2019 was $27.5 million.


4. Acquisition

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

During the three and nine months ended October 2, 2020 and September 27, 2019, the Company incurred $0.6 million, $0.7 million, $3.2 million and $56.7 million, respectively, of advisory, legal, audit, valuation and other professional service fees in connection with the DJO acquisition. Such fees 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 EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020September 27, 2019
(Unaudited, in thousands)
Net sales$805,931 $846,519 $2,242,647 $2,608,251 
Net income from continuing operations attributable to Colfax Corporation17,927 7,676 27,575 72,857 


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 EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020September 27, 2019
(In thousands)
Equipment$157,730 $162,531 $443,563 $525,148 
Consumables333,767 376,697 987,838 1,167,199 
Total$491,497 $539,228 $1,431,401 $1,692,347 

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.





12

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



The Company disaggregates its Medical Technology revenue into the following product groups:
Three Months EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020
September 27, 2019(1)
(In thousands)
Prevention & Rehabilitation$220,461 $221,314 $566,983 $533,986 
Reconstructive93,973 85,977 244,263 212,752 
Total$314,434 $307,291 $811,246 $746,738 
(1) For the nine months ended September 27, 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 October 2, 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, 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, which related to the Fabrication Technology business. During the three and nine months ended October 2, 2020, revenue recognized that was included in the contract liability balance at the beginning of the year was $4.5 million and $13.2 million, respectively. During the three and nine months ended September 27, 2019, revenue recognized that was included in the contract liability balance at the beginning of the year was $4.8 million and $13.0 million, respectively. As of October 2, 2020 and September 27, 2019, total contract liabilities were $30.4 million and $15.6 million, respectively, and were included in Accrued liabilities on the Company’s Condensed Consolidated Balance Sheets. The contract liabilities as of October 2, 2020 include $11.8 million of certain one-time advance payments in the Medical Technology business.

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.

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 using an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses considering the location and risks associated with the Company.

A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Condensed Consolidated Balance Sheets is as follows:
Nine Months Ended October 2, 2020
Balance at
Beginning
of Period
Charged to Expense, netWrite-Offs and DeductionsForeign
Currency
Translation
Balance at
End of
Period
(In thousands)
Allowance for credit losses$36,009 $5,099 $(4,251)$(1,882)$34,975 
13

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



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

Net income (loss) per share from continuing operations was computed as follows:
Three Months EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020September 27, 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)
$16,047 $2,901 $20,319 $(18,636)
Weighted-average shares of Common stock outstanding – basic
136,832,909 136,121,017 136,730,112 135,440,566 
Net income (loss) per share from continuing operations – basic
$0.12 $0.02 $0.15 $(0.14)
Computation of Net income (loss) per share from continuing operations - diluted:
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
$16,047 $2,901 $20,319 $(18,636)
Weighted-average shares of Common stock outstanding – basic
136,832,909 136,121,017 136,730,112 135,440,566 
Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units1,257,701 929,143 2,339,794  
Weighted-average shares of Common stock outstanding – diluted
138,090,610 137,050,160 139,069,906 135,440,566 
Net income (loss) per share from continuing operations – diluted
$0.12 $0.02 $0.15 $(0.14)
(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 $0.8 million and $2.2 million for the three and nine months ended October 2, 2020, and $0.9 million and $3.1 million for the three and nine months ended September 27, 2019, respectively.

For all 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 nine months ended October 2, 2020, the weighted-average shares of Common stock outstanding - diluted includes the impact of an additional 1.2 million potentially issuable dilutive shares related to Colfax’s tangible equity units as a result of the Company’s share price in March 2020. 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 and nine months ended October 2, 2020 excludes 2.8 million and 4.2 million, respectively, 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 three and nine months ended September 27, 2019 excludes 4.4 million and 4.6 million, respectively, of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.
14

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



7. Income Taxes

During the three and nine months ended October 2, 2020, Income from continuing operations before income taxes was $36.4 million and $25.2 million, respectively, while the income tax expense was $19.5 million and $2.6 million, respectively. The effective tax rates were 53.7% and 10.5% for the three and nine months ended October 2, 2020, respectively. The effective tax rate for the three months ended October 2, 2020 differed from the 2020 U.S. federal statutory rate of 21% mainly due to the net impact of additional U.S. tax on international operations, withholding taxes, and certain non-deductible expenses. These unfavorable impacts were partially offset by the impact of U.S. tax credits, benefit from U.S. state tax losses, and the realization of tax benefits associated with effective settlements on uncertain tax positions. The effective tax rate for the nine months ended October 2, 2020 differed from the 2020 U.S. federal statutory rate of 21% mainly due to the net impact of U.S. tax credits and benefit from U.S. state tax losses, a discrete tax benefit associated with the filing of timely elected changes to U.S. Federal tax returns to credit rather than to deduct foreign taxes, the impact of an enacted law change in India, and the realization of tax benefits associated with effective settlements on uncertain tax positions. These favorable impacts were partially offset by the impact of additional U.S. tax on international operations, withholding taxes, and certain non-deductible expenses. In conjunction with the filing of the timely elected changes to credit rather than to deduct foreign taxes, the Company obtained additional foreign tax credit carryforwards. The Company evaluated all positive and negative evidence in determining the realizability of these deferred tax assets and based on such evidence, concluded a full valuation allowance was needed.

During the three and nine months ended September 27, 2019, Income (loss) from continuing operations before income taxes was $2.4 million and $(8.7) million, respectively, while the income tax expense (benefit) was $(1.4) million and $6.8 million, respectively. The effective tax rates were (56.0)% and (78.5)% for the three and nine months ended September 27, 2019, respectively. The effective tax rate for the three months ended September 27, 2019 differed from the 2019 U.S. federal statutory rate of 21% mainly due to a discrete tax benefit associated with the enactment of tax law changes in a European jurisdiction offset in part by losses in certain jurisdictions where a tax benefit was not expected to be recognized in 2019, and non-deductible deal costs. The effective tax rate for the nine months ended September 27, 2019 differed from the 2019 U.S. federal statutory rate of 21% mainly due to losses in certain jurisdictions where a tax benefit was not expected to be recognized in 2019, $16.7 million of 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, offset in part by a discrete tax benefit associated with the enactment of tax law changes in a European jurisdiction.

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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 October 2, 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 nine months ended October 2, 2020 and September 27, 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 CostForeign Currency Translation AdjustmentUnrealized Gain on Hedging ActivitiesTotal
(In thousands)
Balance at January 1, 2020$(106,500)$(421,889)$44,544 $(483,845)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment(389)(31,747)1,894 (30,242)
Loss on long-term intra-entity foreign currency transactions (18,023) (18,023)
Loss on net investment hedges  (12,700)(12,700)
Other comprehensive income (loss) before reclassifications(389)(49,770)(10,806)(60,965)
Amounts reclassified from Accumulated other comprehensive loss2,814   2,814 
Net Other comprehensive income (loss) 2,425 (49,770)(10,806)(58,151)
Balance at October 2, 2020$(104,075)$(471,659)$33,738 $(541,996)


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



Accumulated Other Comprehensive Loss Components
Net Unrecognized Pension and Other Post-Retirement Benefit CostForeign Currency Translation AdjustmentUnrealized Gain on Hedging ActivitiesTotal
(In thousands)
Balance at January 1, 2019$(80,794)$(752,989)$38,238 $(795,545)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment859 (120,722)(304)(120,167)
Loss on long-term intra-entity foreign currency transactions (4,197) (4,197)
Gain on net investment hedges  14,258 14,258 
Unrealized gain on cash flow hedges