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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 July 2, 2021
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)
2711 Centerville Road,Suite 400 
Wilmington,Delaware19808
(Address of principal executive offices) (Zip Code)
(302)252-9160
(Registrant’s telephone number, including area code)
420 National Business Parkway,5th Floor
Annapolis Junction,Maryland, 20701
(Former name, former address and former fiscal year, if changed since last report)

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 July 2, 2021, there were 142,341,646 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. Acquisitions
                 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 EndedSix Months Ended
July 2, 2021July 3, 2020July 2, 2021July 3, 2020
Net sales$985,928 $620,360 $1,865,139 $1,436,716 
Cost of sales566,944 379,274 1,075,078 847,416 
Gross profit418,984 241,086 790,061 589,300 
Selling, general and administrative expense337,563 235,727 643,287 527,924 
Restructuring and other related charges5,480 10,280 9,526 19,460 
Operating income (loss)75,941 (4,921)137,248 41,916 
Pension settlement gain(11,208) (11,208) 
Interest expense, net17,805 28,284 43,465 53,080 
Debt extinguishment charges29,870  29,870  
Income (loss) from continuing operations before income taxes39,474 (33,205)75,121 (11,164)
Income tax expense (benefit)8,155 (30,063)16,072 (16,890)
Net income (loss) from continuing operations31,319 (3,142)59,049 5,726 
Loss from discontinued operations, net of taxes(1,617)(4,905)(9,107)(8,265)
Net income (loss)29,702 (8,047)49,942 (2,539)
Less: income attributable to noncontrolling interest, net of taxes1,060 427 2,226 1,454 
Net income (loss) attributable to Colfax Corporation$28,642 $(8,474)$47,716 $(3,993)
Net income (loss) per share - basic
Continuing operations$0.20 $(0.03)$0.39 $0.03 
Discontinued operations$(0.01)$(0.04)$(0.06)$(0.06)
Consolidated operations$0.19 $(0.06)$0.33 $(0.03)
Net income (loss) per share - diluted
Continuing operations$0.19 $(0.03)$0.38 $0.03 
Discontinued operations$(0.01)$(0.04)$(0.06)$(0.06)
Consolidated operations$0.18 $(0.06)$0.32 $(0.03)
    

See Notes to Condensed Consolidated Financial Statements.

2


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Dollars in thousands
(Unaudited)
Three Months EndedSix Months Ended
July 2, 2021July 3, 2020July 2, 2021July 3, 2020
Net income (loss)$29,702 $(8,047)$49,942 $(2,539)
Other comprehensive income (loss):
Foreign currency translation, net of tax expense (benefit) of $896, $(125), $3,176 and $394
8,784 71,866 (44,397)(100,926)
Unrealized gain (loss) on hedging activities, net of tax expense (benefit) of $(737), $(3,977), $3,506 and $(104)
(2,150)(11,660)10,231 (624)
Amounts reclassified from Accumulated other comprehensive loss:
Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $314, $185, $631 and $437
1,045 796 2,100 1,662 
Other comprehensive income (loss)7,679 61,002 (32,066)(99,888)
Comprehensive income (loss)37,381 52,955 17,876 (102,427)
Less: comprehensive income (loss) attributable to noncontrolling interest(369)772 673 (795)
Comprehensive income (loss) attributable to Colfax Corporation$37,750 $52,183 $17,203 $(101,632)


See Notes to Condensed Consolidated Financial Statements.

3


COLFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share amounts
(Unaudited)
July 2, 2021December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$62,309 $97,068 
Trade receivables, less allowance for credit losses of $34,211 and $37,666
599,877 517,006 
Inventories, net663,540 564,822 
Prepaid expenses77,500 69,515 
Other current assets75,746 113,418 
Total current assets1,478,972 1,361,829 
Property, plant and equipment, net480,119 486,960 
Goodwill3,399,030 3,314,541 
Intangible assets, net1,678,421 1,663,446 
Lease asset - right of use162,778 173,942 
Other assets360,176 350,831 
Total assets$7,559,496 $7,351,549 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt$20,480 $27,074 
Accounts payable453,716 330,251 
Accrued liabilities425,223 454,333 
Total current liabilities899,419 811,658 
Long-term debt, less current portion1,576,517 2,204,169 
Non-current lease liability131,541 139,230 
Other liabilities600,059 608,618 
Total liabilities3,207,536 3,763,675 
Equity:
Common stock, $0.001 par value; 400,000,000 shares authorized; 142,341,646 and 118,496,687 issued and outstanding as of July 2, 2021 and December 31, 2020, respectively
142 118 
Additional paid-in capital4,225,248 3,478,008 
Retained earnings565,083 517,367 
Accumulated other comprehensive loss(482,619)(452,106)
Total Colfax Corporation equity4,307,854 3,543,387 
Noncontrolling interest44,106 44,487 
Total equity4,351,960 3,587,874 
Total liabilities and equity$7,559,496 $7,351,549 


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, 2020118,496,687 $118 $3,478,008 $517,367 $(452,106)$44,487 $3,587,874 
Net income— — — 19,074 — 1,166 20,240 
Distributions to noncontrolling owners— — — — — (1,054)(1,054)
Other comprehensive loss, net of tax of $6,840
— — — — (39,621)(124)(39,745)
Conversion of tangible equity units into common stock344,412 — — — — — — 
Common stock repurchases(21,082)— (971)— — — (971)
Common stock offering, net of issuance costs16,100,000 16 711,305 — — — 711,321 
Common stock-based award activity677,314 1 13,403 — — — 13,404 
Balance at April 2, 2021135,597,331 135 4,201,745 536,441 (491,727)44,475 4,291,069 
Net income— — — 28,642 — 1,060 29,702 
Other comprehensive income, net of tax of $473
— — — — 9,108 (1,429)7,679 
Conversion of tangible equity units into common stock6,174,000 6 (6)— — — — 
Common stock repurchases(710)— (32)— — — (32)
Common stock-based award activity571,025 1 23,541 — — — 23,542 
Balance at July 2, 2021142,341,646 $142 $4,225,248 $565,083 $(482,619)$44,106 $4,351,960 

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 


See Notes to Condensed Consolidated Financial Statements.


5


COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(Unaudited)
Six Months Ended
July 2, 2021July 3, 2020
Cash flows from operating activities:
Net income (loss)$49,942 $(2,539)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and other impairment charges128,721 120,038 
Stock-based compensation expense17,262 14,685 
Non-cash interest expense2,676 2,743 
Deferred income tax benefit(3,865)(19,857)
Gain on sale of property, plant and equipment(1,437)(3,400)
Loss on debt extinguishment29,870  
Changes in operating assets and liabilities:
Trade receivables, net(83,458)89,231 
Inventories, net(79,338)352 
Accounts payable124,354 (47,436)
Other operating assets and liabilities(21,975)(60,603)
Net cash provided by operating activities162,752 93,214 
Cash flows from investing activities:
Purchases of property, plant and equipment(44,641)(50,426)
Proceeds from sale of property, plant and equipment3,191 4,996 
Acquisitions, net of cash received, and investments(230,650)(7,548)
Net cash used in investing activities(272,100)(52,978)
Cash flows from financing activities:
Proceeds from borrowings on revolving credit facilities and other455,641 635,678 
Repayments of borrowings on revolving credit facilities and other(383,384)(698,910)
Repayments of borrowings on senior notes(700,000) 
Proceeds from issuance of common stock, net730,002 2,250 
Payment of debt extinguishment costs(24,375) 
Deferred consideration payments and other(6,201)(16,431)
Net cash provided by (used in) financing activities71,683 (77,413)
Effect of foreign exchange rates on Cash and cash equivalents and Restricted cash(1,095)(6,059)
Decrease in Cash and cash equivalents and Restricted cash(38,760)(43,236)
Cash and cash equivalents and Restricted Cash, beginning of period101,069 109,632 
Cash and cash equivalents, end of period$62,309 $66,396 


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. 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 March 4, 2021, the Company announced its intention to separate its fabrication technology and specialty medical technology businesses into two differentiated, independent, and publicly traded companies. The current Colfax entity will retain the specialty medical technology business under a new name, while the fabrication technology business will operate independently under the existing ESAB brand name. The separation is intended to be structured in a tax-free manner and is targeted to be completed in the first quarter of 2022. The assets, liabilities, revenues and expenses of the fabrication technology businesses are included in continuing operations of the Company in the accompanying Condensed Consolidated Financial Statements.

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. Certain prior period amounts have been reclassified to conform to the current period presentation. The Condensed Consolidated Balance Sheet as of December 31, 2020 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, 2020 (the “2020 Form 10-K”), filed with the SEC on February 18, 2021.

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 and included in Selling, general and administrative expense on the Company’s Condensed Consolidated Statements of Operations. Research and development costs were $21.3 million and $41.2 million during the three and six months ended July 2, 2021, respectively, and $14.1 million and $32.6 million during the three and six months ended July 3, 2020, respectively.

During the three months ended July 2, 2021, the Company used the proceeds from its March 2021 equity offering to redeem all $600 million of its 2024 senior notes and $100 million of outstanding principal on its 2026 senior notes. The Company paid an early redemption premium of $24.4 million and recorded a loss on the extinguishment of $29.9 million. Additionally, during the three months ended July 2, 2021, a pension settlement gain of $11.2 million was recognized when the independent trustees of a company pension plan agreed to merge that plan with another company pension plan and contribute its surplus assets.

The results of operations for the three and six months ended July 2, 2021 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
7

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



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. In 2021, these impacts continue to be observed, though to a lesser extent than 2020, primarily as a result of broadening access to COVID-19 vaccines and gradual relaxing of some government-mandated restrictions. The COVID-19 outbreak has caused increased uncertainty in estimates and assumptions affecting the reported amounts of 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 are difficult to forecast. Furthermore, the historical seasonality trends have been disrupted by the commercial impacts caused by the COVID-19 pandemic.


2. Recently Issued Accounting Pronouncements

Accounting Guidance Implemented in 2021
StandardDescriptionEffective 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. The adoption of this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

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 adopted this ASU as of January 1, 2021 on a prospective basis, and the adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements. January 1, 2021

3. Discontinued Operations

The Company 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, net of taxes. Asbestos-related costs, net of taxes were $1.6 million and $2.5 million during the three and six months ended July 2, 2021, respectively, and $1.4 million and $2.8 million during the three and six months ended July 3, 2020, respectively. See Note 13, “Commitments and Contingencies” for further information.

The Company also recorded Loss from discontinued operations, net of taxes of $0.1 million and $6.6 million during the three and six months ended July 2, 2021, respectively, and $3.5 million and $5.5 million during the three and six months ended July 3, 2020, respectively, related to its divested air and gas handling business, including a settlement executed in the first quarter of 2021, as well as certain professional, legal, and consulting fees in 2020.

Cash used in operating activities related to discontinued operations for the six months ended July 2, 2021 and July 3, 2020 was $4.6 million and $7.9 million, respectively.

4. Acquisitions

The Company completed one acquisition in its Fabrication Technology segment and three acquisitions in its Medical Technology segment during the six months ended July 2, 2021 for total consideration, net of cash received, of $215.9 million. The acquisitions are accounted for under the acquisition method of accounting, and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the respective acquisition date. The Condensed Consolidated Balance Sheet as of July 2, 2021 reflects our preliminary estimates of fair value and are subject to adjustment. The Company also made two investments in medical technology businesses during the six months ended July 2, 2021 for a total of $14.8 million. Both investments are carried at cost, as they do not have a readily determinable fair value.
8

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



In the first quarter of 2021 the Medical Technology segment acquired Trilliant Surgical (“Trilliant”), a national provider of foot and ankle orthopedic implants. The product technologies of Trilliant support the Medical Technology segment’s focused expansion into the adjacent foot and ankle market. Trilliant has a broad product portfolio that covers the full universe of foot reconstructive and fixation procedures, and includes the novel Arsenal Foot Plating System, designed for greater flexibility and speed of implant placement. In the second quarter of 2021, the Medical Technology segment acquired MedShape, Inc.
(“MedShape”), a provider of innovative surgical solutions for foot and ankle surgeons using its patented superelastic nickel titanium (NiTiNOL) and shape memory polymer technologies. This acquisition further expands the Company's foot and ankle platform. These two acquisitions were completed for total consideration, net of cash received, of $205.4 million, subject to certain adjustments. Net working capital and intangible assets acquired represent 9% and 47% of the total consideration paid for these two acquisitions, respectively, with the residual amount primarily attributable to Goodwill. The Goodwill acquired in the Trilliant acquisition is expected to be deductible for income tax purposes. The estimated proforma annual revenues, as if the Trilliant and MedShape acquisitions occurred on January 1, 2021, are approximately 1% of Colfax’s consolidated revenues.

In addition, on June 7, 2021, the Company entered a definitive agreement to acquire Mathys AG Bettlach (“Mathys”) for total acquisition consideration of approximately $285 million, expected to be financed with Colfax common stock. Mathys, a Switzerland-based company, develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions, and sports medicine. The acquisition expands the Medical Technology segment’s reconstructive product portfolio with Mathys’ complimentary surgical solutions and international customer base. The transaction is expected to close on July 28, 2021 subsequent to the filing of this Form 10-Q, subject to the satisfaction of closing conditions.

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 EndedSix Months Ended
July 2, 2021July 3, 2020July 2, 2021July 3, 2020
(In thousands)
Equipment$198,856 $129,033 $372,606 $285,833 
Consumables430,948 285,334 825,326 654,071 
Total$629,804 $414,367 $1,197,932 $939,904 

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 orthopedic 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 EndedSix Months Ended
July 2, 2021July 3, 2020July 2, 2021July 3, 2020
(In thousands)
Prevention & Recovery(1)
$269,968 $159,851 $505,206 $383,636 
Reconstructive86,156 46,142 162,001 113,176 
Total$356,124 $205,993 $667,207 $496,812 
(1) For the periods presented, the Prevention & Recovery product group includes bone growth stimulation products, which were previously classified as part of the Reconstructive product group.

9

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



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 July 2, 2021 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, 2020 and 2019, total contract liabilities were $36.6 million and $14.8 million, respectively. During the three and six months ended July 2, 2021, revenue recognized that was included in the contract liability balance at the beginning of the year was $5.1 million and $19.4 million, respectively. During the three and six months ended July 3, 2020, revenue recognized that was included in the contract liability balance at the beginning of the year was $3.8 million and $8.7 million, respectively. As of July 2, 2021 and July 3, 2020, total contract liabilities were $33.5 million and $33.1 million, respectively, and were included in Accrued liabilities on the Company’s Condensed Consolidated Balance Sheets. The contract liabilities as of July 2, 2021 and December 31, 2020 include $9.9 million and $11.8 million of certain one-time advance payments in the Medical Technology business, respectively.

Allowance for Credit Losses

The Company’s 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. In calculating and applying its current expected credit losses, the Company disaggregates trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. The business segments are further disaggregated based on either geography or product type.

The Company uses a loss rate methodology in calculating its current expected credit losses, leveraging 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:
Six Months Ended July 2, 2021
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$37,666 $579 $(3,440)$(594)$34,211 
10

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




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

Net income per share from continuing operations was computed as follows:
Three Months EndedSix Months Ended
July 2, 2021July 3, 2020July 2, 2021July 3, 2020
(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)
$30,259 $(3,569)$56,823 $4,272 
Weighted-average shares of Common stock outstanding – basic
153,875,957 136,756,449 146,708,649 136,677,521 
Net income (loss) per share from continuing operations – basic
$0.20 $(0.03)$0.39 $0.03 
Computation of Net income (loss) per share from continuing operations - diluted:
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
$30,259 $(3,569)$56,823 $4,272 
Weighted-average shares of Common stock outstanding – basic
153,875,957 136,756,449 146,708,649 136,677,521 
Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units1,987,368  2,077,643 2,880,841 
Weighted-average shares of Common stock outstanding – diluted
155,863,325 136,756,449 148,786,292 139,558,362 
Net income (loss) per share from continuing operations – diluted
$0.19 $(0.03)$0.38 $0.03 
(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 income attributable to noncontrolling interest, net of taxes, of $1.1 million and $2.2 million for the three and six months ended July 2, 2021, respectively, and $0.4 million and $1.5 million for the three and six months ended July 3, 2020, 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. During the three and six months ended July 2, 2021, conversions of the Company’s tangible equity units resulted in the issuance of approximately 6.2 million and 6.5 million shares of Colfax common stock, respectively. The issued shares are included in the Common stock issued and outstanding as July 2, 2021. For the six months ended July 3, 2020, the weighted-average shares of Common stock outstanding - diluted includes the impact of an additional 1.9 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 six months ended July 2, 2021 excludes 1.6 million and 1.3 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 six months ended July 3, 2020 excludes 4.9 million and 4.2 million, respectively, of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.

11

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



7. Income Taxes

During the three and six months ended July 2, 2021, Income from continuing operations before income taxes was $39.5 million and $75.1 million, respectively, while the income tax expense was $8.2 million and $16.1 million, respectively. The effective tax rates were 20.7% and 21.4% for the three and six months ended July 2, 2021, respectively, which both differed slightly from the 2021 U.S. federal statutory rate of 21% mainly due to the effective settlements on uncertain tax positions and U.S. tax credits, offset by withholding taxes, U.S. tax on international operations, and other non-deductible expenses.

During the three and six months ended July 3, 2020, Loss from continuing operations before income taxes was $33.2 million and $11.2 million, respectively, while the income tax benefit was $30.1 million and $16.9 million, respectively. The effective tax rates were 90.5% and 151.3% for the three and six months ended July 3, 2020, respectively. The effective tax rate for the three months ended July 3, 2020 differed from the 2020 U.S. federal statutory rate of 21% mainly due to the net impact of U.S. tax credits and state taxes on the forecasted rate and a $6.8 million 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 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 and taxable foreign exchange gains. The effective tax rate for the six months ended July 3, 2020 differed from the 2020 U.S. federal statutory rate of 21% mainly due to the net impact of U.S. tax credits and state taxes on the forecasted rate and the previously mentioned 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 and taxable foreign exchange gains. Income taxes for the six months ended July 3, 2020 were calculated forecasting an estimated annual effective tax rate for the full year. Income taxes for the three months ended July 3, 2020 were calculated forecasting an estimated annual effective tax rate for the full year less the income tax expense for the period ended April 3, 2020. 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.
12

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



8. Equity

Common Stock

On March 19, 2021, the Company completed the underwritten public offering of 16.1 million shares of Colfax Common stock at a price to the public of $46.00 per share, resulting in net proceeds of approximately $711.3 million, after deducting offering expenses and underwriters’ discount and commissions.

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 July 2, 2021, 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 six months ended July 2, 2021 and July 3, 2020. 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, 2021$(112,783)$(360,977)$21,654 $(452,106)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment583 (71,276)(2,076)(72,769)
Gain on long-term intra-entity foreign currency transactions 29,925  29,925 
Gain on net investment hedges  10,231 10,231 
Other comprehensive income (loss) before reclassifications583 (41,351)8,155 (32,613)
Amounts reclassified from Accumulated other comprehensive loss2,100   2,100 
Net Other comprehensive income (loss) 2,683 (41,351)8,155 (30,513)
Balance at July 2, 2021$(110,100)$(402,328)$29,809 $(482,619)


13

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, 2020$(106,500)$(421,889)$44,544 $(483,845)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment554 (68,494)(1,276)(69,216)
Loss on long-term intra-entity foreign currency transactions (31,841) (31,841)
Gain on net investment hedges  1,756 1,756 
Other comprehensive income (loss) before reclassifications554 (100,335)480 (99,301)
Amounts reclassified from Accumulated other comprehensive loss1,662   1,662 
Net Other comprehensive income (loss) 2,216 (100,335)480 (97,639)
Balance at July 3, 2020$(104,284)$(522,224)$45,024 $(581,484)

Tangible equity unit (“TEU”) offering

On January 11, 2019, the Company issued 4.6 million TEUs at the stated amount of $100 per unit. Net cash of $447.7 million was received upon closing. A portion of the proceeds from the issuance of the TEUs were allocated initially to equity (the “TEU prepaid stock purchase contract”) and debt (the “TEU amortizing notes”) based on the relative fair value of the respective components of each TEU. See Note 10, “Debt ” for further information regarding the TEU amortizing notes.
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, 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, 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, the holder will receive 4.8054 shares of common stock for each purchase contract (the “maximum settlement rate”).

Earnings per share

Unless the TEU 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 effect is not anti-dilutive and the average Applicable Market Value is higher than the reference price but is less than the threshold appreciation price. During the three and six months ended July 2,
14

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



2021, 1.5 million and 1.6 million stock purchase contracts were converted into approximately 6.2 million and 6.5 million shares of Colfax common stock, respectively, at a conversion rate of 4.0 shares per contract.

9. Inventories, Net

Inventories, net consisted of the following:
July 2, 2021December 31, 2020
(In thousands)
Raw materials$133,447 $110,848 
Work in process46,800 40,517 
Finished goods541,800 476,297 
722,047 627,662 
Less: allowance for excess, slow-moving and obsolete inventory(58,507)(62,840)
Inventories, net$663,540 $564,822 

10. Debt

Long-term debt consisted of the following:
July 2, 2021December 31, 2020
(In thousands)
Term loan$781,976 $781,557 
Euro senior notes411,659 425,045 
2024 and 2026 notes297,668 991,319 
TEU amortizing notes19,120 31,251 
Revolving credit facilities and other86,574 2,071 
Total debt1,596,997 2,231,243 
Less: current portion(20,480)(27,074)
Long-term debt$1,576,517 $2,204,169 
    
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 with an initial 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. Certain U.S. subsidiaries of the Company guarantee the 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 Net Debt (as defined in the Credit Facility) to EBITDA (as defined in the Credit Facility) of 5.25:1.00 for the quarter ending June 30, 2021, 4.50:1.00 for the quarter ending September 30, 2021, 4.25:1.00 for the quarters ending December 31, 2021 and March 31, 2022, 4.00:1.00 for the quarters ending June 30, 2022 and September 30, 2022, and 3.50:1.00 as of December 31, 2022 and for each fiscal quarter ending thereafter, and (ii) a minimum interest coverage ratio of 2.75:1.00 for each fiscal quarter until June 30, 2021, and then 3.00:1.00 for the quarters ending September 30, 2021 and thereafter. The Credit Facility also includes a “springing” collateral provision (based upon the Gross Leverage Ratio as defined in the Amendment to the Credit Facility) which requires the obligations under the Amendment to the Credit Facility to be secured by substantially all personal property of Colfax and its U.S. subsidiaries and the equity of its first tier foreign subsidiaries, subject to customary exceptions, in the event Colfax’s gross leverage ratio under the Credit Facility is greater than 5.00:1.00 as of the last day of any fiscal quarter. 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
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COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Term Loan and the Revolver. As of July 2, 2021, the Company was in compliance with the covenants under the Credit Facility.

As of July 2, 2021, the weighted-average interest rate of borrowings under the Credit Facility was 1.84%, excluding accretion of original issue discount and deferred financing fees, and there was $890 million available on the Revolver.

Euro Senior Notes

The Company has 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 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

Each TEU amortizing note has an initial principal amount of $15.6099, bears interest at a rate of 6.50% per annum, and has equal quarterly cash installments of $1.4375 per TEU amortizing note with a final installment payment date of January 15, 2022. The quarterly cash installment constitutes a payment of interest and a partial repayment of principal. The Company paid $12.3 million and $11.5 million of principal on the TEU amortizing notes in the six months ended July 2, 2021 and July 3, 2020, respectively. 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. For more information on the TEUs, refer to Note 8, “Equity.”

2024 Notes and 2026 Notes

The Company had senior notes with an initial aggregate principal amount of $600 million (the “2024 Notes”), which were due on February 15, 2024 and had an interest rate of 6.0%. The Company has senior notes with an aggregate initial principal amount of $400 million (the “2026 Notes”), which are due on February 15, 2026 and have an interest rate of 6.375%. The 2026 Notes are guaranteed by certain domestic subsidiaries of the Company.

On April 24, 2021, the Company redeemed all $600 million outstanding principal amount of its 2024 Notes and $100 million of the outstanding principal amount of its 2026 Notes for $724.4 million. The 2024 Notes were redeemed at a redemption price of 103.000% of their principal amount and the 2026 Notes were redeemed at a redemption price of 106.375% of their principal amount, plus, in each case, accrued and unpaid interest through the date of redemption. In the second quarter of 2021, a net loss on the early extinguishment of debt of $29.9 million was recorded and included $24.4 million of call premium on the retired debt.

Other Indebtedness

In addition to the debt agreements discussed above, the Company is party to various bilateral credit facilities with a borrowing capacity of $192.6 million. As of July 2, 2021, there were no outstanding borrowings under these facilities.

The Company is party to letter of credit facilities with an aggregate capacity of $339.8 million. Total letters of credit of $70.1 million were outstanding as of July 2, 2021.

Deferred Financing Fees

In total, deferred financing fees related to the Company’s debt activities were $14.4 million as of July 2, 2021, which will be charged to Interest expense, net, primarily using the effective interest method, over the life of the applicable debt agreements.


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



11. Accrued Liabilities

Accrued liabilities in the Condensed Consolidated Balance Sheets consisted of the following:
July 2, 2021December 31, 2020
(In thousands)
Accrued compensation and related benefits$108,835 $98,455 
Accrued taxes38,152 57,286 
Accrued asbestos-related liability45,640 41,626 
Warranty liability - current portion17,203 15,543 
Accrued restructuring liability - current portion6,005 7,889 
Accrued third-party commissions29,574 25,480 
Customer advances and billings in excess of costs incurred33,463 36,737 
Lease liability - current portion36,236 39,695 
Accrued interest10,230 27,153 
Other99,885 104,469 
Accrued liabilities$425,223 $454,333 

Warranty Liability
The activity in the Company’s warranty liability consisted of the following:
Six Months Ended
July 2, 2021July 3, 2020
(In thousands)
Warranty liability, beginning of period$15,543 $15,528 
Accrued warranty expense5,085 3,256 
Changes in estimates related to pre-existing warranties1,062 528 
Cost of warranty service work performed(4,699)(4,547)
Acquisition-related liability321  
Foreign exchange translation effect(109)(453)
Warranty liability, end of period$17,203 $14,312 
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COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)




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:
Six Months Ended July 2, 2021
Balance at Beginning of PeriodProvisionsPaymentsForeign Currency Translation
Balance at End of Period(3)
(In thousands)
Restructuring and other related charges:
Fabrication Technology: