UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORMForm 10-K
(Mark One)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to             _______to_______

Commission File Number:No. 001-34045
_________________________
Colfax CorporationCOLFAX CORPORATION
 (Exact(Exact name of registrant as specified in its charter)
Delaware
DELAWARE54-1887631
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)(I.R.S. Employer Identification No.)Number)
  
8170 Maple Lawn Boulevard, SuiteMAPLE LAWN BOULEVARD, SUITE 180
Fulton, Maryland
20759
FULTON, MARYLAND(Zip Code)
(Address of principal executive offices) (Zip Code)

Registrant's301-323-9000
(Registrant’s telephone number, including area code: 301-323-9000code)
_________________________
Securities Registered Pursuant to Section
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:OF THE ACT:
Title of Each Class
TITLE OF EACH CLASSName of Each Exchange On Which RegisteredNAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.001 par value $0.001 per shareThe New York Stock Exchange

Securities registered pursuant to SectionSECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:OF THE ACT:
None
NONE
(Title of Class)

_________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  þ No ¨  No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes ¨No xþ

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 xþ No o¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). Yes þ No ¨     No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨
(Do not check if a smaller reporting company) Smaller reporting company ¨
  Large accelerated filer   ¨
Accelerated filer   x
Non-accelerated filer   ¨
Smaller reporting company   ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xþ

The aggregate market value of common shares held by non-affiliates of the Registrant on July 2, 2010June 28, 2013 was $253,477,763$3.890 billion based upon the closingaggregate price of the registrant'sregistrant’s common shares as quoted on the New York Stock Exchange composite tape on such date.

As of January 31, 2011,February 3, 2014, the number of shares of registrant’sthe Registrant’s common stock outstanding was 43,414,344.102,132,719.

EXHIBIT INDEX APPEARS ON PAGE 8595

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant’sRegistrant’s definitive proxy statement for its 20112014 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’sRegistrant’s fiscal year covered by this report. With the exception of the sections of the 20112014 proxy statement specifically incorporated herein by reference, the 20112014 proxy statement is not deemed to be filed as part of this Form 10-K.


TABLE OF CONTENTS

PAGE
PART I
Item 1.Business2
Item 1A.Risk Factors10
Item 1B.Unresolved Staff Comments17
Item 2.Properties18
Item 3.Legal Proceedings18
Item 4.[Removed and Reserved]18
Executive Officers of the Registrant18
PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities19
Item 6.Selected Financial Data21
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations22
Item 7A.Quantitative and Qualitative Disclosures About Market Risk40
Item 8.Financial Statements and Supplementary Data41
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure80
Item 9A.Controls and Procedures80
Item 9B.Other Information81
PART III
Item 10.Directors, Executive Officers and Corporate Governance81
Item 11.Executive Compensation81
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters81
Item 13.Certain Relationships and Related Transactions, and Director Independence82
Item 14.Principal Accountant Fees and Services82
PART IV
Item 15.Exhibits and Financial Statement Schedules82
ItemDescriptionPage
 Special Note Regarding Forward-Looking Statements
2
   
 Part I 
1Business
3
1ARisk Factors
8
1BUnresolved Staff Comments
20
2Properties
20
3Legal Proceedings
20
4Mine Safety Disclosures
20
 Executive Officers of the Registrant
20
   
 Part II 
5Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
22
6Selected Financial Data
23
7Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
7AQuantitative and Qualitative Disclosures About Market Risk
40
8Financial Statements and Supplementary Data
42
9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
90
9AControls and Procedures
90
9BOther Information
91
   
 Part III 
10Directors, Executive Officers and Corporate Governance
91
11Executive Compensation
91
12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
91
13Certain Relationships and Related Transactions, and Director Independence
91
14Principal Accountant Fees and Services
91
   
 Part IV 
15Exhibits and Financial Statement Schedules
92
   
 Signatures
93
 Exhibit Index
95


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Unless otherwise indicated, references in this Annual Report on Form 10-K (this “Form 10-K”) to “Colfax”,“Colfax,” “the Company”, “we”, “our”Company,” “we,” “our,” and “us” refer to Colfax Corporation and its subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Annual ReportForm 10-K that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Annual ReportForm 10-K is filed with the SEC.Securities and Exchange Commission (the “SEC”). All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding: projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, pension and benefit obligations and funding requirements, synergies or other financial items; plans, strategies and objectives of management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments; developments, performance or industry or market rankings relating to products or services; future economic conditions or performance; the outcome of outstanding claims or legal proceedings including asbestos-related liabilities and insurance coverage litigation; potential gains and recoveries of costs; assumptions underlying any of the foregoing; and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Forward-looking statements may be characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions. These statements are based on assumptions and assessments made by our management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to the following:

risks associated with our international operations;
significant movements in foreign currency exchange rates;
changes in the general economy, as well as the cyclical nature of the markets we serve;

our markets;
ability to identify, finance, acquire and successfully integrate attractive acquisition targets;

our exposure to unanticipated liabilities resulting from acquisitions;

our ability and the ability of our customers to access required capital at a reasonable cost;

our ability to accurately estimate the cost of or realize savings from our restructuring programs;

availability and cost of raw materials, parts and components used in our products;
the competitive environment in our industry;
our ability to identify, finance, acquire and successfully integrate attractive acquisition targets;
the amount of and our ability to estimate our asbestos-related liabilities;

material disruption at any of our significant manufacturing facilities;
the solvency of our insurers and the likelihood of their payment for asbestos-related costs;

material disruptions at any of our manufacturing facilities;

noncompliance with various laws and regulations associated with our international operations, including anti-bribery laws, export control regulations and United States (“U.S.”) sanctions and embargoes on certain foreign countries;

risks associated with our international operations;

risks associated with the representation of our employees by trade unions and work councils;

our exposure to product liability claims;

potential costs and liabilities associated with environmental laws and regulations;

failure to maintain and protect our intellectual property rights;

the loss of key members of our leadership team;

restrictions in our credit agreement with Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and certain other lender parties named therein (the “Deutsche Bank Credit Agreement”) that may limit our flexibility in operating our business;

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impairment in the value of intangible assets;

the funding requirements or obligations of our defined benefit pension plans and other post-retirement benefit plans;

significant movements in foreign currency exchange rates;

availability and cost of raw materials, parts and components used in our products;

new regulations and customer preferences reflecting an increased focus on environmental, social and governance issues, including new regulations related to the use of conflict minerals;

service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure;

risks arising from changes in technology;

the competitive environment in our industry;

changes in our tax rates or exposure to additional income tax liabilities;

our ability to manage and grow our business and execution of our business and growth strategies;

our recent substantial leadership turnover and realignment;
our ability and the ability of customers to access required capital at a reasonable cost;
our ability to expand our business in our targeted markets;
our ability to cross-sell our product portfolio to existing customers;
the level of capital investment and expenditures by our customers in our strategic markets;

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our financial performance;
and

our ability to identify, address and remediate any material weakness in our internal control over financial reporting; and
othersother risks and factors, listed in Item 1A. Risk Factors“Risk Factors” in Part I of this Form 10-K.

Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. These forward-looking statements speak only as of the date this Annual ReportForm 10-K is filed with the SEC. We do not assume any obligation and do not intend to update any forward-looking statement except as required by law. See Item IA. Risk Factors1A. “Risk Factors” in Part I of this Form 10-K for a further discussion regarding some of the reasonsfactors that may cause actual results may beto differ materially different from those that we anticipate.


PART I

ITEM 1.BUSINESS
Item 1. Business

General

Colfax Corporation is a diversified global supplier of a broad range of fluid handlingindustrial manufacturing and engineering company that provides gas- and fluid-handling and fabrication technology products including pumps, fluid handling systems and controls,services to commercial and specialty valves. We believe that we are a leading manufacturer of rotary positive displacement pumps, which include screw pumps, gear pumps and progressive cavity pumps. We design and engineer our products to high quality and reliability standards for use in critical fluid handling applications where performance is paramount. We also offer customized fluid handling solutions to meet individual customer needs based on our in-depth technical knowledge ofgovernmental customers around the applications in which our products are used. 

Our products are marketed principallyworld under the Allweiler, Baric, Fairmount, Houttuin, Imo, LSC, Portland Valve, Tushaco, WarrenHowden, ESAB and ZenithColfax Fluid Handling brand names. We believe that our brands are widely known and haveOur business has been built through a premium position in our industry. Allweiler, Houttuin, Imo and Warren are among the oldest and most recognized brands in the markets in which we participate, with Allweiler dating back to 1860.  We have a global manufacturing footprint, with production facilities in Europe, North America and Asia,series of acquisitions, as well as worldwide salesorganic growth, since its founding in 1995. We seek to build an enduring premier global enterprise by applying the Colfax Business System (“CBS”) to pursue growth in revenues and distribution channels.improvements in operating margins and cash flow.

Colfax began with a series of acquisitions in the fluid-handling and mechanical power transmission sectors, most notably those of Imo and Allweiler in 1997 and 1998, respectively. In 2004, we divested our mechanical power transmission operations and focused on fluid handling. Through the end of 2011, we made a series of strategic acquisitions in this sector, including: Lubrication Systems Company (“LSC”), PD-Technik Ingenieurbüro GmbH (“PD-Technik”), Baric Group (“Baric”), Rosscor Holding B.V. (“Rosscor”) and COT-Puritech, Inc. (“COT-Puritech”).
On January 13, 2012, we closed the acquisition of Charter International plc (“Charter”) by Colfax (the “Charter Acquisition”), which transformed Colfax from a fluid-handling business into a multi-platform enterprise with a strong global footprint. This acquisition provided an additional growth platform in the fragmented fabrication technology industry, while broadening the scope

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of our fluid-handling platform to include air- and gas-handling products.

Following the Charter Acquisition, we announced the following additional acquisitions that we expect will grow and strengthen our business:

Gas and Fluid Handling

In September 2012, we acquired Co-Vent Group Inc. (“Co-Vent”), a leading supplier of industrial fans based in Quebec, Canada.
In July 2013, we acquired Clarus Fluid Intelligence, LLC (“Clarus”), a domestic supplier of flushing services for marine applications primarily to U.S. government agencies, with primary operations in Bellingham, Washington.

In September 2013, we acquired certain business units of The New York Blower Company, including TLT-Babcock Inc. (“TLT-Babcock”) and Alphair Ventilating Systems Inc. (“Alphair”), suppliers of heavy duty and industrial fans in Akron, Ohio and Winnepeg, Ontario, respectively.

In November 2013, we acquired ČKD Kompresory a.s. (“ČKDK”), a leading supplier of multi-stage centrifugal compressors to the oil & gas, petrochemical, power and steel industries, based in Prague, Czech Republic.
In November 2013, we acquired the remaining ownership of Sistemas Centrales de Lubrication S.A. de C.V. (“Sicelub”), previously a less than wholly owned subsidiary in which the Company did not have a controlling interest. Sicelub provides flushing services to Central and South American customers primarily in the oil, gas and petrochemical end market.

In November 2013, we acquired the global infrastructure and industry division of Fläkt Woods Group (“GII”), an international supplier of heavy duty industrial and cooling fans.

Fabrication Technology

In May 2012, we acquired the remaining ownership of CJSC Sibes (“Sibes”), a less than wholly owned Russian subsidiary in which the Company did not have a controlling interest.
In October 2012, we acquired approximately 91% of Soldex S.A. (“Soldex”), a leading South American supplier of welding products. In August 2013, we increased our ownership of Soldex to approximately 99%.
We employ a comprehensive set of tools that we refer to as the Colfax Business System, or CBS. CBS, is a disciplined strategic planning and execution methodology designed to achieve excellence and world-class financial performance in all aspects of our business by focusing on the Voice of the Customer and continuously improving quality, delivery and cost.  Modeledmodeled on the Danaher Business System, CBS focuses on conducting root-cause analysis, developingis our business management system. It is a repeatable, teachable process improvements and implementing sustainable systems. Our approach addresses the entire business, not just manufacturing operations.

We currently serve markets that have a need for highly engineered, critical fluid handling solutions and are global in scope. Our strategic markets include:

Strategic Markets
Applications                                                
Commercial MarineFuel oil transfer; lubrication; water and wastewater handling; cargo handling
Oil and GasCrude oil gathering; pipeline services; unloading and loading; rotating equipment lubrication; lube oil purification
Power GenerationFuel unloading, transfer, burner and injection; rotating equipment lubrication
Global DefenseFuel oil transfer; oil transport; water and wastewater handling; firefighting; fluid control
General IndustrialMachinery lubrication; hydraulic elevators; chemical processing; pulp and paper processing; food and beverage processing; distribution
We serve a global customer base across multiple markets through a combination of direct sales and marketing associates and third-party distribution channels.  Our customer base is highly diversified and includes commercial, industrial and government customers such as Alfa Laval Group, General Dynamics Corporation, Siemens AG, the U.S. Navy and various sovereign navies around the world. Our business is not dependent on any single customer or a few customers.  In 2010, no single customer represented more than 6% of sales.

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Our business began with an initial investment by our founders in 1995 with the intentionwe use to acquire, manage and create a world-class industrial manufacturing company. We seek to acquire businesses with leading market positions and brands that exhibit strong cash flow generation potential. With our management expertise and the introduction of CBS into our acquired businesses, we pursue growth in revenues, improvements in operating margins and increasing cash flow.
Since our platform acquisitions of Imo and Allweiler in 1997 and 1998, respectively, we have completed additional acquisitions that have broadened our fluid handling product portfolio and geographic footprint.  A summary of recent acquisition activity follows:

·In January 2007, we acquired LSC, a manufacturer of fluid handling systems. LSC designs, manufactures, installs and maintains oil mist lubrication and oil purification systems in refineries, petrochemical plants and other processing facilities.

·In November 2007, we acquired Fairmount, an original equipment manufacturer of mission critical programmable automation controllers in fluid handling applications primarily for the U.S. Navy.

·In August 2009, we acquired PD-Technik, a provider of marine aftermarket related products and services.

·In August 2010, we acquired Baric Group, a premier supplier of engineered fluid handling systems primarily for the oil and gas market.
In addition to our acquisitions, in 2005 we opened a green-field production facility in Wuxi, China to manufacture and assemble complete products and systemssuperior value for our customers, shareholders and associates. Rooted in Chinaour core values, it is our culture. CBS provides the tools and other Asian markets andtechniques to supply low cost components and parts for our existing operations.
Our Industry
Based on industry data supplied by The Freedonia Group and European Industrial Forecasting, we estimate the worldwide fluid handling market, which we define as industrial pumps, valves, and gaskets and seals, to have been $130 billion in 2009. Within this market, we primarily compete in the estimated $5 billion global rotary positive displacement pump market, a sub-section of the estimated $14 billion positive displacement pump market. We are also a competitor in the estimated $28 billion centrifugal pump market and the estimated $50 billion valve market.

We believe that there are over 9,000 companies competing in the worldwide fluid handling industry. The fluid handling industry’s customer base is broadly diversified across many sectors of the economy, and we believe customers place a premium on quality, reliability, availability, design and application engineering support. Because products in the fluid handling industry often are used as components in critical applications, we believe the most successful industry participants are those that have the technical capabilities to meet customer specifications, offer products with reputations for quality and reliability, and can provide timely delivery and strong aftermarket support.
Competitive Strengths
Strong Market Positions, Broad Product Portfolio and Leading Brands.   We believeensure that we are a leading manufacturer of rotary positive displacement pumps, which include screw pumps, gear pumps and progressive cavity pumps. We offer a broad portfolio of fluid handling products that fulfill critical needs of customers across numerous industries. Our brands are among the oldest and most recognized in the markets in which we participate.
Strong Application Expertise.   We believe thatcontinuously improving our reputation for quality and technical expertise positions us as a premium supplier of fluid handling products. With 150 years of experience, we have significant expertise in designing and manufacturing fluid handling products that are used in critical applications, such as lubricating power generation turbines, transporting crude oil through pipelines, and transferring heavy fuel oil in commercial marine vessels.

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Extensive Global Sales, Distribution and Manufacturing Network.   We sell our products through more than 400 direct sales, customer service and marketing associates and approximately 185 authorized distributors in more than 95 countries. We believe that our global reach within the highly fragmented, worldwide fluid handling industry provides us with an ability to better serve our customers. Our European, North American and Asian manufacturing capabilities provide us with the abilitymeet or exceed customer requirements on a consistent basis.

Each year, Colfax associates in every business are asked to optimize material sourcing, transportation and production costs and reduce foreign currency risk.
We Use CBS to Continuously Improve Our Business.   CBS is our business system designed to encourage a culture of continuous improvement in all aspects of our operations anddevelop aggressive strategic planning. Modeledplans which are based on the Danaher Business System, CBS focuses on conducting root-cause analysis, developing process improvements and implementing sustainable systems. Our approach addresses the entire business, not just manufacturing operations.
Large Installed Base Generating Aftermarket Sales and Service.   With a history dating back to 1860, we have a significant installed base across numerous industries. Because of the critical applications in which our products are used and the high quality and reliability of our products, we believe there is a tendency to replace “like for like” products. This tendency leads to significant aftermarket demand for replacement products as well as for spare parts and service. In the year ended December 31, 2010, approximately 24% of our revenues were derived from aftermarket sales and services.
Broad and Diverse Customer Base.   Our customer base spans numerous industries and is geographically diverse. Approximately 75% of our sales in 2010 were delivered to customers outside of the U.S. In addition, no single customer represented more than 6% of our sales during this period.
Leadership Team with Focus on CBS and Experience in Integrating Acquisitions.   We are led by a senior leadership team with experience in the application of CBS methodology to all aspects of industrial manufacturing operations. We believe that we have extensive experience in acquiring and effectively integrating attractive acquisition targets.
Growth Strategy
We intend to continue to increase our sales, expand our geographic reach, broaden our product offerings, and improve our profitability through the following strategies:
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Apply CBS to Drive Profitable Sales Growth and Increase Shareholder Value.    The core element of our operating philosophy is CBS. CBS focuses our organization on continuous improvement and performance goals by empowering our associates to develop innovative strategies to meet customer needs. Rather than a static process, CBS continues to evolve as we benchmark ourselves against best-in-class industrial companies.
Beyond the traditional application of cost control, overhead rationalization, global process optimization, and implementation of lean manufacturing techniques, we utilize CBS to identify strategic opportunities to enhance future sales growth. The foremost principle of CBS is the Voice of the Customer, which drives. In these plans, we are very clear about our activities to continuously improve customer service, product quality, deliverymarket realities, our threats, our risks, our opportunities and cost. The Voice of the Customer is instrumental in the development of differentiated products, servicesmost importantly, our vision forward. Execution and solutions by utilizing a formal interview process with the end usersmeasurement of our productsplans is important to identify “pain points” or customer needs. By engaging end users in the discussion, rather than solely relying on salespeople or channel partners for anecdotal input,process. Our belief is that when we seeuse the real issues and opportunities. We then prioritize these opportunities with the intention of implementing novel or breakthrough ideas that uniquely solve end-user needs. As we continue to apply the methodologytools of CBS to drive the implementation of these plans, we are able to uniquely provide the customer with the world class quality, delivery, cost and growth they require. And that performance, we believe, is what ultimately helps our existing businesscustomers and Colfax grow and succeed on a sustainable basis.

Reportable Segments

Upon the closing of the Charter Acquisition, we changed the composition of our reportable segments to reflect the changes in our internal organization resulting from the integration of the acquired businesses. We now report our operations through the gas- and fluid handling and fabrication technology segments. For certain financial information, including Net sales and long-lived assets by geographic area, see Note 16, “Segment Information” in the accompanying Notes to Consolidated Financial Statements in this Form 10-K.


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Gas and Fluid Handling

Our gas- and fluid-handling segment is a global supplier of a broad range of products, including pumps, fluid-handling systems and controls, specialty valves, heavy-duty centrifugal and axial fans, rotary heat exchangers and gas compressors, which serves customers in the power generation, oil, gas and petrochemical, mining, marine (including defense) and general industrial and other end markets.
Our gas-handling products are principally marketed under the Howden brand name, and are manufactured and engineered in facilities located in Asia, Europe, North and South America, Australia and Africa. Our fluid-handling products are marketed principally under the Colfax Fluid Handling brand name, as well as a portfolio of brands, including Allweiler, Imo and Total Lubrication Management. We manufacture and assemble our fluid-handling products at locations in Europe, North America and Asia.

Our gas- and fluid-handling products and services are generally sold directly, though independent representatives and distributors are also used.

Fans

Howden fans primarily consist of heavy-duty axial, centrifugal and industrial cooling fans. Axial fans include non-variable pitch, variable pitch, OEM and mixed flow axial fans. Centrifugal fans consist of custom engineered, pre-engineered and OEM centrifugal fans. Ranging in diameter from 200mm to future acquisitions,over 5m, and with a variety of impeller designs, control systems and layout options, our fans form a comprehensive series of axial and centrifugal fans to satisfy virtually all industrial applications. Howden industrial cooling fans are designed for cooling towers, heat exchangers and steam condensers. They range in size from fans for packaged cooling systems to fans up to 25m diameter for cooling towers. Each of our cooling fan designs has its own unique characteristics in terms of efficiency, noise levels and application. We have developed our cooling fans over the last 50 years, and we believe that we will be able to continue to introduce differentiated productsoffer the most reliable and solutions, improvequietest cooling fans available. We have fans operating marginsin over 90 countries in a wide range of applications and increaseuses that require the asset utilizationmovement of our businesses. As a result, we believe we can create profitable sales growth, generate excess cash flow to fund future acquisitionslarge volumes of air in harsh applications, including the world’s largest power stations and increase shareholder value.
Ÿ
Execute Market Focused Strategies.    We have aligned our marketing and sales organization into market focused teams designed to coordinate global activity around five strategic markets: commercial marine, oil and gas, power generation, global defense and general industrial. These markets have a need for highly engineered, critical fluid handling solutions and are attractive due to their ongoing capital expenditure requirements, long term growth rates and global nature. We intend to continue to use our application expertise, highly engineered and specialized products, broad product portfolio and recognized product brands to generate high margin incremental revenue.

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Commercial Marine— We provide complete fluid handling packages to shipbuilders throughout the world primarily for use in engine room applications. Our products are widely recognized for their superior reliability and lower total cost of ownership. The increased rate of commercial marine vessel construction in recent years has expanded our installed base of fluid handling products and has generated increased aftermarket revenues. In addition to supplying our products for new vessels, we intend to continue to grow our aftermarket sales and services by optimizing our channels to improve market coverage. We are also addressing changing environmental requirements with our products. We also intend to continue to expand our global reach by utilizing our Chinese operations to offer locally manufactured products, to reduce production costs and to provide local customer service and support for the Asia Pacific region, an area where the majority of the commercial marine vessels are constructed.
Oil and Gas— We provide a broad portfolio of fluid handling products for many oil and gas applications around the world. In particular, we have a strong presence in oil field tank farms, pipelines and refineries and also in Floating Production Storage and Offloading (FPSO) installations. We intend to continue to execute our strategy in the global crude oil transport market by targeting applications where our products can replace less efficient fluid handling alternatives. We also intend to leverage our position as a leading supplier of 2-screw pumps by developing complex turnkey systems to capture the growing need for fluid handling solutions that can undertake the difficult task of handling varying mixtures of heavy crude oil, natural gas and water at the same time. Additionally, we expect to continue to broaden our presence within the refinery market through our acquisition of Baric Group. We are also adding resources to the growing oil and gas markets around the world, including Asia, the Middle East and developing nations.
Power Generation— We provide fluid handling products used in critical lubrication and fuel injection services for fossil fuel, hydro and nuclear power plants around the world.latest high-speed locomotives. We believe that we have in-depth knowledgethe experience gained from our wide range of fuel injectionapplications is beneficial to our global engineers in meeting customer specifications.

Compressors

Howden process compressors and lubrication applications, strong product brand names and a reputation for reliabilitycomplete compressor packages are used in the power generation industry. Within this market we intend to continue our growth as a provider of turnkey systems by utilizing our expertise in power generation applications to develop innovative solutions. We also plan to continue to leverage our global presence to strengthen our relationships with large original equipment manufacturers of power generation equipment to establish us as a critical supplier.
Global Defense— For over 90 years we have supplied our specialtypetroleum, petrochemical, refrigeration and other markets where performance and reliability are crucial. Our product line includes screw, piston (reciprocating) diaphragm and multi-stage centrifugal and screw pumps to sovereign navies around the world, including the U.S. Navy and most of the major navies in Europe. With the acquisitions of Portland Valve and Fairmount, we broadened our offering to include specialty valves and advanced control systems, respectively. We intend to continue to design, manufacture and sell high value fluid handling systems in order to meet the evolving requirements and standards of the navies around the world. Our engineers are also working with the U.S. Navy to incorporate electronics and advanced control algorithms into our products. We are also focused on expanding our repair and service capabilities as work is outsourced to private shipyards. As part of this strategy, we have established a waterfront repair and service facility in San Diego, California to complement our Portland, Maine facility in order to provide more responsive aftermarket support to the U.S. Navy.
General Industrial— We provide fluid handling solutions for a broad array of general industrial applications, including machinery lubrication, commercial construction, chemical processing, pulp and paper processing and food and beverage processing, among others. We intend to continue to apply our application and engineering expertise to supply our customers with a portfolio of products that can solve their most critical fluid handling needs. We also intend to continue to expand our presence in the general industrial market by targeting new applications for our existing products, deploying regionally focused strategies and leveraging our global presence and sales channels to sell our solutions worldwide.

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Target Faster Growing Regions by Leveraging Our Global Manufacturing, Sales and Distribution Network.   We intend to continue to leverage our strong global presence and worldwide network of distributors to capitalize on growth opportunities by selling regionally developed and marketed products and solutions throughout the world. As our customers have become increasingly global in scope, we have likewise increased our global reach to serve our customers by maintaining a local presence in numerous markets and investing in sales, marketing and manufacturing capabilities globally.
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Ÿ
Develop Differentiated Products, Applications and Technologies.   We will continue to engineer our key products to meet the needs of new and existing customers and also to improve our existing product offerings to strengthen our market position. We plan to continue to develop technological, or “SMART,” solutions, which incorporate advanced electronics, sensors and controls, through the use of our Voice of the Customer process to solve specific customer needs. We believe our SMART solutions will reduce our customers’ total cost of ownership by providing real-time diagnostic capabilities to minimize downtime, increase operational efficiency and avoid unnecessary costs. We also intend to leverage Fairmount’s portfolio of advanced controls into our broader industrial offerings to develop innovative SMART fluid handling solutions.
Ÿ
Grow Our Offerings of Systems and Solutions.   We will continue to provide high value added fluid handling solutions by utilizing our engineering and application expertise along with our brand recognition and sales channels to drive incremental revenue. We intend to establish regional system manufacturing capabilities to address our customers’ desire to purchase turnkey modules and their preference for outsourced assembly.

Ÿ
Continue to Pursue Strategic Acquisitions that Complement our Platform.   We believe that the fragmented nature of the fluid handling industry presents substantial consolidation and growth opportunities for companies with access to capital and the management expertise to execute a disciplined acquisition and integration program. We have successfully applied this strategy since our inception and plan to continue to seek companies that:
Ÿenhance our position in our strategic markets;
Ÿhave recognized, leading brands and strong industry positions;
Ÿpresent opportunities to expand our product lines and services;
Ÿhave a reputation for high quality products;
Ÿwill broaden our global manufacturing footprint;
Ÿcomplement or augment our existing worldwide sales and distribution networks; or
Ÿpresent opportunities to provide operational synergies and improve the combined business operations by implementing CBS.
Our acquisition strategy considers a broad range of industrial businesses, including businesses in or complementary to our existing business,process gas compressors as well as industrial businesses not associated with fluid handling.  It is likely that our acquisition efforts will focus on similar or complementary businesseshighly efficient turbo blowers capable of the most demanding end market conditions. Howden designed and supplied the first diaphragm compressor and was the first company to commercialize screw compressor technology.

Rotary Heat Exchangers

Rotary regenerative heat exchangers provide a compact, cost effective and reliable solution for heat recovery in the near term.power plant and flue gas desulfurization systems. With over 80 years experience, Howden supplies highly efficient and reliable air preheaters for power boiler applications, rotary regenerative heat exchangers and replacement element baskets for rotary regenerative heat exchangers.

Products
We design, manufacture and distribute fluid handling products that transfer or control liquids in a variety of applications. We also sell replacement parts and perform repair services for our manufactured products.
Our primary products, brands and their end uses include:
Fluid Handling Products
Primary Brands
Primary End Uses
PumpsAllweiler, Houttuin, Imo, Warren, Tushaco and ZenithCommercial marine, oil and gas, machinery lubrication, power generation, defense, chemical and commercial construction
Fluid Handling SystemsAllweiler, Baric, Fairmount, Houttuin, Imo, LSC and WarrenCommercial marine, oil and gas, power generation and defense
Specialty ValvesPortland ValveGlobal defense
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Pumps

Rotary Positive Displacement Pumps —We - We believe that we are a leading manufacturer of rotary positive displacement pumps with a broad product portfolio and globally recognized brands. Rotary positive displacement pumps consist of a casing containing screws, gears, vanes or similar components that are actuated by the relative rotation of that component to the casing, which results in the physical movement of the liquid from the inlet to the discharge at a constant rate. Positive displacement pumps generally offer precise, quiet and highly efficient transport of viscous fluids.  The U.S. Hydraulic Institute accredits 11 basic types of rotary positive displacement pumps, of which we manufacture five (3-screw, 2-screw, progressive cavity, gear and peristaltic).
 
Specialty Centrifugal Pumps—Pumps - Centrifugal pumps use the kinetic energy imparted by rotating an impeller inside a configured casing to create pressure. While traditionally used to transport large quantities of thin liquids, our centrifugal pumps use specialty designs and materials to offer customers high quality, reliability and customized solutions for a wide range of viscosities, temperatures and applications. We position our specialty centrifugal pumps for applications where customers clearly recognize our brand value or in markets where centrifugal and rotary pumps are complimentary.

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Fluid HandlingFluid-Handling Systems

We manufacture complete fluid handlingfluid-handling systems used primarily in the oil and gas, power generation, commercial marine and global defense markets. We offer turnkey systems and support, including design, manufacture, installation, commission and service. Our systems include:
 
Ÿlubrication systems, which are used in rotating equipment in oil refineries and other process industries;

Ÿcustom designed packages used in crude oil pipeline applications;

Ÿlubrication and fuel forwarding systems used in power generation turbines; and fuel forwarding systems used in power generation turbines;

Ÿcomplete packages for commercial marine engine rooms; and
complete packages for commercial marine engine rooms

Ÿfire suppression systems for navy applications.
Specialty Valves

Our specialty valves are used primarily in naval applications. Our valve business has specialized machining, welding and fabrication capabilities that enable itus to serve as a supplier to the U.S. Navy. In addition to designing and manufacturing valves, we also offer repair and retrofit services for products manufactured by other valve suppliers through our aftermarket support centers located in Portland, MaineVirginia Beach, Virginia and San Diego, California.

ManufacturingTotal Lubrication Management

Our total lubrication management offering provides lubrication system equipment and services to customers in end markets where lubrication system performance is critical, including: petroleum refining, petrochemical production, natural gas transmission, power generation, and military and commercial marine vessels. Our products include LubriMist® oil mist generators, Mistlock™ bearing lubrication cartridges and ThermoJet® oil purifiers. Our services include high velocity oil flushing, leakage oil reclamation and condition monitoring. We sell lubrication equipment globally, and provide lubrication services primarily in North and South America.

Fabrication Technology

We formulate, develop, manufacture and assemblesupply consumable products and equipment for use in the cutting and joining of steels, aluminum and other metals and metal alloys. For the year ended December 31, 2013, welding consumables represented approximately 37% of our total Net sales. Our fabrication technology products at 14are principally marketed under the ESAB brand name, which we believe is a leading international welding company with roots dating back to the invention of the covered welding electrode. ESAB’s comprehensive range of welding consumables includes electrodes, cored and solid wires and fluxes. ESAB’s fabrication technology equipment ranges from portable welding machines to large customized automated welding systems. Products are sold into a wide range of end markets, including oil & gas, power generation, wind power, shipbuilding, pipelines, mobile/off-highway equipment and mining.

Many of ESAB’s manufacturing facilities are located in low cost locations, in particular Central and Eastern Europe, NorthSouth America and Asia. This global manufacturing reach enables usOur fabrication technology products are sold both through independent distributors and direct salespeople, depending on geography and end market.

The following discussions of Industry and Competition, International Operations, Research and Development, Intellectual Property, Raw Materials and Backlog, Seasonality, Working Capital, Associates and Company Information and Access to serve our customers wherever they chooseSEC Reports include information that is common to do business.  Eachboth of our manufacturing sites offers machining, fabricationreportable segments, unless indicated otherwise.

Industry and assembly capabilities that gives us the flexibility to source some of our products from multiple facilities. Our manufacturing facilities also benefit from the use of shared technology and collaboration across production lines, enabling us to increase operational efficiencies through the use of common suppliers and the duplication of production processes.
Competition

Our products and services are marketed on a worldwide basis. We believe that the principal elements of competition in our markets are:
Ÿthe ability to meet customer specifications;
Ÿapplication expertise and design and engineering capabilities;
Ÿproduct quality and brand name;
Ÿtimeliness of delivery;
Ÿprice; and

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Ÿquality of aftermarket sales and support.
worldwide. The markets we serveserved by our gas- and fluid-handling segment are highly fragmented and competitive. Because we compete in selected niches of these markets and due to the fluid handling industry, there is not anydiversity of our products and services, no single company that competes directly with us across all of our markets. AsWe encounter a result,wide variety of competitors that differ by product line, including well-established regional competitors, competitors who are more specialized than we haveare in particular markets, as well as larger companies or divisions of companies that are larger than we are. The markets that our fabrication technology segment competes in are also served by the welding segments of Lincoln Electric and Illinois Tool Works, Inc.

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Our customer base is broadly diversified across many different competitorssectors of the economy, and we believe customers place a premium on quality, reliability, availability, design and application engineering support. We believe the principal elements of competition in our served markets are the technical ability to meet customer specifications, product quality and reliability, brand names, price, application expertise and engineering capabilities and timely delivery and strong aftermarket support. Our management believes that we are a leading competitor in each of our markets.

Additionally, we utilize CBS to continuously improve our business, which we believe, in addition to our management team’s experience in the application of the CBS methodology, is one of our primary competitive strengths. CBS is our business system designed to encourage a culture of continuous improvement in all aspects of our operations and strategic markets.planning. 

International Operations

Our products and services are available worldwide. We believe this geographic diversity allows us to draw on the skills of a worldwide workforce, provides stability to our operations, allows us to drive economies of scale, provides revenue streams that may offset economic trends in individual economies and offers us an opportunity to access new markets for products. Our principal markets outside the United States are in Europe, Asia, the Middle East and South America. In addition, we believe that future growth is dependent in part on our ability to develop products and sales models that target developing countries. For the commercial marine market, we compete primarilyyear ended December 31, 2013, approximately 53% of our Net sales were shipped to locations in developing countries.

Our international operations subject us to certain risks. See Item 1A. “Risk Factors—Risks Related to Our Business—The majority of our sales are derived from international operations. We are subject to specific risks associated with Naniwa Pump Manufacturing Co., Ltd., Shinko Industries, Ltd., Shin Shin Machinery Group Co., Ltd. and Taiko Kikai Industries Co., Ltd. In the oil and gas market, we compete primarily with Joh. Heinr. Bornemann GmbH and Leistritz Pumpen GmbH. In the power generation market, we compete primarily with Buffalo Pumps, a subsidiary of Ampco-Pittsburgh Corporation. In the global defense market, we compete primarily with Buffalo Pumps, Carver Pump Company, Curtiss-Wright Corporation and Tyco International, Inc.international operations.”

Research and Development

Our research and development activities vary by operating segment. We closely integrate research and development with marketing, manufacturing and product engineering in meeting the needs of our customers. Our research and development efforts focus on innovation and developing new product applications, lowering the cost of manufacturing our existing products and redesigning existing product lines to increase efficiency and enhance performance. Our business product engineering teams are continuously enhancing our existing products and developing new product applications for our growing base of customers that require custom solutions. We believe these capabilities provide a significant competitive advantage in the development of high quality fluid handling systems. Our product engineering teams focus on:products.

Ÿlowering the cost of manufacturing our existing products;
Ÿredesigning existing product lines to increase their efficiency or enhance their performance; and
Ÿdeveloping new product applications.
ExpendituresResearch and development expense was $27.4 million, $19.4 million and $5.7 million in 2013, 2012 and 2011, respectively. We expect to continue making significant expenditures for research and development for the years ended December 31, 2010, 2009in order to maintain and 2008 were $6.2 million, $5.9 million and $5.9 million, respectively.improve our competitive position.

Intellectual Property

We rely on a combination of intellectual property rights, including patents, trademarks, copyrights, trade secrets and contractual provisions to protect our intellectual property. Although we highlight recent additions to our patent portfolio as part of our marketing efforts, we do not consider any one patent or trademark or any group thereof essential to our business as a whole or to any of our business operations. We also rely on proprietary product knowledge and manufacturing processes in our operations.
International Operations
Our products and services are available worldwide. We believe this geographic diversity allows us to draw on the skills of a worldwide workforce, provides stability to our operations, allows us to drive economies of scale, provides revenue streams that may offset economic trends in individual economies, and offers us an opportunity to access new markets for products.  In addition, we believe that future growth is dependent in part on our ability to develop products and sales models that target developing countries.  Our principal markets outside the United States are in Europe, Asia, the Middle East and South America.
The manner in which our products and services are sold differs by region. Most of our sales in non-U.S. markets are made by subsidiaries located outside the United States, though we also sell into non-U.S. markets through various representatives and distributors and directly from the U.S. In countries with low sales volumes, we generally sell through representatives and distributors.
Financial information about our international operations is contained in Note 17 of the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data, and information about the possible effects of foreign currency fluctuations on our business is set forth in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. For a discussion of risks related to our non-U.S. operations and foreign currency exchange, please refer to Item 1A. Risk Factors.

Raw Materials and Backlog

We obtain raw materials, component parts and supplies from a variety of sources, generally each from more than one supplier. Our principal raw materials are metals, castings, motors, seals and bearings. Our suppliers and sources of raw materials are based in the United States and other countries.globally based. We believe that our sources of raw materials are adequate for our needs for the foreseeable future and the loss of any one supplier would not have a material adverse effect on our business or results of operations.

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Manufacturing turnaround time for our gas- and fluid-handling operating segment is generally sufficiently short to allow us to manufacture to order for most of our products, which helps to limit inventory levels. Backlog generally is a function of requested customer delivery dates and may range from days to several years. Backlog of gas- and fluid-handling orders as of December 31, 20102013 was $313.5 million,$1.6 billion, compared with $290.9 million$1.4 billion as of December 31, 2009.  We expect to ship approximately 70%2012. A substantial majority of our the gas- and fluid-handling order backlog as of December 31, 2010 backlog during 2011; however, orders are subject2013 is expected to postponement or cancellation.be filled within the current fiscal year.


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Seasonality

Our fluid handling business is seasonal. As our gas- and fluid-handling customers seek to fully utilize capital spending budgets before the end of the year, historically our shipments have peaked during the fourth quarter. Also, all of our European operations typically experience a slowdown during the July and August and December holiday season.seasons. General economic conditions may, however, impact future seasonal variations.

Working Capital

We maintain an adequate level of working capital to support our business needs. There are no unusual industry practices or requirements related to working capital items.

Associates

The following table presents our worldwide associate base as of the periodsdates indicated:

  Year ended December 31, 
  2010  2009  2008 
          
North America  638   598   739 
Europe  1,260   1,189   1,276 
Asia and Middle East  262   254   299 
             
Total  2,160   2,041   2,314 
 December 31,
 2013 2012 2011
North America2,667
 2,805
 728
Europe6,761
 6,107
 1,232
Asia and Middle East4,722
 4,397
 251
Central and South America2,963
 2,424
 —
Other646
 553
 —
Total associates17,759
 16,286
 2,211
There
Approximately 2% of associates are 39 associates in the United States covered by a collective bargaining agreementagreements with the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers-Communications Workers of America (IUE-CWA). The contract with the union expires December 4, 2011 and provides for wage increases ranging from 3.5% to a maximum of 3.8% per year.U.S. trade unions. In addition, approximately 49%36% of our associates are represented by foreign trade unions by law,and work councils in Germany, SwedenEurope, Asia, Central and the Netherlands,South America, Canada, Africa and Australia, which subjects us to arrangements very similar to collective bargaining agreements. We have not experienced any work stoppages or strikes that have had a material adverse impact on operations. We consider our relations with our associates to be good.
Government Contracts
Sales to U.S. government defense agencies and government contractors constituted approximately 10% of our revenue in 2010. We are subject to business and cost accounting regulations associated with our U.S. government defense contracts. Violations can result in civil, criminal or administrative proceedings involving fines, compensatory and treble damages, restitution, forfeitures, and suspension or debarment from U.S. government defense contracts.

Company Information and Access to SEC Reports

We were organized as a Delaware corporation in 1998. Our principal executive offices are located at 8170 Maple Lawn Boulevard, Suite 180, Fulton, MD 20759, and our main telephone number at that address is (301) 323-9000. Our corporate website address is www.colfaxcorp.com.

We make available, free of charge through our website, our annual report on Form 10-K,and quarterly reports on Form 10-K and Form 10-Q (including related filings in XBRL format), current reports on Form 8-K and any amendments to those reports as soon as practicable after filing or furnishing the material to the SEC. You may also request a copy of these filings, at no cost, by writing or telephoning us at: Investor Relations, Colfax Corporation, 8170 Maple Lawn Boulevard, Suite 180, Fulton, MD 20759, telephone (301) 323-9000. Information contained on our website is not incorporated by reference in this report.

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ITEM 1A.RISK FACTORS
Item 1A. Risk Factors

An investment in our commonCommon stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. If any of the following risks actually occur, our business, financial condition or operating results could suffer. As a result, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock. The risks and uncertainties described below are those that we have identified as material, but aremay not be the only risks to which Colfax might be exposed. Additional risks and uncertainties, facingwhich are currently unknown to us or that we do not currently consider to be material, may materially affect the business of Colfax and we caution that this listcould have material adverse effects on our business, financial condition and results of risk factors may notoperations. If any of the following risks were to occur, our business, financial condition and results of operations could be exhaustive.materially adversely affected, the value of our Common stock could decline and investors could lose all or part of the value of their investment in Colfax shares. Our business is also subject to general risks and uncertainties that affect many other companies, such as overall U.S. and non-U.S. economic and industry conditions, a global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest rates, terrorism, international conflicts, natural disasters or other disruptions of expected economic or business conditions. We operate in a continually changing business

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environment, and new risk factors emerge from time to time which we cannot predict. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, including our results of operations, liquidity and financial condition.

Risks Related to Our Business

Changes in the general economy and the cyclical nature of the markets that we serve could negatively impact the demand for our markets couldproducts and services and harm our operations and financial performance.

OurColfax's financial performance depends, in large part, on conditions in the markets we serve and on the general condition of the global economy.economy, which impacts these markets. Any sustained weakness in demand for our products and services resulting from a downturn of or uncertainty in the global economy could reduce our sales and profitability, and result in restructuring efforts. Restructuring efforts are inherently risky and we may not be able to predict the cost and timing of such actions accurately or properly estimate the impact on demand, if any.  We also may not be able to realize the anticipated savings we expected from restructuring activities.  profitability.

In addition, our products are sold in many industries, some of which are cyclical and may experience periodic downturns. Cyclical weakness in the industries we serve could lead to reduced demand for our products and affect our profitability and financial performance.  In 2010 the effects of the global economic slowdown started to recede in some markets but we still see sluggish demand and less than robust growth in certain areas.
We believe that many of our customers and suppliers are reliant on liquidity from global credit markets and, in some cases, require external financing to purchase products or finance operations. Lack ofIf our customers lack liquidity or inabilityare unable to access the credit markets, byit may impact customer demand for our customers could impact our abilityproducts and services and we may not be able to collect amounts owed to us. Further, lack of liquidity by financial institutions could impact our ability to fully access our existing credit facility.
The majority of our sales are derived from international operations. We are subject to specific risks associated with international operations.
In the year ended December 31, 2010, we derived approximately 66% of our sales from operations outside of the U.S. and have manufacturing facilities in eight countries. Sales from international operations, export sales and the use of manufacturing facilities outside of the U.S. are subject to risks inherent in doing business outside the U.S. These risks include:
Ÿeconomic instability;

Ÿpartial or total expropriation of our international assets;
Further, our products are sold in many industries, some of which are cyclical and may experience periodic downturns. Cyclical weakness in the industries that we serve could lead to reduced demand for our products and affect our profitability and financial performance.

Ÿtrade protection measures, including tariffs or import-export restrictions;

Ÿcurrency exchange rate fluctuations and restrictions on currency repatriation;
Ÿsignificant adverse changes in taxation policies or other laws or regulations; and

Ÿthe disruption of operations from political disturbances, terrorist activities, insurrection or war.
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Significant movements in foreign currency exchange rates may harm our financial results.
We are exposed to fluctuations in currency exchange rates. In the year ended December 31, 2010, approximately 66%The occurrence of our sales were derived from operations outside the U.S.  A significant portion of our revenues and income are denominated in Euros, Swedish Kronor and Norwegian Kroner. Consequently, depreciationany of the Euro, Krona or Krone against the U.S. dollar has a negative impact on the income from operations of our European operations. Large fluctuations in the rate of exchange between the Euro, the Krona, the Krone and the U.S. dollarforegoing could have a material adverse effect on our results of operations and financial condition.
In addition, we do not engage to a material extent in hedging activities intended to offset the risk of exchange rate fluctuations. Any significant change in the value of the currencies of the countries in which we do business against the U.S. dollar could affect our ability to sell products competitively and control our cost structure, which, in turn, could adversely affect our results of operations and financial condition.
We are dependent on the availability of raw materials, as well as parts and components used in our products.
While we manufacture many of the parts and components used in our products, we require substantial amounts of raw materials and purchase parts and components from suppliers. The availability and prices for raw materials, parts and components may be subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. Any significant change in the supply of, or price for, these raw materials or parts and components could materially affect our business, financial condition results of operations and cash flow. In addition, delays in delivery of components or raw materials by our suppliers could cause delays in our delivery of products to our customers.
The markets we serve are highly competitive and some of our competitors may have resources superior to ours. Responding to this competition could reduce our sales and operating margins.
We sell most of our products in highly fragmented and competitive markets. We believe that the principal elements of competition in our markets are:
Ÿthe ability to meet customer specifications;
Ÿapplication expertise and design and engineering capabilities;
Ÿproduct quality and brand name;
Ÿtimeliness of delivery;
Ÿprice; and
Ÿquality of aftermarket sales and support.
In order to maintain and enhance our competitive position, we intend to continue our investment in manufacturing quality, marketing, customer service and support, and distribution networks. We may not have sufficient resources to continue to make these investments and we may not be able to maintain our competitive position. Our competitors may develop products that are superior to our products, develop methods of more efficiently and effectively providing products and services, or adapt more quickly than we do to new technologies or evolving customer requirements. Some of our competitors may have greater financial, marketing and research and development resources than we have. As a result, those competitors may be better able to withstand the effects of periodic economic downturns. In addition, pricing pressures could cause us to lower the prices of some of our products to stay competitive. We may not be able to compete successfully with our existing competitors or with new competitors. If we fail to compete successfully, the failure may have a material adverse effect on our business and results of operations.

Acquisitions have formed a significant part of our growth strategy in the past and are expected to continue to do so. If we are unable to identify suitable acquisition candidates or successfully integrate the businesses we acquire, or realize the intended benefits, our growth strategy may not succeed. Acquisitions involve numerous risks, including risks related to integration and undisclosed or underestimated liabilities.

Historically, our business strategy has relied on acquisitions. We expect to derive a significant portion of our growth by acquiring businesses and integrating those businesses into our existing operations. We intend to seek acquisition opportunities both to expand into new markets and to enhance our position in our existing markets. However, our ability to do so will depend on a number of steps, including our ability to:

    
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identify suitable acquisition candidates;
    
Ÿidentify suitable acquisition candidates;
negotiate appropriate acquisition terms;
    
Ÿnegotiate appropriate acquisition terms;
obtain debt or equity financing that we may need to complete proposed acquisitions;
    
Ÿobtain debt or equity financing that we may need to complete proposed acquisitions;
complete the proposed acquisitions; and
    integrate the acquired business into our existing operations.
Ÿcomplete the proposed acquisitions; and
Ÿintegrate the acquired business into our existing operations.

If we fail to achieve any of these steps, our growth strategy may not be successful.

In addition, acquisitionsAcquisitions involve numerous risks, including risks related to integration, and we may not realize the anticipated benefits of our acquisitions.

Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, systems, controls, technologies, personnel, services and products of the acquired company, the potential loss of key employees, customers and distributors of the acquired company and the diversion of our management’smanagement's attention from other business concerns. This is the case particularly in the fiscal quarters immediately following the completion of an acquisition because the operations of the acquired business are integrated into the acquiring businesses’business' operations during this period. We cannot be sure that we willmay not accurately anticipate all of the changing demands that any future acquisition may impose on our management, our operational and management information systems and our financial systems. The failure to successfully integrate acquired businesses in a timely manner, or at all, could have an adverse effect on our business, financial condition and results of operations.


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In addition, the anticipated benefits of an acquisition may not be realized fully or at all, or may take longer to realize than we expect. Actual operating, technological, strategic and sales synergies, if achieved at all, may be less significant than we expect or may take longer to achieve than anticipated. If we are not able to realize the anticipated benefits and synergies expected from our acquisitions within a reasonable time, our business, financial condition and results of operations may be adversely affected.

Acquisitions may result in significant integration costs, and unanticipated integration expense may harm our business, financial condition and results of operations.

Integration efforts associated with our acquisitions may require significant capital and operating expense. Such expenses may include information technology integration fees, facility closure costs and other restructuring expenses. Significant unanticipated expenses associated with integration activities may harm our business, financial condition and results of operations.

Our acquisitions may expose us to significant unanticipated liabilities and could adversely affect our business, financial condition and results of operations.

We may underestimate or fail to discover liabilities relating to a future acquisitionacquisitions during theour due diligence investigationinvestigations, and we, as the successor owner of an acquired company, might be responsible for those liabilities. For example, two of our acquired subsidiaries are each one of many defendants in a large number of lawsuits that claimSuch liabilities could include employment, retirement or severance-related obligations under applicable law or other benefits arrangements, legal claims, tax liabilities, warranty or similar liabilities to customers, product liabilities and personal injury as a result of exposure to asbestos from products manufactured with components that are alleged to have contained asbestos. Although our due diligence investigations in connection with these acquisitions uncovered the existence of potential asbestos-related liabilities, the scope of such liabilities were greater than we had originally estimated. Although we seek to minimize the impact of underestimated or potential undiscovered liabilities by structuring acquisitions to minimizeclaims, environmental liabilities and obtaining indemnitiesclaims by or amounts owed to vendors. The indemnification and warranties from the selling party, these methodswarranty provisions in our acquisition agreements may not fully protect us from the impact of undiscovered liabilities. Indemnities or warranties are often limited in scope, amount or duration, and may not fully cover the liabilities for which they were intended. The liabilities that are not covered by the limited indemnities or warranties could have a material adverse effect on our business, financial condition and financial condition.results of operations.

We may require additional capital to finance our operating needs and to finance our growth. If the terms on which the additional capital is available are unsatisfactory, if the additional capital is not available at all or if we are not able to fully access our existing credit facility,under the Deutsche Bank Credit Agreement, we may not be able to pursue our growth strategy.

Our growth strategy will require additional capital investment to complete acquisitions, integrate the completed acquisitions into our existing operations and to expand into new markets.

We intend to pay for future acquisitions using cash, capital stock, notes, assumption of indebtedness or any combination of the foregoing. To the extent that we do not generate sufficient cash internally to provide the capital we require to fund our growth strategy and future operations, we will require additional debt or equity financing. We cannot be sure that thisThis additional financing willmay not be available or, if available, willmay not be on terms acceptable to us. Further, high volatility in the equitycapital markets and in our stock price may make it difficult for us to access the equitycapital markets for additional capital at attractive prices, if at all. If we are unable to obtain sufficient additional capital in the future, it may limit our ability to implement fully our businessgrowth strategy. Even if future debt financing is available, it may result in (1)(i) increased interest expense, (2)(ii) increased term loan payments, (3)(iii) increased leverage and (4)(iv) decreased income available to fund further acquisitions and expansion. It may also limit our ability to withstand competitive pressures and make us more vulnerable to economic downturns. If future equity financing is available, issuances of our equity securities may dilute our existing stockholders.

In addition, our credit facility agreement includes restrictive covenants which could limit our financial flexibility. If we do not maintain compliance with these covenants,See “—The Deutsche Bank Credit Agreement contains restrictions that may limit our creditors could declare a default.  Our ability to comply with the provisions offlexibility in operating our indebtedness may be affected by changes in economic or business conditions beyond our control.

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A material disruption at any of our manufacturing facilities could adversely affect our ability to generate sales and meet customer demand.business.”below.

If operations at our manufacturing facilities were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other reasons, our financial performance could be adversely affected as a result of our inability to meet customer demand for our products. Interruptions in production could increase our costs and reduce our sales. Any interruption in production capability could requireOur restructuring activities may subject us to make substantial capital expendituresadditional uncertainty in our operating results.

We have implemented, and plan to remedy the situation, which could negatively affect our profitabilitycontinue to implement, restructuring programs designed to facilitate key strategic initiatives and financial condition.maintain long-term sustainable growth. As such, we have incurred and expect to continue to incur increased expense relating to restructuring activities. We maintain property damage insurance which we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss. However, any recovery under our insurance policies may not offsetachieve or sustain the lost salesanticipated benefits of these programs. Further, restructuring efforts are inherently risky, and we may not be able to predict the cost and timing of such actions accurately or increased costs thatproperly estimate their impact. We also may not be experienced duringable to realize the disruption of operations, which could adversely affect our financial performance.anticipated savings we expect from restructuring activities.


Efforts to realign our operating platform could disrupt our business and affect our results of operations.
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In recognition of our evolving global business, we are moving from a business-unit structure to a global-functional operating structure.  We believe this strategic realignment will better allow us to deliver customer-centric fluid handling solutions.  Inherent in any realignment of operations are risks related to our ability to structure our business in a way that accomplishes our goals and best responds to customer needs without causing disruption to our ongoing business. 

Available insurance coverage, the number of future asbestos-related claims and the average settlement value of current and future asbestos-related claims of two of ourcertain subsidiaries could be different than we have estimated, which could materially and adversely affect our business, financial condition and results of operations and cash flow.operations.

Two of ourCertain subsidiaries are each one of many defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured with components that are alleged to have contained asbestos. Such components were acquired from third-party suppliers and were not manufactured by any of our subsidiaries nor were the subsidiaries producers or direct suppliers of asbestos. For the purposes of our financial statements, we have estimated the future claims exposure and the amount of insurance available based upon certain assumptions with respect to future claims and liability costs. We estimate the liability costs to be incurred in resolving pending and forecasted claims for the next 15-year period.

Our decision to use a 15-year period is based on our belief that this is the extent of our ability to forecast liability costs. We also estimate the amount of insurance proceeds available for such claims based on the current financial strength of the various insurers, our estimate of the likelihood of payment and applicable current law. We reevaluate these estimates regularly. Although we believe our current estimates are reasonable, a change in the time period used for forecasting our liability costs, the actual number of future claims brought against us, the cost of resolving these claims, the likelihood of payment by, and the solvency of, insurers and the amount of remaining insurance available could be substantially different than our estimates, and future revaluation of our liabilities and insurance recoverables could result in material adjustments to these estimates, any of which could materially and adversely affect our business, financial condition and results of operations and cash flow.operations. In addition, the company incurswe incur defense costs related to those claims, a portion of which has historically been reimbursed by our insurers. We also incur litigation costs in connection with actions against certain of the subsidiaries’subsidiaries' insurers relating to insurance coverage. While these costs may be significant, we may not be able to predict the amount or duration of such costs. Additionally, we may experience delays in receiving reimbursement from insurers, during which time we may be required to pay cash for settlement or legal defense costs. Any increase in the actual number of future claims brought against us, the defense costs of resolving these claims, the cost of pursuing claims against our insurers, the likelihood and timing of payment by, and the solvency of, insurers and the amount of remaining insurance available, could materially and adversely affect our business, financial condition and results of operations.

A material disruption at any of our manufacturing facilities could adversely affect our ability to generate sales and meet customer demand.

If operations at any of our manufacturing facilities were to be disrupted as a result of a significant equipment failure, natural disaster, power outage, fire, explosion, terrorism, cyber-based attack, adverse weather conditions, labor disputes or other reason, our financial performance could be adversely affected as a result of our inability to meet customer demand for our products. Interruptions in production could increase our costs and cash flow.

reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures to remedy the situation, which could negatively affect our profitability and financial condition. We maintain property damage insurance which we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss. However, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could adversely affect our business, financial condition and results of operations.
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Our international operations are subject to the laws and regulations of the United StatesU.S. and many foreign countries. Failure to comply with these laws may affect our ability to conduct business in certain countries and may affect our financial performance.

We are subject to a variety of laws regarding our international operations, including the U.S. Foreign Corrupt Practices Act and the U.K Bribery Act of 2010, and regulations issued by U.S. Customs and Border Protection, the U.S. Bureau of Industry and Security, and the regulationsU.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) and various foreign governmental agencies. We cannot predict the nature, scope or effect of future regulatory requirements to which our international sales and manufacturing operations might be subject or the manner in which existing laws might be administered or interpreted. Future regulations could limit the countries in which some of our products may be manufactured or sold, or could restrict our access to, and increase the cost of obtaining, products from foreign sources. In addition, actual or alleged violations of these laws could result inlead to enforcement actions and financial penalties that could result in substantial costs. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.


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Failure to comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other applicable anti-bribery laws could have an adverse effect on our business.

The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice and the U.S. Securities and Exchange Commission, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings brought against companies and individuals. Our foreign subsidiariespolicies mandate compliance with all anti-bribery laws. However, we operate in certain countries that are recognized as having governmental and commercial corruption. Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. Violations of these anti-bribery laws may result in criminal or civil sanctions, which could have a material adverse effect on our business, financial condition and results of operations.

We have done and may continue to do business in countries subject to U.S. sanctions and embargoes, including Iran and Syria, and we may have limited managerial oversight over those activities. Failure to comply with these sanctions and embargoes may result in enforcement or other regulatory actions.

FromCertain of our independent foreign subsidiaries have conducted and may continue to conduct business in countries subject to U.S. sanctions and embargoes, and we have limited managerial oversight over those activities. Failure to comply properly with these sanctions and embargoes may result in enforcement or other regulatory actions. Specifically, from time to time, certain of our independent foreign subsidiaries sell products to companies and entities located in, or controlled by the governments of, certain countries that are or have previously been subject to sanctions and embargoes imposed by the U.S. government and/or the United Nations, such asNations. In March 2010, our Board of Directors affirmatively prohibited any new sales to Iran by us and Syria.all of our foreign subsidiaries. With the exception of the U.S. sanctions against Cuba and Iran, the applicable sanctions and embargoes generally do not prohibit our foreign subsidiaries from selling non-U.S.-origin products and services in those countries.to countries that are or have previously been subject to sanctions and embargoes. However, Colfax Corporation, itsour U.S. personnel, and itseach of our domestic subsidiaries, as well as our employees of our foreign subsidiaries who are U.S. citizens, are prohibited from participating in, approving or otherwise facilitating any aspect of the business activities in those countries.countries, including Syria. These constraints may negatively affect the financial or operating performance of such business activities. We cannot be certain that our attempts

Our efforts to comply with U.S. sanction laws and embargoes willmay not be effective, and as a consequence we may face enforcement or other actions if our compliance efforts are not wholly effective. Actual or alleged violations of these laws could result inlead to substantial fines or other sanctions which could result in substantial costs. In addition, Syria, Iran and Syriacertain other sanctioned countries currently are identified by the U.S. State Department as state sponsors of terrorism, and may behave been subject to increasingly restrictive sanctions. Because certain of our independent foreign subsidiaries have contact with and transact limited business in suchcertain U.S. sanctioned countries, including sales to enterprises controlled by agencies of the governments of such countries, our reputation may suffer due to our association with these countries, which may have a material adverse effect on the price of our common stock. Further,shares and our business, financial condition and results of operations. In addition, certain U.S. states and municipalities have recently enacted legislation regarding investments by pension funds and other retirement systems in companies that have business activities or contacts with countries that have been identified as state sponsors of terrorism and similar legislation may be pending in other states. As a result, pension funds and other retirement systems may be subject to reporting requirements with respect to investments in companies such as oursColfax or may be subject to limits or prohibitions with respect to those investments that may have a material adverse effect on the price of our shares.shares and our business, financial condition and results of operations.

In addition, oneOne of our foreign subsidiaries made a small number of sales from 2003 through 2007 totaling approximately $60,000 in the aggregate to two customers in Cuba which may have been made in violation of regulations of the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC. Cuba is also identified by the U.S. State Department as a state sponsor of terrorism. We have submitted a disclosure report to OFAC regarding these transactions. On December 5, 2008, the Company executed a tolling agreement with the OFAC extending the statute of limitations for the investigation until May 1, 2011. As a result of these sales, we may be subject to fines or other sanctions. Further, during the 2012 fiscal year a few of our independently-operated foreign subsidiaries which we acquired in 2012 made the final shipments necessary to wind down four sales agreements involving parties identified in section 560.304 of title 31 of the Code of Federal Regulations, which transactions were conducted in accordance with applicable U.S. and E.U. economic sanctions, statutes and regulations in effect at that time.

If we fail to comply with export control regulations, we could be subject to substantial fines or other sanctions.

Some of our products manufactured or assembled in the United StatesU.S. are subject to the U.S. Export Administration Regulations, administered by the U.S. Department of Commerce, Bureau of Industry and Security, which require that we obtain an export license is

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obtained before we can export such products can be exported to specifiedcertain countries. Additionally, some of our products are subject to the International Traffic in Arms Regulations, which restrict the export of certain military or intelligence-related items, technologies and services to non-U.S. persons. Failure to comply with these laws could harm our business by subjecting us to sanctions by the U.S. government, including substantial monetary penalties, denial of export privileges and debarment from U.S. government contracts.

The occurrence of any of the foregoing could have a material and adverse effect on our business, financial condition and results of operations.
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Approximately 49%The majority of our sales are derived from international operations. We are subject to specific risks associated with international operations.
In the year ended December 31, 2013, we derived approximately 80% of our sales from operations outside of the U.S. and we have principal manufacturing facilities in 25 non-U.S. countries. Sales from international operations, export sales and the use of manufacturing facilities outside of the U.S. by us are subject to risks inherent in doing business outside the U.S. These risks include:
economic or political instability;
partial or total expropriation of international assets;
limitations on ownership or participation in local enterprises;
trade protection measures, including tariffs or import-export restrictions;
currency exchange rate fluctuations and restrictions on currency repatriation;
labor and employment laws that may be more restrictive than in the U.S.;
significant adverse changes in taxation policies or other laws or regulations;
difficulties in hiring and maintaining qualified staff; and
the disruption of operations from political disturbances, terrorist activities, insurrection or war.

If any of these risks were to materialize, they may have a material adverse effect on our business, financial condition and results of operations.

If our employees are represented by foreign trade unions. Ifunions or works councils engage in a strike, work stoppage or other slowdown or if the representation committees responsible for negotiating with thesesuch trade unions on our behalfor works councils are unsuccessful in negotiating new and acceptable agreements when the existing agreements with our employees covered by the unionscollective bargaining expire,or if the foreign trade unions chose not to support our restructuring programs, we could experience business disruptions or increased costs.

As of December 31, 2010,2013, approximately 38% of our employees were represented by a number of different trade unions and works councils. Further, as of that date, we had 1,524approximately 15,200 employees, representing 86% of our worldwide employee base, in foreign locations. In certainCanada, Australia and various countries laborin Europe, Asia, and employment laws are more restrictive than in the U.S.Central and in many cases, grant significant job protection to employees, including rights on termination of employment. In Germany, Sweden and the Netherlands,South America, by law, somecertain of our employees are represented by a number of different trade unions in these jurisdictions,and works councils, which subjectssubject us to employment arrangements very similar to collective bargaining agreements. Further, the laws of certain foreign countries may place restrictions on our ability to take certain employee-related actions or require that we conduct additional negotiations with trade unions, works councils or other governmental authorities before we can take such actions.

If our employees represented by foreign trade unions or works councils were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations. Such disruption could interfere with our business operations and could lead to decreased productivity, increased labor costs and lost revenue.
Although we have not experienced any material recent strikes or work stoppages, we cannot offer any assurance that the The representation committees that negotiate with the foreign trade unions or works councils on our behalf willmay not be successful in negotiating new collective bargaining agreements or other employment arrangements when the current ones expire. Furthermore, future labor negotiations could result in significant increases in our labor costs. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Our manufacturing business is subject to the possibility of product liability lawsuits, which could harm our business.

In addition to the asbestos-related liability claims described above, asAs the manufacturer of equipment for use in industrial markets, we face an inherent risk of exposure to other product liability claims. Although we maintain quality controls and procedures, we cannot be sure that ourOur products willmay not be free from defects. In addition, some of our products contain components manufactured by third parties, which may also have defects. We maintain insurance coverage for product liability claims. OurThe insurance policies have limits, however, that may not be sufficient to cover claims made against us.made. In addition, this insurance may not continue to be available to us at a reasonable cost. With respect to components manufactured by third-party suppliers, the contractual indemnification that we seek from our

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third-party suppliers may be limited and thus insufficient to cover claims made against us. If our insurance coverage or contractual indemnification is insufficient to satisfy product liability claims made against us, the claims could have an adverse effect on our business and financial condition. Even claims without merit could harm our reputation, reduce demand for our products, cause us to incur substantial legal costs and distract the attention of our management. The occurrence of any of the foregoing could have a material and adverse effect on our business, financial condition and results of operations.

As a manufacturer,manufacturers, we are subject to a variety of environmental and health and safety laws for which compliance, or liabilities that arise as a result of noncompliance, could be costly. In addition, if we fail to comply with such laws, we could incur liability that could result in penalties and costs to correct any non-compliance.

Our business isbusinesses are subject to international, federal, state and local environmental and safety laws and regulations, including laws and regulations governing emissions of: regulated air pollutants; discharges of wastewater and storm water; storage and handling of raw materials; and generation, storage, transportation and disposal of regulated wastes; and laws and regulations governing worker safety. These requirements impose on our businessbusinesses certain responsibilities, including the obligation to obtain and maintain various environmental permits. If we were to fail to comply with these requirements or fail to obtain or maintain a required permit, we could be subject to penalties and be required to undertake corrective action measures to achieve compliance. In addition, if our noncompliance with such regulations were to result in a release of hazardous materials tointo the environment, such as soil or groundwater, we could be required to remediate such contamination, which could be costly. Moreover, noncompliance could subject us to private claims for property damage or personal injury based on exposure to hazardous materials or unsafe working conditions. ChangesIn addition, changes in applicable requirements or stricter interpretation of existing requirements may result in costly compliance requirements or otherwise subject us to future liabilities.

The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
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As the present or former owner or operator of real property, or generator of waste, we could become subject to liability for environmental contamination, regardless of whether we caused such contamination.

Under various federal, state and local laws, regulations and ordinances, and, in some instances, international laws, relating to the protection of the environment, a current or former owner or operator of real property may be liable for the cost to remove or remediate contamination on, under, or released from such property and for any damage to natural resources resulting from such contamination. Similarly, a generator of waste can be held responsible for contamination resulting from the treatment or disposal of such waste at any off-site location (such as a landfill), regardless of whether the generator arranged for the treatment or disposal of the waste in compliance with applicable laws. Costs associated with liability for removal or remediation of contamination or damage to natural resources could be substantial and liability under these laws may attach without regard to whether the responsible party knew of, or was responsible for, the presence of the contaminants. In addition, the liability may be joint and several. Moreover, the presence of contamination or the failure to remediate contamination at our properties, or properties for which we are deemed responsible, may expose us to liability for property damage or personal injury, or materially adversely affect our ability to sell our real property interests or to borrow using the real property as collateral. We cannot be sure that we will notcould be subject to environmental liabilities in the future as a result of historic or current operations that have resulted or will result in contamination. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Failure to maintain and protect our trademarks, trade names and technologyintellectual property rights or challenges to these rights by third parties may affect our operations and financial performance.

The market for many of our products is, in part, dependent upon patent, trademark, copyright and trade secret laws, agreements with employees, customers and other third parties to establish and maintain our intellectual property rights, and the goodwill engendered by our trademarks and trade names. TrademarkThe protection of these intellectual property rights is therefore material to a portion of our business.businesses. The failure to protect our trademarks and trade namesthese rights may have a material adverse effect on our business, financial condition and operating results.results of operations. Litigation may be required to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. It may be particularly difficult to enforce our intellectual property rights in countries where such rights are not highly developed or protected. Any action we take to protect our intellectual property rights could be costly and could absorb significant management time and attention. As a result of any such litigation, we could lose any proprietary rights we have.

In addition, itthird parties may claim that we or our customers are infringing upon their intellectual property rights. Claims of intellectual property infringement may subject us to costly and time-consuming defense actions and, should defenses not be successful, may result in the payment of damages, redesign of affected products, entry into settlement or license agreements, or a temporary or permanent injunction prohibiting us from manufacturing, marketing or selling certain of our products. It is also possible that others will independently develop technology that will compete with our patented or unpatented technology. The development

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occurrence of new technologies by competitors that may compete withany of the foregoing could have a material and adverse effect on our technologies could reduce demand for our productsbusiness, financial condition and affect our financial performance.results of operations.

The loss of key leadership could have a material adverse effect on our ability to run our business.

We may be adversely affected if we lose members of our senior leadership. We are highly dependent on our senior leadership team as a result of their expertise.  During 2010 we added several new members toexpertise in our senior leadership team, including Clay H. Kiefaber,industry and our President and Chief Executive Officer, and C. Scott Brannan, our Senior Vice President, Finance and Chief Financial Officer.business. The loss of key leadership or the inability to attract, retain and motivate sufficient numbers of qualified management personnel could have a material adverse effect on usour business, financial condition and our business.

Some of our stockholders may exert significant influence over us.

Currently, two of our stockholders, Mitchell P. Rales and Steven M. Rales, together, and through an entity wholly owned by them, hold approximately 42% of our outstanding common stock. The level of ownership of these stockholders, and the service of Mitchell Rales as chairman of our board of directors, enables them to exert significant influence over all matters involving us, including matters presented to our stockholders for approval, such as election and removal of our directors and change of control transactions. This concentration of ownership and voting power may also have the effect of delaying or preventing a change in control of our company and could prevent stockholders from receiving a premium over the market price if a change in control is proposed. The interests of these persons may not coincide with the interests of the other holders of our common stock with respect to our operations or strategy.
The market price of our common stock may experience a high level of volatility.
The market price for our common stock has experienced a high level of volatility and may continue to do so in the future. During the period from our initial public offering (IPO) to December 31, 2010, our common stock traded between $5.33 and $28.35 per share.  At any given time, you may not be able to sell your shares at a price that you think is acceptable.  The market liquidity for our stock is relatively low. As of December 31, 2010, we had 43,413,553 shares of common stock outstanding. The average daily trading volume in our common stock during the period from January 1, 2010 to December 31, 2010 was approximately 140,000 shares. Although a more active trading market may develop in the future, the limited market liquidity for our stock may affect your ability to sell at a price that is satisfactory to you. Stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of a particular company. These broad fluctuations may adversely affect the trading price of our common stock, regardless of our operating performance.

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Provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company, which could decrease the value of your shares.
Our amended and restated certificate of incorporation, amended and restated bylaws, and Delaware law contain provisions that may make it difficult for a third-party to acquire us without the consent of our board of directors. These provisions include prohibiting stockholders from taking action by written consent, prohibiting special meetings of stockholders called by stockholders and prohibiting stockholder nominations and approvals without complying with specific advance notice requirements. In addition, our board of directors has the right to issue preferred stock without stockholder approval, which our board of directors could use to effect a rights plan or “poison pill” that could dilute the stock ownership of a potential hostile acquirer and may have the effect of delaying, discouraging or preventing an acquisition of our company. Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding voting stock. Although Mitchell Rales and Steven Rales, both individually and in the aggregate, hold more than 15% of our outstanding voting stock, this provision of Delaware law does not apply to them.

There may be limitations on our ability to fully utilize our net operating loss carryforwards and other U.S. deferred tax assets in future periods.

We may not be able to generate sufficient future U.S. taxable income to utilize our U.S. net operating loss carryforwards (NOLs) and/or other net U.S. deferred tax assets.  Our net U.S. deferred tax assets, including U.S. NOLs and net of valuation allowances, are $54.8 million as of December 31, 2010.  If sufficient future taxable income and/or available tax planning strategies are not available to utilize some or all of these deferred tax assets, additional valuation allowances may be recorded which would negatively affect our results of operations.

Our results of operations could vary as a result of the methods, estimates and judgments we useThe Deutsche Bank Credit Agreement contains restrictions that may limit our flexibility in applyingoperating our accounting policies.business.

The methods, estimatesDeutsche Bank Credit Agreement contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:
incur additional indebtedness;
pay dividends on, repurchase or make distributions in respect of, the capital stock of Colfax and judgmentsits wholly-owned subsidiaries;
make certain investments;
create liens on certain assets to secure debt;
consolidate, merge, sell or otherwise dispose of all or substantially all our assets; and
enter into certain transactions with affiliates.
In addition, under the Deutsche Bank Credit Agreement, we use in applying our accounting policiesare required to satisfy and maintain compliance with a total leverage ratio and an interest coverage ratio. Limitations imposed by the Deutsche Bank Credit Agreement's various covenants could have a significant impactmaterially adverse effect on our results of operations (see “Critical Accounting Policiesbusiness, financial condition and Estimates” in Part II, Item 7 of this Form 10-K). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.

Any impairment in the value of our intangible assets, including goodwill,Goodwill, would negatively affect our operating results and total capitalization.

Our totalTotal assets reflect substantial intangible assets, primarily goodwill.Goodwill. The goodwillGoodwill results from our acquisitions, representing the excess of cost over the fair value of the net assets we have acquired. We assess at least annually whether there has been impairment in the value of our intangible assets. If future operating performance at one or more of our business units were to fall significantly below current levels, if competing or alternative technologies emerge, or if market conditions for businessesan acquired declines,business decline, we could incur, under current applicable accounting rules, a non-cash charge to operating earnings for goodwillGoodwill impairment. Any determination requiring the write-off of a significant portion of unamortized intangible assets would negativelyadversely affect our business, financial condition, results of operations and total capitalization, the effect of which could be material.

Our defined benefit pension plans and post-retirement medical and death benefit plans are or may become subject to financial market risksfunding requirements or obligations that could adversely affect our operating results,business, financial condition and cash flow.results of operations.

OurWe operate defined benefit pension plan obligations areplans and post-retirement medical and death benefit plans for our current and former employees worldwide. Each plan's funding position is affected by the investment performance of the plan's investments, changes in marketthe fair value of the plan's assets, the type of investments, the life expectancy of the plan's members, changes in the actuarial assumptions used to value the plan's liabilities, changes in the rate of inflation and interest rates, andour financial position, as well as other changes in economic conditions. Furthermore, since a significant proportion of the majority of planplans' assets are invested in publicly traded debt and equity securities, whichthey are, and will be, affected by market risks. Significant changesAny detrimental change in market interest rates, decreases inany of the fair valueabove factors is likely to worsen the funding position of plan assetseach of the relevant plans, and investment losses or lackthis is likely to require the plans' sponsoring employers to increase the contributions currently made to the plans to satisfy our obligations. Any requirement to increase the level of expected investment gainscontributions currently made could have a material adverse effect on plan assets may adversely impact our future operating results,business, financial condition and results of operations.

Significant movements in foreign currency exchange rates may harm our financial results.

We are exposed to fluctuations in currency exchange rates. During the year ended December 31, 2013, approximately 80% of our sales were derived from operations outside the U.S. A significant portion of our revenues and income are denominated in foreign currencies. Large fluctuations in the rate of exchange between foreign currencies and the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations. Changes in the currency exchange rates may impact

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the financial results positively or negatively in one period and not another, which may make it difficult to compare our operating results from different periods.

We also face exchange risk from transactions with customers in countries outside the U.S. and from intercompany transactions between affiliates. Although we use the U.S dollar as our functional currency for reporting purposes, we have manufacturing sites throughout the world and a substantial portion of our costs are incurred and sales are generated in foreign currencies. Costs incurred and sales recorded by subsidiaries operating outside of the U.S. are translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar. In particular, the Company has more sales in European currencies than it has expenses in those currencies. Although a significant portion of this difference is hedged, when European currencies strengthen or weaken against the U.S. dollar, operating profits are increased or decreased, respectively.

Venezuela devalued its currency relative to the U.S. dollar numerous times, and may do so again in the future. Because we consider the Venezuelan bolivar fuerte a highly inflationary currency under accounting principles generally accepted in the U.S. (“GAAP”), the financial statements of the Company’s Venezuelan operations have been remeasured into their parent’s reporting currency, the Colombian peso. The devaluation of the bolivar and the change to the Colombian peso as the functional currency resulted in a foreign currency transaction loss of $2.9 million recognized in Selling, general and administrative expense for the three months ended March 29, 2013. Additionally, during the first quarter of 2014, Argentina devalued its currency relative to the U.S. dollar, which has resulted in the Argentine peso to also be considered a highly inflationary currency under GAAP. We expect to be subject to foreign currency translation losses during the first quarter of 2014 as a result of the devaluation of the Argentine peso. We may be subject to additional foreign currency translation losses depending upon whether Venezuela further devalues the bolivar, movements in exchange rates between these highly inflationary currencies and the parents’ reporting currency and the amount of monetary assets and liabilities included in the balance sheets of our operations denominated in currencies considered to be highly inflationary. As of and for the year ended December 31, 2013, the Company’s combined Venezuelan and Argentine operations represented less than 1% and 2% of the Company’s Total assets and Net sales, respectively.

We have generally accepted the exposure to exchange rate movements without using derivative financial instruments to manage this risk. Both positive and negative movements in currency exchange rates against the U.S. dollar will therefore continue to affect the reported amount of sales, profit, assets and liabilities in our Consolidated Financial Statements.

We are dependent on the availability of raw materials, as well as parts and components used in our products.

While we manufacture many of the parts and components used in our products, we purchase a substantial amount of raw materials, parts and components from suppliers. The availability and prices for raw materials, parts and components may be subject to curtailment or change due to, among other things, suppliers' allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. Any significant change in the supply of, or price for, these raw materials, parts or components could materially affect our business, financial condition and results of operations. In addition, delays in delivery of raw materials, parts or components by suppliers could cause delays in our delivery of products to our customers.

We are currently working to streamline our supplier base, which could exacerbate certain of the risks described above. For example, as a result of maintaining relationships with fewer suppliers, we may become more dependent on such suppliers having adequate quantities of raw materials, parts or components that satisfy our requirements at prices that we consider appropriate, and on the timely delivery of such raw materials, parts or components to us.  In addition, as a result of maintaining relationships with fewer suppliers, it may be more difficult or impossible to obtain raw materials, parts or components from alternative sources when such components and raw materials are not available from our regular suppliers.

New regulations and customer preferences reflecting an increased focus on environmental, social and governance responsibility may impose additional costs on us and expose us to new risks, including with respect to the sourcing of our products.

Regulators, stockholders and other interested constituencies have focused increasingly on the environmental, social and governance practices of companies, which has resulted in new regulations that may impose costs on us and expose us to new risks. For example, Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and its implementing SEC regulations, impose new supply chain diligence and disclosure requirements for certain manufacturers of products containing “conflict minerals” that originated in the Democratic Republic of the Congo or an adjoining country. Complying with these requirements will impose additional costs on us, including costs to determine the source of any conflict minerals used in our products, and we may face reputational challenges or the loss of customers if we are unable to verify the origins for any conflict minerals used in our products. In addition, these requirements could adversely affect the sourcing, availability and pricing of such minerals.

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We may be subject to additional regulations in the future arising from the increased focus on environmental, social and governance responsibility. In addition, our customers may require us to implement environmental, social or governance responsibility procedures or standards before they will continue to do business with us.The occurrence of any of the foregoing could have a material adverse effect on the price of our shares and our business, financial condition and results of operations.

Our information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks or network security breaches, which could result in the disruption of operations or the loss of data confidentiality.

We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including procurement, manufacturing, distribution, invoicing and collection. These technology networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures or computer viruses. In addition, our efforts to avoid or mitigate the impact of cyber-based attacks and security breaches may not be successful in avoiding a material breach, which could result in unauthorized disclosure of confidential information or damage to our information technology networks and systems. If these information technology systems suffer severe damage, disruption or shutdown and business continuity plans do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations could be materially adversely affected.

We may be subject to risks arising from changes in technology.

The supply chains in which we operate are subject to technological changes and changes in customer requirements. We may not successfully develop new or modified types of products or technologies that may be required by our customers in the future. Further, the development of new technologies by competitors that may compete with our technologies could reduce demand for our products and affect our financial performance. Should we not be able to maintain or enhance the competitive values of our products or develop and introduce new products or technologies successfully, or if new products or technologies fail to generate sufficient revenues to offset research and development costs, our business, financial condition and operating results could be materially adversely affected.

The markets we serve are highly competitive and some of our competitors may have superior resources. If we are unable to respond successfully to this competition, this could reduce our sales and operating margins.

We sell most of our products in highly fragmented and competitive markets. We believe that the principal elements of competition in our markets are:
the ability to meet customer specifications;
application expertise and design and engineering capabilities;
product quality and brand name;
timeliness of delivery;
price; and
quality of aftermarket sales and support.
In order to maintain and enhance our competitive position, we intend to continue investing in manufacturing quality, marketing, customer service and support and distribution networks. We may not have sufficient resources to continue to make these investments and we may not be able to maintain our competitive position. Our competitors may develop products that are superior to our products, develop methods of more efficiently and effectively providing products and services, or adapt more quickly than us to new technologies or evolving customer requirements. Some of our competitors may have greater financial, marketing and research and development resources than we have. As a result, those competitors may be better able to withstand the effects of periodic economic downturns. In addition, pricing pressures could cause us to lower the prices of some of our products to stay competitive. We may not be able to compete successfully with our existing competitors or with new competitors. If we fail to compete successfully, the failure may have a material adverse effect on our business, financial condition and results of operations.

Changes in our tax rates or exposure to additional income tax liabilities could adversely affect our financial results.

Our future effective income tax rates could be unfavorably affected by various factors including, among others, changes in the tax rates, rules and regulations in jurisdictions in which we generate income or the repatriation of income held in foreign jurisdictions. Our Cash and cash flow.equivalents as of December 31, 2013 includes $290.2 million held in jurisdictions outside the

17

U.S., which may be subject to tax penalties and other restrictions if repatriated into the U.S. In addition, the U.S. and foreign countries have considered changes to existing tax laws, including allowing existing provisions to expire, that could significantly impact the treatment of income earned outside the U.S. An increase in our effective tax rate could have a material adverse effect on our after-tax results of operations.

In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in assessments different from amounts recorded, our future financial results may include unfavorable tax adjustments.

Risks and Other Considerations Related to our Common Stock

The issuances of additional Common and Preferred stock or the resale of previously restricted Common stock may adversely affect the market price of Colfax Common stock.

In connection with the Charter Acquisition, we issued a total of 20,182,293 shares of Colfax Common stock to BDT CF Acquisition Vehicle, LLC (the “BDT Investor”), Mitchell P. Rales, Steven M. Rales and Markel Corporation (collectively, the “Investors”) and 13,877,552 shares of Colfax Series A Preferred Stock, which are initially convertible into an additional 12,173,291 shares of Colfax Common stock, to the BDT Investor. Pursuant to registration rights agreements we entered into with the Investors in January 2012, the Investors and their permitted transferees have registration rights for the resale of the shares of Colfax Common stock acquired as a result of the Charter Acquisition and, with respect to the BDT Investor, shares of Colfax Common stock issuable upon conversion of the Series A Preferred Stock. In April 2012, we filed a prospectus supplement under which the Investors may resell these shares. In addition, Mitchell P. Rales and Steven M. Rales have registration rights for the resale of certain shares of Colfax Common stock pursuant to a registration rights agreement entered into in 2003 and amended in 2013. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of Colfax Common stock available for public trading. For instance, in May 2013 the BDT Investor and certain of its permitted transferees sold 4,000,000 shares of Colfax Common stock to underwriters for public resale. Sales by the BDT Investor, Markel, Mitchell P. Rales or Steven M. Rales or their permitted transferees of a substantial number of shares of Colfax Common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of Colfax Common stock.

In March 2012 and May 2013, we sold 9,000,000 shares and 7,500,000 shares, respectively, of newly issued Common stock to underwriters for public resale pursuant to a shelf registration statement. Under our Amended and Restated Certificate of Incorporation, there are additional authorized shares of Colfax Common stock, which, if subsequently issued, could have a further dilutive effect on outstanding Colfax Common stock.

Our Amended and Restated Certificate of Incorporation contains provisions that grant the BDT Investor certain rights which may limit our flexibility in operating our business and structuring our corporate governance.

Under our Amended and Restated Certificate of Incorporation, so long as the BDT Investor and its permitted transferees beneficially own, in the aggregate, at least 50% of the Series A Preferred Stock issued to the BDT Investor under the securities purchase agreement with the BDT Investor (the “BDT Purchase Agreement”), the BDT Investor's written consent is required in order for us to take certain corporate actions, including:
the incurrence of certain indebtedness (excluding certain permitted indebtedness) if the ratio of such indebtedness to EBITDA (as defined in the Deutsche Bank Credit Agreement) exceeds certain specified ratios, measured by reference to the last twelve-month period for which financial information is reported by Colfax (pro forma for acquisitions during such period);
the issuance of any shares of preferred stock;
any change to our dividend policy or the declaration or payment of any dividend or distribution on any of our stock ranking subordinate or junior to the Series A Preferred Stock with respect to the payment of dividends and distributions (including the Colfax Common stock) under certain circumstances;
any voluntary liquidation, dissolution or winding up of Colfax;
any change in our independent auditor;
the election of anyone other than Mr. Mitchell P. Rales as Chairman of our Board of Directors;
any acquisition of another entity or assets for a purchase price exceeding 30% of our equity market capitalization;

18

any merger, consolidation, reclassification, joint venture or strategic partnership or similar transaction, or any disposition of any assets (excluding sale/leaseback transactions and other financing transactions in the ordinary course of business) of Colfax if the value of the resulting entity, level of investment by Colfax or value of the assets disposed, as applicable, exceeds 30% of our equity market capitalization;
any amendments to our organizational or governing documents, including the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws; and
any change in the size of our Board of Directors.

As of February 3, 2014, the BDT Investor owned 100% of the Series A Convertible Preferred Stock issued under the BDT Purchase Agreement.

Our Amended and Restated Certificate of Incorporation also provides that, so long as the BDT Investor and certain permitted transferees beneficially own at least 10% of the Colfax Common stock (on a fully-diluted basis), the BDT Investor's written consent is required to alter, amend or repeal the provisions of our Amended and Restated Certificate of Incorporation which set forth the authorized number of members of our Board and the BDT Investor's nomination rights in respect of members of our Board. As of February 3, 2014, the BDT Investor beneficially owned more than 10% of Colfax Common stock (on a fully diluted basis). The above factors could limit our financial and operational flexibility, and as a result could have a material adverse effect on our business, financial condition and results of operations.

The BDT Investor may exercise significant influence over us, including through its ability to elect up to two members of our Board of Directors.

The shares of Colfax Common stock and Series A Preferred Stock beneficially owned by the BDT Investor represent approximately 14% of the voting rights in respect of the Company's issued share capital as of February 3, 2014. In addition, our Amended and Restated Certificate of Incorporation provides that the BDT Investor's consent is required before we may take certain actions for so long as the BDT Investor and its permitted transferees beneficially own in the aggregate at least 50% of the Series A Preferred Stock issued pursuant to the BDT Purchase Agreement (as discussed above). As a result, the BDT Investor may have the ability to significantly influence the outcome of any matter submitted for the vote of our stockholders. The BDT Investor may have interests that diverge from, or even conflict with, those of Colfax and our other stockholders.

The Amended and Restated Certificate of Incorporation also provides that the BDT Investor will have the right to exclusively nominate (1) two out of eleven directors to our Board of Directors so long as the BDT Investor holds at least 20% of the outstanding Colfax Common stock (calculated on a fully diluted basis, assuming conversion of the Series A Preferred Stock at the then-existing conversion price), with one of its nominees to serve on the Audit Committee of our Board of Directors and one of its nominees to serve on the Compensation Committee of our Board of Directors, and (2) one out of ten directors to our Board of Directors so long as the BDT Investor and its permitted transferees beneficially own in the aggregate less than 20% but more than 10% of the outstanding Colfax Common stock (calculated on a fully diluted basis, assuming conversion of the Series A Preferred Stock at the then-existing conversion price), with such nominee to serve on the Audit Committee and the Compensation Committee of our Board of Directors. Further, so long as the BDT Investor and certain permitted transferees beneficially own at least 10% of the Colfax Common stock (calculated on a fully diluted basis, assuming conversion of the Series A Preferred Stock at the then-existing conversion price), the BDT Investor’s written consent is required to alter, amend or repeal the provisions of the Amended and Restated Certificate of Incorporation which set forth the authorized number of members of our Board and the BDT Investor’s nomination rights in respect of members of our Board.

In addition, the percentage of Colfax Common stock owned by the BDT Investor, Mitchell P. Rales and Steven M. Rales and the governance rights of the BDT Investor could discourage a third party from proposing a change of control or other strategic transaction concerning Colfax.

Provisions in our governing documents and Delaware law may delay or prevent an acquisition of Colfax, which could decrease the value of its shares.

Our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and Delaware law contain provisions that may make it difficult for a third party to acquire us without the consent of our Board of Directors. These include provisions prohibiting stockholders from taking action by written consent, prohibiting special meetings of stockholders called by stockholders and prohibiting stockholder nominations and approvals without complying with specific advance notice requirements. In addition, our Board of Directors has the right to issue Preferred stock without stockholder approval, which our Board of Directors could

19

use to effect a rights plan or “poison pill” that could dilute the stock ownership of a potential hostile acquirer and may have the effect of delaying, discouraging or preventing an acquisition of Colfax. Delaware law also imposes some restrictions on mergers and other business combinations between Colfax and any holder of 15% or more of its outstanding voting stock.

ITEM 1B.UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments

None

None.
17
ITEM 2.PROPERTIES
Item 2. Properties

We have 14Our corporate headquarters are located in Fulton, Maryland in a facility that we lease. As of December 31, 2013, our gas- and fluid-handling reportable segment had 12 principal production facilities in eight countries.  The following table lists our primarythe U.S. representing approximately 873,369 and 74,700 square feet of owned and leased space, respectively, and 46 principal production facilities at in 20 different countries in Asia, Europe, Central and South America, Australia, and South Africa. Additionally, as of December 31, 2010, indicating2013, our fabrication technology operating segment had a total of 4 production facilities in the location,U.S., representing a total of 1.3 million square footage, whetherfeet of owned space, and 24 outside the U.S., representing a total of 8.2 million and 1.2 million square feet of owned and leased facilities, are owned or leased,respectively, in 13 countries in Central and principal use.Eastern Europe, Central and South America and Asia.

LocationSq. FootageOwned/LeasedPrincipal Use
Fulton, Maryland7,445LeasedCorporate headquarters
Richmond, Virginia12,050LeasedFormer corporate headquarters 
Hamilton, New Jersey2,200LeasedSubsidiary headquarters
Columbia, Kentucky75,000OwnedProduction
Warren, Massachusetts147,000OwnedProduction
Monroe, North Carolina187,000OwnedProduction
Houston, Texas25,000LeasedProduction
Portland, Maine61,000LeasedProduction
Tours, France33,000LeasedProduction
Bottrop, Germany55,000OwnedProduction
Gottmadingen, Germany38,000LeasedProduction
Radolfzell, Germany350,000OwnedProduction
Utrecht, Netherlands50,000OwnedProduction
Stockholm, Sweden130,000OwnedProduction
Daman, India32,000OwnedProduction
Wuxi, China60,000LeasedProduction
Blyth, United Kingdom52,807LeasedProduction
ITEM 3.LEGAL PROCEEDINGS
Item 3. Legal Proceedings

Discussion of legal matters is incorporated by reference to Part II, Item 8, Note 18,15, “Commitments and Contingencies,” in the Notes to the Consolidated Financial Statements.

Item 4. Mine Safety Disclosures
ITEM 4.[REMOVED AND RESERVED]

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages, positions and experience of our executive officers. All of our executive officers hold office at the pleasure of our Board of Directors.

Name Age 
Position
Clay H. KiefaberSteven E. Simms 5558
 President and Chief Executive Officer and Director,
William E. Roller48Executive Vice Colfax Corporation and Acting President, Colfax Fluid Handling
C. Scott Brannan 5255
 Senior Vice President, Finance, Chief Financial Officer and Treasurer
Clay H. Kiefaber58
Executive Vice President, Chief Executive Officer, ESAB Global and Director, Colfax Corporation
Daniel A. Pryor 4245
 SeniorExecutive Vice President, Strategy and Business Development
Ian Brander52
Chief Executive Officer, Howden
Lynn Clark56
Senior Vice President, Global Human Resources
A. Lynne Puckett 4951
 Senior Vice President, General Counsel and Secretary
Stephen J. Wittig51
Senior Vice President, Colfax Business System and Supply Chain Strategy

Steven E. SimmsClay H. Kiefaber became President‚ Chief Executive Officer in January 2010.  Mr. Kiefaber has served on the Colfax Board of Directors since the Company's IPO in 2008. Before joining Colfax asbeen President and Chief Executive Officer in 2010‚ he spent nearly 20 years in increasingly senior executive positions at Masco Corporation. Most recently‚ he wassince April 2012. He has served as a Group President‚ where he was responsible forDirector of Colfax since July 2011. Mr. Simms also served as Chairman of the Board of Directors of Apex Tools and is a $2.8 billion group of architectural coatings‚ windows‚ and spa business units. Prior to becoming a Group President at Masco‚ Mr. Kiefaber was Groupformer Executive Vice President of Masco Builder Cabinet Group.Danaher Corporation.  Mr. Simms held a variety of leadership roles during his 11-year career at Danaher. He previously spent 14 years in increasingly senior positions in Masco’s Merillat Industries subsidiary. Mr. Kiefaber holds an M.B.A. degree from the University of Colorado and a B.A. degree from Miami University.

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William E. Roller has served as ourbecame Executive Vice President Colfax Fluid Handling since November 2010.in 2000 and served in that role through his retirement in 2007, during which time he was instrumental in Danaher’s international growth and success. He most recentlypreviously served as Vice President-Group Executive Vice President‚ Colfax Americasfrom 1998 to 2000 and was responsible for Colfax’sas an executive in Danaher’s tools and components business from 1996 to 1998. Prior to joining Danaher, Mr. Simms held roles of increasing authority at Black & Decker Corporation, most notably President-European Operations and President-Worldwide Accessories.  Mr. Simms started his career at the Quaker Oats Company where he held a number of brand management roles. He currently serves as a member of the Board of Trustees of The Boys’ Latin School of Maryland and is actively involved in a number of other educational and charitable organizations in the Americas as well as the global oil & gas and defense solutions organizations. He joined Colfax in 1999 as General Manager‚ Imo Pump. In addition to Imo‚ he managed Zenith Pump‚ Lubrication Systems Company and Baric Group upon the acquisition of those businesses. He joined Colfax from Precision Auto Care‚ Inc. where he was Senior Vice President of Manufacturing and Distribution for 2 years. From 1991 until 1997‚ Mr. Roller worked for AMF Industries in several increasingly responsible manufacturing roles. Previous to AMF‚ he spent 4 years with FMC Corporation in various manufacturing roles. Mr. Roller is a graduate of the Virginia Polytechnic Institute and State University‚ with a BS in Chemical Engineering and an MBA from the University of Virginia Darden School.Baltimore area.

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C. Scott Brannan has been the Senior Vice President, Finance, Chief Financial Officer and Treasurer since October 2010. Mr. Brannan served on the Colfax Board of Directors and was Chairman of the Audit Committee from 2008 to September 2010. Prior to joining Colfax in his current role‚ he was a partner at Aronson & Company‚ a public accounting firm‚ from 2003 to 2010. He was also previously employed at Danaher Corporation for 12 years in roles of increasing responsibility‚ including Chief Accounting Officer‚ Controller and Vice President of Administration. Prior to Danaher‚Danaher Corporation‚ he spent 8 years with Arthur Andersen & Co. He holds bachelors and masters degrees in accounting from Loyola University Maryland and is a certified public accountant.

Clay H. Kiefaber is Executive Vice President‚ Chief Executive Officer ESAB Global and a Director of Colfax Corporation. Mr. Kiefaber has served on the Colfax Board of Directors since the Company’s IPO in 2008 and was previously the President and Chief Executive Officer of Colfax from January 2010 through April 2012. Before joining Colfax‚ he spent nearly 20 years in increasingly senior executive positions at Masco Corporation. Most recently‚ he was a Group President‚ where he was responsible for a $2.8 billion group of architectural coatings‚ windows‚ and spa business units. Prior to becoming a Group President at Masco, Mr. Kiefaber was Group Vice President of Masco Builder Cabinet Group. He previously spent 14 years in increasingly senior positions in Masco’s Merillat Industries subsidiary. Mr. Kiefaber holds an M.B.A. degree from the University of Colorado and a B.A. degree from Miami University.

Daniel A. Pryor has served as our SeniorExecutive Vice President‚ Strategy and Business Development since July 2013. Mr. Pryor was Senior Vice President, Strategy and Business Development from January 2011.2011 through July 2013. Prior to joining Colfax‚ he was a Partner and Managing Director with The Carlyle Group‚ a global alternative asset manager, where he focused on industrial leveraged buyouts and led numerous portfolio company and follow-on acquisitions. While at The Carlyle Group, he served on the boards of portfolio companies Veyance Technologies, Inc., John Maneely Co., and HD Supply Inc. Prior to Carlyle‚The Carlyle Group, he spent 11 years at Danaher Corporation in roles of increasing responsibility‚ most recently as Vice President –- Strategic Development. Mr. Pryor earned his MBAM.B.A. from Harvard Business School and his BAB.A. in Economics from Williams College.

Ian Brander has been the Chief Executive Officer of Howden since August 1, 2011. Prior to becoming Chief Executive Officer of Howden, he served as Operations Director beginning in 2008. His experience includes over 20 years at Howden in various roles in technical, project, commercial and general management positions associated with a wide range of products. He holds a Mechanical Engineering degree from the University of Strathclyde.

Lynn Clark has been the Senior Vice President, Global Human Resources since January 2013. Prior to joining Colfax, she served as senior vice president, global human resources for Mead Johnson Nutrition. Her experience includes extensive work at the board and operating levels, broad human resources leadership capabilities, talent management, organization design and development and M&A. Ms. Clark held roles of increasing responsibility at Bristol-Myers Squibb from 2001 to 2009, and was with Lucent Technologies and Allied Signal Corporation, leading executive development and then serving as human resources leader for headquarters functions between 1993 and 2001. Prior to transferring into human resources, she worked for 15 years in sales and marketing, most recently as a general manager for Drake Beam Morin - a global consulting firm in employee development, retention and transition - in Richmond, Virginia. Ms. Clark started her career as a career counselor at George Washington University in Washington, DC. Ms. Clark has a bachelor of science in education and a master of science in college student personnel from Bowling Green University in Ohio.

A. Lynne Puckett has served as our Senior Vice President, General Counsel and Secretary since September 2010. Prior to joining Colfax‚ she was a Partner with the law firm of Hogan Lovells U.S.US LLP from 1999 to 2010. Her experience includes a broad range of corporate and transactional matters‚ including mergers and acquisitions‚ venture capital financings‚ debt and equity offerings‚ and general corporate and securities law matters. Before entering the practice of law‚ Ms. Puckett worked for the U.S. Central Intelligence Agency and a major U.S. defense contractor. Ms. Puckett holds a J.D. from the University of Maryland School of Law and a B.S. degree from James Madison University.

Stephen J. Wittig has been the Senior Vice President, Colfax Business System and Supply Chain Strategy since August 2011. Prior to joining Colfax, he was the Vice President of Lean Manufacturing and Six Sigma for the Masco Cabinet Group of Masco Corporation. His experience includes over 20 years of experience in engineering, manufacturing, logistics and supply chain management and held a number of operations positions with Lear Corporation, Preferred Technical Group, Sumitomo Electric and United Technologies. He has also been a member of the adjunct faculty in the School of Management with the University of Michigan where he taught a number of operations management courses. Mr. Wittig is a Six Sigma Master Black Belt with a certification from the Juran Institute. He holds his M.S. in Engineering from the University of Michigan and his B.S. in Industrial Engineering from Kettering University (formerly General Motors Institute).


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PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our commonCommon stock began trading on the New York Stock Exchange under the symbol CFX on May 8, 2008. As of January 31, 2011,February 3, 2014, there were approximately 4,99623,381 holders of record of our commonCommon stock. The high and low sales prices per share of our commonCommon stock, as reported on the New York Stock Exchange, for the fiscal periods presented are as follows:

  2010  2009 
  High  Low  High  Low 
First Quarter $12.46  $10.44  $13.22  $5.33 
Second Quarter $13.97  $10.00  $9.48  $6.05 
Third Quarter $15.17  $10.17  $12.66  $7.21 
Fourth Quarter $19.04  $14.46  $13.91  $10.22 
  Year Ended December 31,
  2013 2012
  High Low High Low
First Quarter $48.82
 $40.29
 $37.64
 $27.61
Second Quarter $53.65
 $42.22
 $35.56
 $26.01
Third Quarter $57.49
 $50.13
 $36.79
 $24.43
Fourth Quarter $64.37
 $54.53
 $40.52
 $33.14

We have not paid any dividends on our commonCommon stock since inception, and we do not anticipate the declaration or payment of dividends at any time in the foreseeable future. Our credit agreementThe Deutsche Bank Credit Agreement (as defined and further discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”) limits the amount of cash dividends and commonCommon stock repurchases the Company may make to a total of $10$50 million annually.

19
Performance Graph
 
The graph below compares the cumulative total stockholder return on our Common stock with the cumulative total return of the Russell 2000 Index and the Standard & Poor’s (“S&P”) Industrial Machinery Index . The graph assumes that $100 was invested on December 31, 2008 in each of our Common stock, the Russell 2000 Index and the S&P Industrial Machinery Index, and that all dividends were reinvested.


22

Issuer Purchase of Equity Securities
 
On November 4, 2008, the Company’s board of directors authorized the repurchase of up to $20 million (up to $10 million per year in 2008 and 2009) of the Company’s common stock on the open market or in privately negotiated transactions. The repurchase program was to be conducted pursuant to SEC Rule 10b5-1. The timing and amount of shares repurchased was determined by the Share Repurchase Committee, constituting three members of the Company’s board of directors, based on its evaluation of market conditions and other factors. There were no commonCommon stock repurchases during 2010.

2013, 2012 or 2011.
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ITEM 6.SELECTED FINANCIAL DATA
(in thousands, except per share information)Item 6. Selected Financial Data
 
  Year ended December 31, 
  2010  2009  2008  2007  2006 
Statement of Operations Data:               
Net sales $541,987  $525,024  $604,854  $506,305  $393,604 
Cost of sales  350,579   339,237   387,667   330,714   256,806 
Gross profit  191,408   185,787   217,187   175,591   136,798 
Selling, general and administrative expenses  119,426   112,503   124,105   97,426   78,964 
Restructuring and other related charges  10,323   18,175   -   -   - 
Initial public offering-related costs  -   -   57,017   -   - 
Research and development expenses  6,205   5,930   5,856   4,162   3,336 
Asbestos liability and defense costs (income)  7,876   (2,193)  (4,771)  (63,978)  21,783 
Asbestos coverage litigation expenses  13,206   11,742   17,162   13,632   12,033 
Operating income  34,372   39,630   17,818   124,349   20,682 
Interest expense  6,684   7,212   11,822   19,246   14,186 
Provision for income taxes  11,473   8,621   5,465   39,457   4,298 
Income from continuing operations  16,215   23,797   531   65,646   2,198 
Net income (1)
 $16,215  $23,797  $531  $65,646  $801 
                     
Net income (loss) per share from continuing operations -- basic and diluted $0.37  $0.55  $(0.08) $1.82  $0.10 

  Year Ended and As of December 31,
  
2013(1)
 
2012(2)
 
2011(3)
 
2010(4)
 
2009(5)
  (In thousands, except per share data)
Statement of Operations Data:  
  
  
  
  
Net sales $4,207,209
 $3,913,856
 $693,392
 $541,987
 $525,024
Cost of sales 2,900,987
 2,761,731
 453,293
 350,579
 339,237
Gross profit 1,306,222
 1,152,125
 240,099
 191,408
 185,787
Selling, general and administrative expense 860,994
 895,452
 162,761
 133,507
 116,240
Charter acquisition-related expense —
 43,617
 31,052
 —
 —
Restructuring and other related charges 35,502
 60,060
 9,680
 10,323
 18,175
Asbestos coverage litigation expense 3,334
 12,987
 10,700
 13,206
 11,742
Operating income 406,392
 140,009
 25,906
 34,372
 39,630
Interest expense 103,597
 91,570
 5,919
 6,684
 7,212
Provision for income taxes 93,652
 90,703
 15,432
 11,473
 8,621
Net income (loss) 209,143
 (42,264) 4,555
 16,215
 23,797
Less: income attributable to noncontrolling interest, net of taxes 30,515
 22,138
 —
 —
 —
Dividends on preferred stock 20,396
 18,951
 —
 —
 —
Net income (loss) available to Colfax Corporation common shareholders $158,232
 $(83,353) $4,555
 $16,215
 $23,797
Net income (loss) per share—basic $1.56
 $(0.92) $0.10
 $0.37
 $0.55
Net income (loss) per share—diluted $1.54
 $(0.92) $0.10
 $0.37
 $0.55
Balance Sheet Data:  
  
  
  
  
Cash and cash equivalents $311,301
 $482,449
 $75,108
 $60,542
 $49,963
Goodwill and Intangible assets, net 3,217,075
 2,853,279
 245,873
 200,636
 175,370
Total assets 6,582,853
 6,129,727
 1,088,543
 1,022,077
 1,006,301
Total debt, including current portion 1,487,091
 1,728,311
 111,518
 82,500
 91,485
  December 31, 
  2010  2009  2008  2007  2006 
Balance Sheet Data:               
Cash and cash equivalents $60,542  $49,963  $28,762  $48,093  $7,608 
Goodwill and intangibles, net  200,636   175,370   175,210   181,517   150,395 
Asbestos insurance asset, including current portion  374,351   389,449   304,015   305,228   297,106 
Total assets  1,022,077   1,006,301   907,550   899,522   792,018 
Asbestos liability, including current portion  429,651   443,769   357,258   376,233   388,920 
Total debt, including current portion (2)
  82,500   91,485   97,121   206,493   188,720 
__________
(1)Includes net loss from discontinued operations
(1)
During 2013, we completed the acquisitions of $1.4 millionGII, Clarus, TLT-Babcock, Alphair, ČKDK and Sicelub and increased our ownership of Soldex. In February 2013 and November 2013, we refinanced our Debt, and in May 2013 we sold newly issued Common stock. See Note 4, “Acquisitions” in the year ended December 31, 2006.
(2)See Note 12accompanying Notes to our Consolidated Financial Statements in this Form 10-K and Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for information regardingadditional information.
(2)
During 2012, we completed the refinancingacquisitions of the Company’s debtCharter, Soldex and Co-Vent and increased our ownership of ESAB India Limited (“ESAB India”) and CJSC Sibes. The Charter Acquisition transformed Colfax from a fluid-handling business into a multi-platform enterprise with a strong global footprint, which makes financial comparison to previous periods difficult. Additionally, in conjunction with the IPOCharter Acquisition in May 2008.January 2012, we refinanced our Debt and sold newly issued Common stock and Series A Preferred Stock. See Part I, Item 1. “Business,” Note 4, “Acquisitions” in the accompanying Notes to Consolidated Financial Statements in this Form 10-K and Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for additional information.
(3)
During 2011, we completed the acquisitions of Rosscor and COT-Puritech in February and December, respectively. See Part I, Item 1. “Business” and Note 4, “Acquisitions” in the accompanying Notes to Consolidated Financial Statements in this Form 10-K for additional information.
(4)
In August 2010, we acquired Baric.
(5)
In August 2009, we acquired PD Technik for $1.3 million, net of cash acquired.

We completed the acquisitions of Baric Group in 2010, PD-Technik in 2009 and Fairmount and LSC in 2007.  See Item 1. Business and Note 4 to our Consolidated Financial Statements for further information.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)(“MD&A”) is designed to provide a reader of the Company’sour financial statements with a narrative from the perspective of CompanyCompany’s management. The Company’sThis MD&A is divided into four main sections:

▪Overview
Overview▪Results of Operations
▪Liquidity and Capital Resources
▪Critical Accounting Policies

• Results of Operations
• Liquidity and Capital Resources
• Critical Accounting Policies
The following discussion of our financial condition and results of operationsMD&A should be read together with Item 6. “Selected Financial and Data,”Data”, Part I, Item 1A. “Risk Factors” and the financial statementsaccompanying Consolidated Financial Statements and related notesNotes to Consolidated Financial Statements included elsewhere in this Form 10-K. The following discussionMD&A includes forward-looking statements. For a discussion of important factors that could cause actual results to differ materially from the results referred to in thethese forward-looking statements, see “Special Note Regarding Forward-Looking Statements.”

Overview

Colfax Corporation isPlease see Part I, Item 1. “Business” for a discussion of Colfax’s objectives and methodologies for delivering shareholder value. We report our operations through the following reportable segments:

Gas & Fluid Handling - a global supplier of a broad range of fluid handlinggas- and fluid-handling products, including pumps, fluid handlingfluid-handling systems and controls, specialty valves, heavy-duty centrifugal and specialty valves. We believe that weaxial fans, rotary heat exchangers and gas compressors, which serves customers in the power generation, oil, gas and petrochemical, mining, marine (including defense) and general industrial and other end markets; and
Fabrication Technology -a global supplier of welding equipment and consumables, cutting equipment and consumables and automated welding and cutting systems.

Certain amounts not allocated to the two reportable segments and intersegment eliminations are a leading manufacturer of rotary positive displacement pumps, which include screw pumps, gear pumps and progressive cavity pumps. We design and engineer our products to high quality and reliability standards for use in critical fluid handling applications where performance is paramount. We also offer customized fluid handling solutions to meet individual customer needs based on our in-depth technical knowledge of the applications in which our products are used. 
Our products are marketed principallyreported under the Allweiler, Baric, Fairmount, Houttuin, Imo, LSC, Portland Valve, Tushaco, Warrenheading “Corporate and Zenith brand names. We believe that our brands are widely known and have a premium position in our industry. Allweiler, Houttuin, Imo and Warren are among the oldest and most recognized brands in the markets in which we participate, with Allweiler dating back to 1860.  We haveother.”

Colfax has a global manufacturinggeographic footprint, with production facilities in Europe, North America, South America, Asia, Australia and Asia, as well as worldwide sales and distribution channels.
We employ a comprehensive set of tools thatAfrica. Through our reportable segments, we refer to as the Colfax Business System, or CBS. CBS is a disciplined strategic planning and execution methodology designed to achieve excellence and world-class financial performance in all aspects of our business by focusing on the Voice of the Customer and continuously improving quality, delivery and cost.  Modeled on the Danaher Business System, CBS focuses on conducting root-cause analysis, developing process improvements and implementing sustainable systems. Our approach addresses the entire business, not just manufacturing operations.
We currently serve markets that have a need for highly engineered, critical fluid handling solutions and are global in scope. Our strategic markets include:

Strategic Markets
Applications      
Commercial MarineFuel oil transfer; lubrication; water and wastewater handling; cargo handling
Oil and GasCrude oil gathering; pipeline services; unloading and loading; rotating equipment lubrication; lube oil purification
Power GenerationFuel unloading, transfer, burner and injection; rotating equipment lubrication
Global DefenseFuel oil transfer; oil transport; water and wastewater handling; firefighting; fluid control
General IndustrialMachinery lubrication; hydraulic elevators; chemical processing; pulp and paper processing; food and beverage processing
We serve a global customer base across multiple markets through a combination of direct sales and marketing associates and third-party distribution channels. Our customer base is highly diversified and includes commercial, industrial and government customers.

OurWe employ a comprehensive set of tools that we refer to as CBS. CBS, modeled on the Danaher Business System, is our business beganmanagement system. It is a repeatable, teachable process that we use to create superior value for our customers, shareholders and associates. Rooted in 1995 withour core values, it is our culture. CBS provides the intentiontools and techniques to acquire, manage and createensure that we are continuously improving our ability to meet or exceed customer requirements on a world-class industrial manufacturing company. We seek to acquire businesses with leading market positions and brands that exhibit strong cash flow generation potential. With our management expertise and the introduction of CBS into our acquired businesses, we pursue growth in revenues, improvements in operating margins and increasing cash flow.

consistent basis.
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Outlook
 
We believe that we are well positioned to grow our businessbusinesses organically over the long term by enhancing our product offerings and expanding our customer base in our strategic markets. As a late cyclebase. Our business we beganmix is expected to recover from the global economic downturn midway through 2010.  This recovery was evidenced by increases in both salesbe well balanced between long- and orders in the third and fourth quarters of 2010 over the comparable 2009 quarters.  Nonetheless, project delivery push-outs as well as order cancellations may continue in 2011. We will continue to monitor general global economic conditions and expect the following market conditions:
In the commercial marine industry, we expect international trade and demand for crude oil and other commodities as well as the age of the global merchant fleet to continue to create demand for new ship construction over the long term.  We also believe the increase in the size of the global fleet will create an opportunity to supply aftermarket parts and service.  In addition, we believe pending and future environmental regulations will enhance the demand for our products. Based on the modest increase in orders in 2010 and our current backlog, we expectshort-cycle businesses, sales in 2011 to be similar to 2010 levels. We are also likely to have additional order cancellations as well as delivery date extensions in the near term.
In the crude oil industry, we expect long term activity to remain favorable as capacity constraints and global demand drive further development of heavy oil fields.  In pipeline applications, we expect demand for our highly efficient products to remain strong as our customers continue to focus on total cost of ownership.  In refinery applications, projects that were deferred due to weak economic conditions have been released for quoting.  We expect sales and orders to be at significantly higher levels in 2011 than in 2010.
In the power generation industry, we expect activity in Asia and the Middle East to remain solid as economic growth and fundamental undersupply of power generation capacity continue to drive investment in energy infrastructure projects.  In the world’s developed economies, we expect efficiency improvements will continue to drive demand.  Nevertheless, in 2011, we expect both sales and orders to be at significantly lower levels than 2010, due to the conclusion of contractual obligations of our foreign subsidiaries to provide products to certain customers in the Middle East.
In the U.S., we expect Congress to continue to appropriate funds for new ship construction as older naval vessels are decommissioned. We also expect increased demand for integrated fluid handling systems for both new ship platforms and existing ship classes that reduce operating costs and improve efficiency as the U.S. Navy seeks to man vessels with fewer personnel. Outside of the U.S., we expect other sovereign nations will continue to expand their fleets as they address national security concerns.  We expect modest growth in sales during 2011 and expect orders to decline as a result of significant growth in orders in 2010 and the timing of projects.
In the general industrial market, we expect long-term demand to be driven by capital investment.  While this market is very diverse, orders in 2010 increased significantly compared to 2009 in both Europe and North America.  We expect growth in both orders and sales in 2011.
Our global manufacturing sales and distribution network allows us to target fast growing regions throughout the world. We have production and distribution facilities in India and China and opened a Middle East sales and engineering office in Bahrain in 2009. We intend to leverage these investments to grow our market share in these emerging markets and plandeveloped nations and fore- and aftermarket products and services. Given this balance, management no longer uses indices other than general economic trends to continuepredict the overall outlook for the Company. Instead, the individual businesses monitor key competitors and customers, including to invest inthe extent possible their sales, to gauge relative performance and marketing resources to increase our overall coverage.outlook for the future.

We will also continue to target aftermarketface a number of challenges and opportunities, in our strategic markets as we generally are able to generate higher margins on aftermarket partsincluding the successful integration of new acquisitions, application and service than on foremarket opportunities. For the year ended December 31, 2010, aftermarket sales and services represented approximately 24%expansion of our revenues.CBS tools to improve margins and working capital management, rationalization of assets and back office functions, and consolidation of manufacturing facilities.


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We also expect to continue to grow as a result of strategic acquisitions. We believe that the extensive experience of our leadership team in acquiring and effectively integrating acquisition targets should enable us to capitalize on opportunities in the future.

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Results of Operations

Key Performance Measures
The following discussion of our resultsResults of operations that follows focuses on someOperations addresses the comparison of the key financial measures that we use to evaluate our business. We evaluate our business using several measures, including net sales, orders and order backlog. Our sales, orders and backlog are affected by many factors, particularlyperiods presented. The Company’s management evaluates the impact of acquisitions, the impact of fluctuating foreign exchange rates and change from our existing businesses which may be driven by market conditions and other factors. To facilitate the comparison between reporting periods, we describe the impactoperating results of each of these three factors, to the extent they impact the periods presented, on ourits reportable segments based upon Net sales orders and backlog in tabular format under the heading “Salessegment operating income (loss), which represents Operating income before Restructuring and Orders.”other related charges.
Orders and order backlog are highly indicative of our future revenue and thus are key measures of anticipated performance. Orders consist of contracts for products or services from our customers, net of cancellations. Order backlog consists of unfilled orders.

Items Affecting the Comparability of Our Reported Results

Our financial performance and growth are driven by many factors, principally our ability to serve increasingly global markets, fluctuations in the relationship of foreign currencies to the U.S. dollar, the general economic conditions, within our five strategic markets, the global economy and capital spending levels, the availability of capital, our estimates concerning the availability of insurance proceeds to cover asbestos litigation expensesexpense and liabilities, the amountsamount of asbestos liabilities and litigation expenses,expense, the impact of restructuring initiatives, our ability to pass through cost increases on through pricing, the impact of sales mix, and our ability to continue to grow through acquisitions. These key factors have impacted our results of operations in the past and are likely to affect them in the future.
 
Global Operations
 
Our products and services are available worldwide. The manner in which our products and services are sold differs by region. Most of our sales in non-U.S. markets are made by subsidiaries located outside the United States, though we also sell into non-U.S. markets through various representatives and distributors and directly from the U.S. In countries with low sales volumes, we generally sell through representatives and distributors. For the year ended December 31, 2010,During 2013, approximately 75%82% of our sales were shipped to locations outside of the U.S. Accordingly, we are affected by levels of industrial activity and economic and political factors in countries throughout the world. Our ability to grow and our financial performance will be affected by our ability to address a variety of challenges and opportunities that are a consequence of our global operations, including efficiently utilizing our global sales, manufacturing and distribution capabilities, the expansion of market opportunities in Asia, successfully completing global strategic acquisitions and engineering innovative new product applications for end users in a variety of geographic markets. However, we believe that our geographic, end market and product diversification may limit the impact that any one country or economy could have on our consolidated results.
 
Foreign Currency Fluctuations
 
A significant portion of our Net sales, approximately 66%80% for the year ended December 31, 2010, are2013 is derived from operations outside the U.S., with the majority of those sales denominated in currencies other than the U.S. dollar, especially the Euro.dollar. Because much of our manufacturing and employee costs are outside the U.S., a significant portion of our costs are also denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant to our discussion.

Venezuela devalued its currency related to the U.S. dollar numerous times, and may do so again in our discussionthe future. We consider the Venezuelan bolivar fuerte a highly inflationary currency under GAAP. Additionally, during the first quarter of 2014, Argentina devalued its currency relative to the U.S. dollar, which has resulted in the Argentine peso to also be considered a highly inflationary currency under GAAP. We expect to be subject to foreign currency translation losses during the first quarter of 2014 as a result of the devaluation of the Argentine peso. We may be subject to additional foreign currency translation losses depending upon whether Venezuela further devalues the bolivar, movements in exchange rates between these highly inflationary currencies and the parents’ reporting currency and the amount of monetary assets and liabilities included in the balance sheets of our operations.operations denominated in currencies considered to be highly inflationary.

Economic Conditions
 
Economic Conditions in Strategic Markets
Our organic growth and profitability strategy focuses on five strategic markets: commercial marine, oil and gas, power generation, global defense and general industrial. Demand for our products depends on the level of new capital investment and planned maintenance by our customers. The level of capital expenditures depends, in turn, on the general economic conditions within that market as well as access to capital at reasonable cost. While demand within each of these strategic markets can be cyclical, the diversity of these markets maywe believe that our diversified operations limit the impact of a downturn in any one of these marketsmarket on our consolidated results.
Seasonality
As our gas- and fluid-handling customers seek to fully utilize capital spending budgets before the end of the year, historically our shipments have peaked during the fourth quarter. Also, all of our European operations typically experience a slowdown during the July and August and December holiday season. General economic conditions may, however, impact future seasonal variations.

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Pricing
 
We believe our customers place a premium on quality, reliability, availability, design and application engineering support. Our highly engineered fluid handlinggas- and fluid-handling products typically have higher margins than products with commodity-like qualities. However, we are sensitive to price movements in our raw materials supply base. Our largest material purchases are for components and raw materials consisting ofincluding steel, iron, copper and aluminum. Historically, we have been generally successful in passing raw material price increases on to our customers. While we seek to take actions to manage this risk, including commodity hedging where appropriate, such increased costs may adversely impact earnings.
 
Sales and Cost Mix
 
Our profit margins vary in relation to the relative mix of many factors, including the type of product, the geographic location in which the product is manufactured, the end market for which the product is designed, and the percentage of total revenue represented by consumables and aftermarket sales and services. AftermarketConsumables are generally sold at lower margins in comparison to our foremarket products and equipment, whereas our aftermarket business, including spare parts and other value added services, is generally a higher margin businessbusiness. Beginning in 2012, our mix of consumables and is a significant component of our profitability.aftermarket products and services was significantly impacted by the Charter Acquisition.
 
The mix of sales was as follows for the periods presented:
  Year Ended December 31,
  2013 2012 2011
Foremarket and equipment 47% 45% 78%
Aftermarket and consumables 53% 55% 22%

Strategic Acquisitions

We complement our organic growth with strategic acquisitions. Acquisitions can significantly affect our reported results and can complicate period to period comparisons of results. As a consequence, we report the change in our Net sales between periods both from existing and acquired businesses. We intendOrders and order backlog are presented only for the gas- and fluid-handling segment, where this information is relevant. The change in Net sales due to continueacquisitions represents the change in sales due to pursuethe following acquisitions:

On January 13, 2012, Colfax completed the Charter Acquisition for a total purchase price of approximately $2.6 billion. Charter is a global industrial manufacturing company focused on welding, cutting and automation and air and gas handling. The impact of the additional 12 days of operations is included in the change in Net sales due to acquisitions, of complementary businesses that will broaden our product portfolio, expand our geographic footprint or enhance our position within our strategic markets.in 2013.

Gas and Fluid Handling

On August 19, 2010, weFebruary 14, 2011, Colfax completed the acquisition of Baric Group (“Baric”),Rosscor for $22.3 million, net of cash acquired. Rosscor is a supplier of multiphase pumping technology and certain other highly engineered fluid handlingfluid-handling systems, primarily for lubrication applications, with its primary operations based in Blyth, United Kingdom.Hengelo, The Netherlands.

On August 31, 2009, weMarch 28, 2011, Howden completed the acquisition of PD-Technik Ingenieurbüro GmbHThomassen Compression Systems BV (“PD-Technik”Thomassen”), a providerleading supplier of marine aftermarket related productshigh-powered engineered compressors to the oil, gas and services located in Hamburg, Germany.  Thepetrochemical end market, for approximately €100 million.

On December 6, 2011, Colfax completed the acquisition of PD-Technik supports our marine aftermarket growth initiatives, broadening our served market as well as service capabilities.COT-Puritech for a total purchase price, net of cash acquired, of $39.4 million which includes the fair value of estimated additional contingent cash payments of $4.3 million at the acquisition date. The additional contingent cash payments are to be paid over two years from the acquisition date subject to the achievement of certain performance goals. COT-Puritech is a national supplier of oil flushing and remediation services to power generation plants, refinery and petrochemical operations and other manufacturing sites, with its primary operations based in Canton, Ohio.

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RestructuringOn September 13, 2012, Colfax completed the acquisition of Co-Vent for $34.6 million. Co-Vent specializes in the custom design, manufacture, and Other Related Charges
The Company initiated a seriestesting of restructuring actions beginningindustrial fans, with its primary operations based in 2009 in response to then current and expected future economic conditions.Quebec, Canada. As a result of this acquisition, Colfax has expanded its product offerings in the industrial fan market.

On July 9, 2013, Colfax completed the acquisition of the common stock of Clarus for $13.2 million, which includes the years endedfair value of an estimated additional contingent cash payment of $2.5 million at the acquisition date. The additional contingent payment will be paid during the year ending December 31, 2010 and 2009,2016 subject to the achievement of certain performance goals. Clarus is a domestic supplier of flushing services for marine applications primarily to U.S. government agencies, with primary operations based in Bellingham, Washington.

On September 30, 2013, the Company recorded pre-tax restructuringcompleted the acquisitions of TLT-Babcock and other related costsAlphair for an aggregate purchase price of $10.3$55.7 million. TLT-Babcock and Alphair are suppliers of heavy duty and industrial fans in Akron, Ohio and Winnepeg, Ontario, respectively.

On November 1, 2013, the Company completed the acquisition of ČKDK for $69.4 million, and $18.2 million, respectively. The costs incurred inincluding the year ended December 31, 2010 include $2.2 millionassumption of termination benefits, including $0.6 milliondebt. ČKDK is a leading supplier of non-cash stock-based compensation expense, relatedmulti-stage centrifugal compressors to the departureoil & gas, petrochemical, power and steel industries, based in Prague, Czech Republic.

On November 25, 2013, the Company increased its ownership of the Company’s former President and Chief Executive Officer in January of 2010.  Additionally, the costs incurred in the year ended December 31, 2010 include $1.3 million of termination benefits related to the October 2010 departures of the Company’s former Chief Financial Officer  and General Counsel.  The costs incurred in the year ended December 31, 2009 includeSicelub, previously a $0.6 million non-cash asset impairment charge related to closure of a repair facility.
As of December 31, 2010, excluding additions from businesses acquired in 2009 and 2010, we have reduced our company-wide workforce by 237 associates from December 31, 2008.  Additionally, through the second quarter of 2010, we participated in a German government-sponsored furlough programless than wholly owned subsidiary in which the government paidCompany did not have a controlling interest, from 44% to 100%. Sicelub provides flushing services to Central and South American customers primarily in the wage-related costsoil, gas and petrochemical end market.

On November 29, 2013, the Company completed the acquisition of GII for participating associates.  We realized savings$246.0 million, including the assumption of debt, subject to certain adjustments. GII has operations around the world and will expand the Company’s product offerings in the heavy duty industrial and cooling fan market.

Fabrication Technology

On March 3, 2011, ESAB completed the acquisition of LLC Sychevsky Electrodny Zavod (“Sychevsky”), a leading Russian electrode manufacturer based in the Smolensk region for $19.2 million.

On July 1, 2011, ESAB acquired 60% of Condor Equipamentos Industriais Ltda (“Condor”), a leading Brazilian manufacturer of gas apparatus used in welding applications, for cash consideration of R$25.2 million.

In May 2012, Colfax acquired the remaining 83.7% of Sibes not already owned by its ESAB business for $8.5 million, including the assumption of debt. Sibes is a leading supplier of welding electrodes to customers in Eastern Russia and strengthens ESAB’s position in the attractive Russian welding consumables market, particularly in the energy and natural resources end markets.

On October 31, 2012, Colfax completed the acquisition of approximately $2591% of the outstanding common and investment shares of Soldex for $187.2 million. Soldex is organized under the laws of Peru and complements our existing fabrication technology segment by supplying welding products from its plants in Colombia and Peru. On August 5, 2013, Colfax completed a $14.9 million tender offer for common and investment shares of Soldex resulting in 2010an increase in our ownership of the subsidiary from the restructuring initiatives implemented in 2009 and 2010, primarily reflecting lower employee costs.approximately 91% to 99%.
The Company has relocated its Richmond, Virginia corporate headquarters to the Columbia, Maryland area, in order to provide improved access to international travel and to its key advisors.  In connection with the move, the Company has incurred $0.6 million of employee termination benefit costs, reflected in restructuring and other related charges, and $0.4 million of other relocation related costs in 2010, which are reflected in selling, general and administrative expenses.  We expect to incur an additional $1.5 million of employee termination benefit costs, operating lease exit costs and other relocation expenses related to the headquarters relocation in the first six months of 2011.

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IPO-related Costs
Results for the year ended December 31, 2008 include $57.0 million of nonrecurring costs associated with our IPO during the second quarter.  This amount includes $10.0 million of share-based compensationSales, Orders and $27.8 million of special cash bonuses paid under previously adopted executive compensation plans as well as $2.8 million of employer payroll taxes and other related costs. It also includes $11.8 million to reimburse the selling stockholders for the underwriting discount on the shares sold by them as well as the write-off of $4.6 million of deferred loan costs associated with the early termination of a credit facility.
Legacy Legal Adjustment
Selling, general and administrative expenses for the year ended December 31, 2008 include a $4.1 million increase to legal reserves related to a non-asbestos legal matter that arose from the sale and subsequent repair of a product by a division of a subsidiary that was divested prior to our acquisition of the subsidiary.  This legacy legal case was settled during the third quarter of 2008.
Asbestos Liability and Defense Costs (Income)
Our financial results have been, and will likely in the future be, affected by our asbestos liabilities and the availability of insurance to cover these liabilities and defense costs related to asbestos personal injury litigation against two of our subsidiaries, as well as costs arising from our legal action against our insurers. Assessing asbestos liabilities and insurance assets requires judgments concerning matters such as the uncertainty of litigation, anticipated outcome of settlements, the number and cost of pending and future claims, the outcome of legal action against our insurance carriers, and their continued solvency. For a further discussion of these estimates and how they may affect our future results, see “—Critical Accounting Estimates—Asbestos Liabilities and Insurance Assets.”
Asbestos liability and defense costs (income) is comprised of projected indemnity cost, changes in the projected asbestos liability, changes in the probable insurance recovery of the projected asbestos-related liability, changes in the probable recovery of asbestos liability and defense costs paid in prior periods, and actual defense costs expensed in the period.
The table below presents asbestos liability and defense costs (income) for the periods indicated:Backlog

  Year ended December 31, 
(Amounts in millions) 2010  2009  2008 
          
Asbestos liability and defense costs (income) $7.9  $(2.2) $(4.8)
Our Net sales increased from Net sales of $3.9 billion in 2012 to $4.2 billion in 2013. The following tables present components of our consolidated Net sales and, for our gas- and fluid-handling segment, order and backlog growth:

Asbestos liability and defense costs were $7.9 million
 Net Sales 
Orders(1)
 Backlog at Period End
 $ % $ % $ %
 (In millions)
As of and for the year ended December 31, 2012$3,913.9
   $1,996.0
   $1,431.5
  
Components of Change:           
Existing businesses(2)
107.5
 2.7 % (15.3) (0.8)% (58.6) (4.1)%
Acquisitions(3)
246.9
 6.3 % 96.4
 4.8 % 231.2
 16.2 %
Foreign currency translation(4)
(61.1) (1.5)% (15.7) (0.7)% (26.7) (1.9)%
 293.3
 7.5 % 65.4
 3.3 % 145.9
 10.2 %
As of and for the year ended December 31, 2013$4,207.2
   $2,061.4
   $1,577.4
  
(1) Represents contracts for products or services, net of cancellations for the year ended December 31, 2010 compared to income of $2.2 millionperiod, for the year ended December 31, 2009. The increase in asbestos liabilityour gas- and defense costs was primarily attributable to a net pre-tax gain of $7.8 million recorded in 2009, comprised of a $19.4 million gain to increase the insurance asset as a result of favorable court rulings in October and December of 2009 concerning allocation methodology, partially offset by an $11.6 million charge to increase asbestos-related liabilities by $111.3 million, offset by an increase to expected insurance recoveries of $99.7 million arising from a revision to our 15-year estimate of asbestos-related liabilities.  Additionally, the Company recorded charges totaling $4.0 million in the third and fourth quarters of 2010 as a result of developments in the litigation, which was partially offset by a $0.7 million gain resulting from a settlement received from an insolvent carrier.fluid-handling operating segment.
Asbestos liability and defense income was $2.2 million for the year ended December 31, 2009 compared to $4.8 million for the year ended December 31, 2008. The decrease in asbestos liability and defense income relates primarily to the favorable effect of one-time items in 2008 exceeding the favorable net effect of one-time items in 2009.  One-time items in 2008 included a $7.0 million gain resulting from resolution of a coverage dispute with a primary insurer concerning certain pre-1966 insurance policies, as well as a $2.3 million gain from a change in estimate of our future asset recovery percentage for one subsidiary.  One-time adjustments in 2009 include a $19.4 million gain to increase the insurance asset as a result of favorable court rulings in October and December 2009 concerning allocation methodology offset by an $11.6 million charge to increase asbestos-related liabilities by $111.3 million, offset by an increase to expected insurance recoveries of $99.7 million, as a result of an analysis of claims data.

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Asbestos Coverage Litigation Expense

Asbestos coverage litigation expenses include legal costs related to the actions against two of our subsidiaries respective insurers and a former parent company of one of the subsidiaries.

The table below presents coverage litigation expenses for the periods indicated:

  Year ended December 31, 
(Amounts in millions) 2010  2009  2008 
          
Asbestos coverage litigation expenses $13.2  $11.7  $17.2 
Legal costs related to the subsidiaries’ action against their asbestos insurers were $13.2 million for the year ended December 31, 2010, $1.5 million higher than the year ended December 31, 2009, due to costs related to the trial by one of our subsidiaries against a number of its insurers and former parent that began in January 2010 and is expected to conclude in 2011.  Legal costs for the year ended December 31, 2008 were higher than 2009 primarily due to trial preparation in the fourth quarter of 2008.  The trial had been expected to commence in the first half of 2009, but did not begin until January 19, 2010.
Seasonality
We experience seasonality in our fluid handling business. As our customers seek to fully utilize capital spending budgets before the end of the year, historically our shipments have peaked during the fourth quarter.  Also, our European operations typically experience a slowdown during the July and August holiday season.

Sales and Orders
Our sales, orders and backlog are affected by many factors including but not limited to acquisitions, fluctuating foreign exchange rates, and growth (decline) in our existing businesses which may be driven by market conditions and other factors. To facilitate the comparison between reporting periods, we disclose the impact of each of these three factors to the extent they impact the periods presented. The impact of foreign currency translation is the difference between sales from existing businesses valued at current year foreign exchange rates and the same sales valued at prior year foreign exchange rates. Growth due to acquisitions includes incremental sales due to an acquisition during the period or incremental sales due to reporting a full year’s sales for an acquisition that occurred in the prior year. Sales growth (decline) from existing businesses excludes both(2) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth (decline) due to factors such as price,
product mix and volume.
Orders(3) Represents the incremental sales and orders as a result of our acquisitions of Charter, Soldex, Co-Vent, Clarus, ČKDK, TLT-Babcock, Alphair, GII and Sicelub. The impact related to the Charter Acquisition represents 12 days of activity for ESAB and Howden as the acquisition closed on January 13, 2012. Represents the incremental order backlog are highly indicativeas a result of our future revenueacquisitions of Clarus, ČKDK, GII, TLT-Babcock, Alphair and thus are key measures of anticipated performance. Orders consist of contracts for products or services from our customers, net of cancellations, during a period. Order backlog consists of unfilledSicelub.
(4) Represents the difference between prior year sales and orders valued at the end of a period. The components of orderactual prior year foreign exchange rates and backlog growth (decline) are presented on the same basis as sales growth (decline).

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The following tables present components of ourprior year sales and order growth (decline), as well as, sales by fluid handling product for the periods indicated:orders valued at current year foreign exchange rates.

              Backlog at 
(Amounts in millions) Sales  Orders  Period End 
  $  %  $  %  $  % 
                   
Year ended December 31, 2008 $604.9     $682.1     $349.0    
                      
Components of Change:                     
Existing Businesses  (48.8)  (8.1)%  (198.0)  (29.0)%  (66.8)  (19.1)%
Acquisitions  1.0   0.2%  1.4   0.2%  0.7   0.2%
Foreign Currency Translation  (32.1)  (5.3)%  (23.1)  (3.4)%  8.0   2.3%
Total  (79.9)  (13.2)%  (219.7)  (32.2)%  (58.1)  (16.6)%
Year ended December 31, 2009 $525.0      $462.4      $290.9     
                         
Components of Change:                        
Existing Businesses  16.1   3.1%  71.1   15.4%  (6.6)  (2.3)%
Acquisitions  10.0   1.9%  6.1   1.3%  38.7   13.3%
Foreign Currency Translation  (9.1)  (1.7)%  (6.8)  (1.5)%  (9.5)  (3.3)%
Total  17.0   3.2%  70.4   15.2%  22.6   7.8%
Year ended December 31, 2010 $542.0      $532.8      $313.5     
  Year ended December 31, 
(Amounts in millions) 2010  2009  2008 
          
Net Sales by Product:         
Pumps, including aftermarket parts and service $444.9  $443.1  $529.3 
Systems, including installation service  78.6   69.3   58.2 
Valves  14.6   10.1   10.1 
Other  3.9   2.5   7.3 
Total net sales $542.0  $525.0  $604.9 

As detailed above,The increase in Net sales from existing businesses increased 3.1% for the year ended December 31, 2010 over the year ended December 31, 2009.  This increaseduring 2013 compared to 2012 was primarily attributable to higher demandan increase of $138.1 million in all end markets except the oilour gas- and gas market.  Foreign currency translation negatively impacted sales by 1.7%, primarily due to a stronger average U.S. dollar against the Euro  for year ended December 31, 2010 compared to the same period in 2009.
Orders, net of cancellations, from existing businesses increased 15.4% for the year ended December 31, 2010 over the year ended December 31, 2009, primarily due to increased demand in the general industrial, commercial marine and oil and gas end markets, partially offset by lower demand in the defense end market.  We experienced commercial marine order cancellations of approximately $16.4 million during the year ended December 31, 2010, compared to $21.9 million during the year ended December 31, 2009.  Backlog as of December 31, 2010, of $313.5 million decreased $6.6 million, or 2.3% from December 31, 2009, excluding the impact of foreign currency translation and acquisitions.  The Baric acquisition added $38.7 million to backlog in 2010.
Sales from existing businesses declined 8.1% for the year ended December 31, 2009 over the year ended December 31, 2008.  This decrease was primarily due to a significant decline in sales volume in the general industrial end market resulting from the global economic downturn, partiallyfluid-handling segment, offset by a sales volume increasedecrease of $30.6 million in the global defense end market.  Foreign currency translation negatively impacted sales and orders for the year ended December 31, 2009, primarily due to a stronger average U.S. dollar against the Euro  for 2009 compared to 2008.

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our fabrication technology segment. Orders, net of cancellations, from existing businesses for our gas- and fluid-handling segment decreased during 2013 in comparison to 2012 due to decreases in the year ended December 31, 2009 were down 29.0%oil, gas and petrochemical, mining and general industrial and other end markets, offset by increases in the power generation and marine end markets.

For 2012, our consolidated Net sales increased from proforma net sales of $3.8 billion in 2011 to $3.9 billion (which excludes operations acquired in the Charter Acquisition for the first 12 days of each annual period presented). The following tables present components of our proforma consolidated Net sales and, for our gas- and fluid-handling segment, proforma order and backlog growth: 
  Net Sales 
Orders(1)
 Backlog at Period End
  $ % $ % $ %
  (In millions)
Proforma as of and for the year ended December 31, 2011 $3,839.1
  
 $1,924.6
  
 $1,288.3
  
Components of Change:  
  
  
  
  
  
Existing businesses(2)
 202.2
 5.3 % 54.0
 2.8 % 117.5
 9.1%
Acquisitions(3)
 86.5
 2.2 % 100.4
 5.2 % 9.4
 0.7%
Foreign currency translation(4)
 (213.9) (5.6)% (83.0) (4.3)% 16.3
 1.3%
  74.8
 1.9 % 71.4
 3.7 % 143.2
 11.1%
As of and for the year ended December 31, 2012 $3,913.9
  
 $1,996.0
  
 $1,431.5
  
__________
(1)
Represents contracts for products or services, net of cancellations for the period, for our gas- and fluid-handling operating segment.
(2)
Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth due to factors such as price, product mix and volume.
(3)
Represents the incremental sales, orders and order backlog as a result of acquisitions.
(4)
Represents the difference between sales from existing businesses valued at current year foreign exchange rates and sales from existing businesses at prior year foreign exchange rates.

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The proforma increase in Net sales from existing businesses in 2012 was attributable to increases of $161.5 million and $40.7 million in our gas- and fluid-handling and fabrication technology segments, respectively. Orders, net of cancellations, from existing businesses for our gas- and fluid-handling segment increased during 2012 in comparison to 2011 primarily due to growth in the power generation and mining end markets.

Business Segments

As discussed further above, the Company reports results in two reportable segments: gas and fluid handling and fabrication technology. The following table summarizes Net sales by reportable segment for each of the following periods:
 Year Ended December 31,
 2013 2012 Proforma 2011
 (In millions)
Gas and Fluid Handling$2,104.0
 $1,901.2
 $1,757.1
Fabrication Technology2,103.2
 2,012.7
 2,082.0
Total Net sales$4,207.2
 $3,913.9
 $3,839.1

The Net sales comparisons discussed above, for 2012 in comparison to 2011, are on a proforma basis (which excludes operations acquired in the Charter Acquisition for the first 12 days of each annual period presented). Further, cost information for Charter, ESAB and Howden is not available for 2011 under the presentation required by the Exchange Act and, as such, proforma discussions for 2012 in comparison to 2011 are limited to sales.

Gas and Fluid Handling

We design, manufacture, install and maintain gas- and fluid-handling products for use in a wide range of markets, including power generation, oil, gas and petrochemical, mining, marine (including defense) and general industrial and other. Our gas-handling products are principally marketed under the Howden brand name. Howden’s primary products are heavy-duty fans, rotary heat exchangers and compressors. The fans and heat exchangers are used in coal-fired and other types of power stations, both in combustion and emissions control applications, underground mines, steel sintering plants and other industrial facilities that require movement of large volumes of air in harsh applications. Howden’s compressors are mainly used in the oil, gas and petrochemical end market. Our fluid-handling products are marketed by Colfax Fluid Handling under a portfolio of brands including Allweiler and Imo. Colfax Fluid Handling is a supplier of a broad range of fluid-handling products, including pumps, fluid-handling systems and controls, and specialty valves.

The following table summarizes selected financial data for our gas- and fluid-handling segment:
 Year Ended December 31,
 2013 2012 2011
 (Dollars in millions)
Net sales$2,104.0
 $1,901.2
 $693.4
Gross profit626.7
 567.1
 240.1
Gross profit margin29.8% 29.8% 34.6%
Restructuring and other related charges$10.4
 $8.7
 $8.6
Selling, general and administrative expense352.6
 412.6
 142.7
Selling, general and administrative expense as a percentage of Net sales16.8% 21.7% 20.6%
Asbestos coverage litigation expense$3.3
 $13.0
 $10.7
Segment operating income270.7
 141.5
 86.7
Segment operating income margin12.9% 7.4% 12.5%

The $138.1 million Net sales increase due to existing businesses, as discussed and defined under “Sales, Orders and Backlog” above, during 2013 in comparison to 2012 was primarily due to growth in the power generation, marine and general industrial and other end markets, partially offset by declines in the oil, gas and petrochemical and mining end markets. Additionally, Net sales increased by $83.9 million due to acquisition-related growth, including 12 additional days of activity in Howden, which was partially offset by a decrease of $19.2 million due to changes in foreign exchange rates. Gross profit increased during 2013 reflecting the impact of higher volumes. Gross profit margin remained consistent in 2013 with 2012 due to the positive impact of our strong

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cost control activities offset by the lower margins on the sales associated with the entities acquired in 2013. Additionally, $4.5 million of acquisition-related amortization expense was reflected in Gross profit for 2012. Selling, general and administrative expense for 2013 decreased compared to 2012 primarily due to a significant declinedecrease of $56.6 million in demandacquisition-related amortization expense. Selling, general and administrative expense for 2013 was reduced by a $13.8 million gain to remeasure the Company’s equity investment in Sicelub to fair value upon increasing the Company’s ownership to 100%.

Year over year fluctuations for 2012 in comparison to 2011 for selected financial data are primarily due to the addition of the Howden operations. The $161.5 million sales growth due to existing businesses, as discussed and defined under “Sales, Orders and Backlog” above, during 2012 in comparison to 2011 was primarily due to growth in all end markets, except marine. Additionally, $56.6 million of acquisition-related amortization expense and $15.1 million increased recurring intangible amortization expense in comparison to 2011 is reflected in Selling, general and administrative expense for 2012.

Fabrication Technology

We formulate, develop, manufacture and supply consumable products and equipment for use in the commercial marine, oilcutting and gas, general industrialjoining of steels, aluminum and power generation end markets.  We experienced commercial marine order cancellations of approximately $21.9 million duringother metals and metal alloys. Our fabrication technology products are principally marketed under the year ended December 31, 2009, asESAB brand name, which we believe is a resultleading international welding company with roots dating back to the invention of the economic downturn.  Backlog ascovered welding electrode. ESAB’s comprehensive range of December 31, 2009,welding consumables includes electrodes, cored and solid wires and fluxes. ESAB’s fabrication technology equipment ranges from portable units to large custom systems. Products are sold into a wide range of $290.9 million decreased $58.1 million, or 16.6%, reflecting the decline in orders during the year.end markets, including wind power, shipbuilding, pipelines, mobile/off-highway equipment and mining.
Gross Profit

The following table presentssummarizes selected financial data for our grossfabrication technology segment:
 Year Ended December 31,
 2013 2012
 (Dollars in millions)
Net sales$2,103.2
 $2,012.7
Gross profit679.6
 585.1
Gross profit margin32.3% 29.1%
Restructuring and other related charges$25.1
 $45.2
Selling, general and administrative expense459.9
 444.9
Selling, general and administrative expense as a percentage of Net sales21.9% 22.1%
Segment operating income$219.6
 $140.2
Segment operating income margin10.4% 7.0%

The $90.5 million Net sales increase during 2013 compared to 2012 was primarily the result of acquisition-related growth of $163.0 million, including 12 additional days of activity in ESAB. The $30.6 million Net sales decline due to existing businesses, as discussed and defined under “Sales, Orders and Backlog” above, during 2013 in comparison to 2012 was primarily the result of decreases in consumable volumes in Europe, Asia and North America. Net sales was also negatively impacted by $41.9 million due to the change in foreign exchange rates. Gross profit and gross profit margin figures for the periods indicated:
  Year ended December 31, 
(Amounts in millions) 2010  2009  2008 
          
Gross profit $191.4  $185.8  $217.2 
Gross profit margin  35.3%  35.4%  35.9%
2012 were impacted by acquisition-related inventory step-up expense of $18.7 million. In 2013, Gross profit and gross profit margin were favorably impacted by the fixed costs eliminated by several manufacturing site closings in late 2012 and the higher gross profit margins at Soldex. Additionally, Selling, general and administrative expense increased $5.6 million for the year ended December 31, 2010 compared to the same period in 2009.  Gross profit from existing businesses increased $6.5 million, with an additional increase of $1.8by $29.9 million due to the acquisitionsacquisition of BaricSoldex. This amount includes the impact of the devaluation of the Venezuelan bolivar fuerte during the first quarter of 2013, which resulted in a foreign currency transaction loss of $2.9 million recognized in Selling, general and PD-Technik.  Foreign currency translation negativelyadministrative expense for 2013. Selling, general and administrative expense was also impacted grossby the inclusion of an additional 12 days of ESAB operations in 2013 compared to 2012. See Note 2, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K for additional discussion regarding the devaluation of the Venezuelan bolivar fuerte.

The $40.7 million sales growth due to existing businesses, as discussed and defined under “Sales, Orders and Backlog” above, during 2012 in comparison to 2011 was primarily due to increased consumable and equipment sales in the Americas, Russia and the Middle East. Year over year comparison of the other selected financial data above is not practical, as further discussed above. Additionally, Gross profit by $2.7 million.  Grossand gross profit margin for the year ended December 31, 20102012 were negatively impacted by acquisition-related inventory step-up expense of $18.7 million.


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Gross Profit - Total Company
 Year Ended December 31,
 2013 2012 2011
 (Dollars in millions)
Gross profit$1,306.2
 $1,152.1
 $240.1
Gross profit margin31.0% 29.4% 34.6%

The $154.1 million increase in Gross profit during 2013 in comparison to 2012 was flat comparedattributable to increases of $59.6 million in our gas- and fluid-handling segment and $94.5 million in our fabrication technology segment. Gross profit increased during 2013 due to the year ended December 31, 2009, asnon-recurrence of $21.6 million of acquisition-related inventory step-up expense incurred in 2012. The improvement in gross profit margin declines driven by lower pricing and an unfavorable product mix shift were partially offset by restructuring program cost savings and higher productivity.
Gross profit decreased $31.4 million forduring the year ended December 31, 2009 comparedperiod was also due to the same periodimpact of our cost reduction efforts and favorable trends in 2008.  Gross profit from existing businesses decreased $19.8 million, withsales price in comparison to raw material costs in our fabrication technology segment. Changes in foreign exchange rates during 2013 had an additional $11.7$14.7 million negative impact of foreign exchange rates.on Gross profit margin declined a modest 50 basis points in 2009 despite a substantial decrease in production volume which caused lower absorption of fixed manufacturing costs. Significant restructuring program cost savings as well as favorable pricing and product mix in the commercial marine and general industrial end markets for the most part successfully mitigated the negative effect of volume on our gross margin.comparison to 2012.
Selling, General and Administrative Expenses

The following table presents$912.0 million increase in Gross profit during 2012 in comparison to 2011 was attributable to increases of $585.1 million in our selling, generalfabrication technology segment and administrative (SG&A) expenses for$326.9 million in our gas- and fluid-handling segment, which were primarily due to the periods indicated:Charter Acquisition.

  Year ended December 31, 
(Amounts in millions) 2010  2009  2008 
          
SG&A expenses $119.4  $112.5  $124.1 
SG&A expenses as a percentage of sales  22.0%  21.4%  20.5%
Operating Expenses - Total Company
 Year Ended December 31,
 2013 2012 2011
 (Dollars in millions)
Selling, general and administrative expense$861.0
 $895.5
 $162.8
Selling, general and administrative expense as a percentage of Net sales20.5% 22.9% 23.5%
Charter acquisition-related expense$—
 $43.6
 $31.1
Restructuring and other related charges35.5
 60.1
 9.7
Asbestos coverage litigation expense3.3
 13.0
 10.7

Selling, general and administrative expenses increased $6.9expense decreased $34.5 million during 2013 in comparison to $119.4 million for the year ended December 31, 2010. Excluding a $2.2 million net increase related to acquisitions and foreign exchange rates, SG&A increased $4.7 million from 2009,2012, primarily due to higher selling and commission costs and higher incentive compensation. There was also a $2.9decrease in acquisition-related amortization expense of $56.6 million, partially offset by the increase in pension costs dueexpenses resulting from the additional 12 days of operations related to the Company’s assumptionentities acquired as part of the pension obligation for a groupCharter Acquisition and the acquisitions of former employeesSoldex, Co-Vent, Clarus, ČKDK, GII, TLT-Babcock, Alphair and Sicelub. During 2012, we incurred $43.6 million of a divested subsidiaryadvisory, legal, valuation and other professional service fees and realized losses on acquisition-related foreign exchange derivatives in connection with the Charter Acquisition. Restructuring and other related charges decreased in 2013 in comparison to 2012 primarily as a result of an agreement reachedthe completion of several substantial cost reduction programs in the fabrication technology segment in 2012. Additionally, Asbestos coverage litigation expense decreased in 2013 as significant costs were incurred in 2012 for the preparation of our appeals submissions related to a case decided by the trial court during 2011 and for depositions and preparation for a trial related to a subsidiary’s coverage which was conducted in the fourth quarter of 2010.  However, this was substantially offset by the reversal of an accrual established in prior years for this matter.2012.

Selling, general and administrative expenses decreased $11.6expense increased $732.7 million during 2012 in comparison to $112.5 million for the year ended December 31, 2009. Excluding the $6.1 million favorable impact of foreign exchange rates, SG&A declined $5.5 million from 2008,2011 primarily due to reductionsthe Charter Acquisition. The decrease in sellingSelling, general and commission expensesadministrative expense as a percentage of $2.2 million and restructuring savings of $2.5 million. An additional $2.0 million of professional fees and other costs associated with becoming a public company and $2.6 million of pension and other postretirement benefit costs were incurredNet sales during 2012 in 2009, but were offset by lower legacy legal expenses and favorable changes in the fair value of commodity and foreign currency derivatives.

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Operating Income
The table below presents operating income data for the periods indicated:
  Year ended December 31, 
(Amounts in millions) 2010  2009  2008 
          
Operating income $34.4  $39.6  $17.8 
Operating margin  6.3%  7.5%  2.9%
Operating income for the year ended December 31, 2010 decreased $5.3 millioncomparison to 2011 resulted primarily from the year ended December 31, 2009.  Excluding a $2.9 million net unfavorable impactbenefit of foreign currency exchange rates and acquisitions, operating income decreased by $2.3 million.  Increased asbestos claims and litigation expenses and unfavorable pricing and product mix shift were partially offset by lower restructuring costs, higher sales volumes and manufacturing cost reductions, including restructuring program cost savings.efforts to reduce costs partially offset by $77.3 million of higher intangible amortization expense. During 2012, we incurred $12.5 million of increased advisory, legal, valuation and other professional service fees and losses on acquisition-related foreign exchange derivatives in connection with the Charter Acquisition in comparison to 2011.


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Interest Expense - Total Company
Operating income for the year ended December 31, 2009 increased $21.8 million from the prior year. 
 Year Ended December 31,
 2013 2012 2011
 (Dollars in millions)
Interest expense$103.6
 $91.6
 $5.9

The increase in Interest expense during 2013 in comparison to 2012 was primarily dueattributable to the absencewrite-off of $57.0$29.4 million of IPO-relatedcertain deferred fees and original issue discount associated with the Second and Third Amendments to the Deutsche Bank Credit Agreement, as defined and further discussed under “—Liquidity and Capital Resources—Borrowing Arrangements” below, and $1.2 million of costs incurred in 2008,connection with the refinancings, partially offset by $18.2 million of restructuring costs incurred in 2009 as well as a $5.5 million negativethe favorable impact of foreign exchange rates.  Excluding these impacts, operating income was $11.5 million lower thanborrowing rates associated with the prior year, primarily due to lower sales volume from existing businesses, partially offset by lower asbestos-related expensesSecond and selling, general and administrative expenses.
Interest Expense
For a description of our outstanding indebtedness, please refer to “Liquidity and Capital Resources” below.
Interest expense of $6.7 million for the year ended December 31, 2010 declined $0.5 million from the prior year. A decrease in the notional value of our interest rate swap from $75 million to $50 million on June 30, 2010 caused our overall weighted-average effective interest rate to decline, from 5.6% in 2009 to 5.4% in 2010.
Interest expense of $7.2 million for the year ended December 31, 2009 declined $4.6 million from the prior year, primarily due to lower debt levels during 2009 compared to 2008 as a result of debt repayments of $105.4 million from a portion of the IPO proceeds in the second quarter of 2008.  A decrease in the weighted-average effective interest rate on our variable rate borrowings that are not hedged, from 6.3% in 2008 to 5.6% in 2009 contributed approximately $0.7 millionThird Amendments to the reduction in interest expense.Deutsche Bank Credit Agreement and lower outstanding borrowing levels.

Provision for Income Taxes - Total Company

The effective income tax rate for the year ended December 31, 2010 was 41.4% as compared to an effective tax rate of 26.6% for the year ended December 31, 2009.  The effective tax rate for the year ended December 31, 20102013 was higher30.9%, which was lower than the U.S. federal statutory tax rate primarily due to a net increase in our valuation allowance, offset in part byforeign earnings where international tax rates which are lower than the U.S. tax rate, a discrete credit to income tax expense of $5.1 million from a reduction to deferred tax balances in certain territories associated with the enactment of lower corporate tax rates and the reduction of a net decrease to ourliability for unrecognized tax benefits, which resulted in a gain of $2.3 million, all of which were offset in part by other discrete tax items and losses in certain jurisdictions where a tax benefit liability.is not expected to be recognized in 2013.

During 2012, Loss before income taxes was $48.4 million and the Provision for income taxes was $90.7 million. The 41.4% effectiveProvision for income taxes was impacted by two significant items. Upon completion of the Charter Acquisition, certain deferred tax rate forassets existing at that date were reassessed in light of the year ended December 31, 2010 was higher thanimpact of the 26.6% effectiveacquired businesses on expected future income or loss by country and future tax rate forplanning, including the year ended December 31, 2009 primarily due a $4.2 millionimpact of the post-acquisition capital structure. This assessment resulted in an increase in our valuation allowance to provide full valuation allowances against U.S. deferred tax assets. The increased valuation allowances resulted in 2010.
The effectivea non-cash increase to the Provision for income taxes for 2012 of $50.3 million. In addition, $43.6 million of Charter acquisition-related expense reflected in the Consolidated Statement of Operations is either non-deductible or was incurred in jurisdictions where no tax ratebenefit can be recognized. These two items are the principal cause of the Provision for income taxes being significantly higher than the year ended December 31, 2009 was 26.6% as compared to an effective tax rateprovision which would result from the application of 91.1% for the year ended December 31, 2008. Our effective tax rate for the year ended December 31, 2009 was lower than the U.S. federal statutory rate primarily due to international tax rates which are lower than the U.S. tax rate, including the impact of the reduction in 2009 of the Swedish tax rate from 28% to 26.3% offset in part by a net increase to our valuation allowance and unrecognized tax benefit liability.  The 26.6% effective tax rate for the year ended December 31, 2009 was lower than the 91.1% effective tax rate for the year ended December 31, 2008 primarily due to an $11.8 million payment to reimburse certain selling shareholders for underwriters discounts that are not deductible for tax purposes and a $3.4 million increase in valuation allowance in 2008.reported Net loss.

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Liquidity and Capital Resources

Overview

Historically, we have financed our capital and working capital requirements through a combination of cash flows from operating activities, and borrowings under our bank credit facility.facilities and the issuances of equity. We expect that our primary ongoing requirements for cash will be for working capital, funding for potentialof acquisitions, capital expenditures, asbestos-related cash outflows and funding of our pension plan funding.plans. If additional funds are needed for strategic acquisitions or other corporate purposes, we believe we could raise additional funds in the form of debt or equity.

BorrowingsEquity Capital

On May 13, 2013, we sold 7,500,000 shares of newly issued Colfax Common stock to underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $331.9 million. In conjunction with this issuance, we recognized $12.0 million in equity issuance costs which were recorded as a reduction to Additional paid-in capital during 2013.

On September 12, 2013, we contributed 88,200 shares of newly issued Colfax Common stock to its U.S. defined benefit pension plan.

In connection with the financing of the Charter Acquisition, on January 24, 2012, we sold to the BDT Investor (i) 14,756,945 shares of newly issued Colfax Common stock and (ii) 13,877,552 shares of newly created Series A perpetual convertible preferred stock, referred to as the Series A Preferred Stock, for an aggregate of $680 million (representing $24.50 per share of Series A Preferred Stock and $23.04 per share of Common stock) pursuant to the BDT Purchase Agreement with the BDT Investor as well as BDT Capital Partners Fund I-A, L.P., and Mitchell P. Rales, Chairman of our Board of Directors, and his brother, Steven M.

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Rales (for the limited purpose of tag-along sales rights provided to the BDT Investor in the event of a sale or transfer of shares of our Common stock by either or both of Mitchell P. Rales and Steven M. Rales). Pursuant to the BDT Purchase Agreement, under the terms of the Series A Preferred Stock, holders are entitled to receive cumulative cash dividends, payable quarterly, at a per annum rate of 6% of the liquidation preference (defined as $24.50, subject to customary antidilution adjustments), provided that the dividend rate shall be increased to a per annum rate of 8% if Colfax fails to pay the full amount of any dividend required to be paid on such shares until the date that full payment is made.
The Series A Preferred Stock is convertible, in whole or in part, at the option of the holders at any time after the date the shares were issued into shares of Colfax Common stock at a conversion rate determined by dividing the liquidation preference by a number equal to 114% of the liquidation preference, subject to certain adjustments. The Series A Preferred Stock is also convertible, in whole or in part, at our option on or after the third anniversary of the issuance of the shares at the same conversion rate if, among other things: (i) for the preceding thirty trading days, the closing price of Colfax Common stock on the New York Stock Exchange exceeds 133% of the applicable conversion price and (ii) Colfax has declared and paid or set apart for payment all accrued but unpaid dividends on the Series A Preferred Stock.
 
On May 13, 2008, coincidingJanuary 24, 2012, we sold 2,170,139 shares of newly issued Colfax Common stock to each of Mitchell P. Rales and Steven M. Rales and 1,085,070 shares of newly issued Colfax Common stock to Markel Corporation (“Markel”) at $23.04 per share, for an aggregate of $125 million pursuant to separate securities purchase agreements with Mitchell P. Rales, Chairman of Colfax’s Board of Directors, and his brother Steven M. Rales, each of whom were beneficial owners of 20.9% of Colfax’s Common stock at the time of the sale, and Markel. Thomas S. Gayner, a member of Colfax’s Board of Directors, is President and Chief Investment Officer of Markel.
Consideration paid to Charter shareholders included 0.1241 shares of newly issued Colfax Common stock in exchange for each share of Charter’s ordinary stock, which resulted in the issuance of 20,735,493 shares of Common stock on January 24, 2012.
In conjunction with the issuance of the Common and Preferred stock issued in connection with the financing of the Charter Acquisition, the Company recognized $14.7 million in equity issuance costs which were recorded as a reduction to Additional paid-in capital during 2012.
On March 5, 2012, we sold 8,000,000 shares of newly issued Common stock to underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $272 million. Further, on March 9, 2012, the underwriters of the March 5, 2012 equity offering exercised their over-allotment option and we sold an additional 1,000,000 shares of newly issued Common stock to the underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $34 million. In conjunction with these issuances, we recognized $12.6 million in equity issuance costs which were recorded as a reduction to Additional paid-in capital during 2012.

Borrowing Arrangements

We entered into the Deutsche Bank Credit Agreement on September 12, 2011. In connection with the closing of the IPO,Charter Acquisition, the Deutsche Bank Credit Agreement was amended on January 13, 2012 and we terminated our existing credit facility. There were no material early termination penalties incurredagreement as a resultwell as Charter’s outstanding indebtedness.

On February 22, 2013, we entered into the Second Amendment to the Deutsche Bank Credit Agreement to, among other things, (i) reallocate the borrowing capacities of the termination. Deferred loantranches of loans, (ii) provide for an interest rate margin on the term A-1 facility, the term A-2 facility and the revolving credit subfacilities ranging from 0.75% to 1.50% per annum for base rate loans and 1.75% to 2.50% per annum for Eurocurrency rate loans, in each case, determined by the Company’s leverage ratio, (iii) provide for an interest rate margin on the term A-3 facility and the term A-4 facility ranging from 1.50% to 2.25% per annum for base rate loans and 2.50% to 3.25% per annum for Eurocurrency rate loans, in each case, determined by the Company’s leverage ratio and (iv) provide for an interest rate margin on the term B facility of 1.50% per annum for base rate loans and 2.50% per annum for Eurocurrency rate loans.

On November 7, 2013, we entered into the Third Amendment to the Deutsche Bank Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the Company further amended its credit agreement to, among other things, (i) reallocate borrowing capacities of the tranches of loans as follows: a $408.7 million term A-1 facility, a $380 million term A-2 facility, a €149.7 million term A-3 facility, a €100 million term A-4 facility and two revolving credit subfacilities which total $898 million in commitments, (ii) provide for an interest rate margin on the term A-1 facility, the term A-2 facility and the revolving credit subfacilities ranging from 0.50% and 1.25% per annum for base rate loans and 1.50% to 2.25% per annum for Eurocurrency rate loans, in each case determined by the Company’s leverage ratio, (iii) provide for an interest margin on the term A-3 facility

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and the term A-4 facility ranging from 0.75% to 1.50% per annum for base rate loans and 1.75% and 2.50% per annum for Eurocurrency loans, in each case, determined by the Company’s leverage ratio and (iv) reset the maturity date for the term A facilities and the two revolving credit subfacilities as well as the amortization schedule for the term A facilities to a five year term commencing on November 7, 2013. In connection with the Third Amendment, the prior term B facility under the credit agreement was repaid in its entirety.

In conjunction with the amendments, we recorded a charge to Interest expense in the Consolidated Statement of Operations for the year ended December 31, 2013 of $29.4 million to write-off certain deferred financing fees and original issue discount and expensed approximately $1.2 million of costs of $4.6 million were written offincurred in connection with this termination.  On the same day, we entered into a new credit agreement (the “Credit Agreement”).refinancing. The Company had an original issue discount of $17.7 million and deferred financing fees of $13.5 million included in its Consolidated Balance Sheet as of December 31, 2013, which will be accreted to Interest expense primarily using the effective interest method, over the life of the Deutsche Bank Credit Agreement. As of December 31, 2013, the weighted-average interest rate of borrowings under the amended Deutsche Bank Credit Agreement led by Bancwas 1.99%, excluding accretion of America Securities LLCoriginal issue discount, and administered by Bank of America, is a senior secured structure with a $150.0there was $560.6 million revolver and a Term A Note of $100.0 million.
The Term A Note bears interest at LIBOR plus a margin ranging from 2.25% to 2.75% determined by the total leverage ratio calculated at quarter end.  At December 31, 2010, the interest rate was 2.76% inclusive of a 2.50% margin. The Term A Note, as entered into on May 13, 2008, has $2.5 million due on a quarterly basis available on the last day of each March, June, September and December beginning June 30, 2010 and ending March 31, 2013, and one installment of $60.0revolving credit subfacilities, including $199.9 million payable available on May 13, 2013.  On December 31, 2010, there was $82.5 million outstanding on the Term A Note.
The $150.0 million revolver contains a $50.0 million letter of credit sub-facility, a $25.0 million swing line loan sub-facility and a €100.0 million sub-facility.  At December 31, 2010, the annual commitment fee on the revolver was 0.5% and there was $14.1 million outstanding on thesubfacility.

The Company is also party to additional letter of credit sub-facility and $6.0facilities with total capacity of $688.7 million attributable to a defaulting lender, leaving approximately $129.9. Total letters of credit of $398.2 million available under our revolver.
On June 24, 2008, we entered into an interest rate swap with an aggregate notional value were outstanding as of $75.0 million whereby we exchanged our LIBOR-based variable rate interest for a fixed rate of 4.1375%.  The notional value decreased to $50.0 million on June 30, 2010 and will decrease to $25.0 million on June 30, 2011, and expires on June 29, 2012. The fair value of the swap agreement, based on third-party quotes, was a liability of $1.8 million at December 31, 2010.  The swap agreement2013.

In connection with the Deutsche Bank Credit Agreement, the Company has been designated as a cash flow hedge, and therefore changes inpledged substantially all of its fair value are recorded as an adjustment to other comprehensive income.
Substantially alldomestic subsidiaries’ assets and stock of the Company’s domestic subsidiaries and 65% of the shares of certain Europeanfirst tier international subsidiaries are pledged as collateral against borrowings to its U.S. companies. In addition, subsidiaries in certain foreign jurisdictions have guaranteed the Company’s obligations on borrowings of one of its European subsidiaries, as well as pledged substantially all of their assets for such borrowings to this European subsidiary under the Deutsche Bank Credit Agreement. Certain European assets are pledged against borrowings directly made to our European subsidiary. The Deutsche Bank Credit Agreement contains customary covenants limiting the Company’s ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase Company stock,equity, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets. In addition, the Deutsche Bank Credit Agreement contains financial covenants requiring the Company to maintain a total leverage ratio, as defined therein, of not more than 3.254.95 to 1.0 and a fixed chargeminimum interest coverage ratio, as defined therein, of not less than 1.502.25 to 1.0, measured at the end of each quarter. Ifquarter, through the Company does notyear ended December 31, 2013. The minimum interest coverage ratio increases by 25 basis points each year until it reaches 3.0 to 1.0 for the year ending December 31, 2016 and each year thereafter. The maximum total leverage ratio decreases to 4.75 to 1.0 for the year ending December 31, 2014 and decreases by 25 basis points each year until it reaches 4.25 to 1.0 for the year ending December 31, 2016 and each year thereafter. The Deutsche Bank Credit Agreement contains various events of default, including failure to comply with the variousfinancial covenants under the Credit Agreementreferenced above, and related agreements,upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Term A Noteterm loans and revolver.the revolving credit subfacilities and foreclose on the collateral. The Company believes it is in compliance with all such covenants as of December 31, 2010 and expects2013. We believe that our sources of liquidity, including the Deutsche Bank Credit Agreement, are adequate to be in compliancefund our operations for the next 12twelve months.


34

31
As of December 31, 2010, we had approximately $135.9 million available on our $150 million revolving credit line. Present drawings under the credit line are letters of credit securing various obligations related to our business. The revolving credit line is provided by a consortium of financial institutions with varying commitment levels as shown below (in millions):Cash Flows

  Amount 
Bank of America $32.4 
RBS Citizens  14.4 
TD BankNorth  14.4 
Wells Fargo  14.4 
SunTrust Bank  14.4 
Landesbank Baden-Wuerttemberg  10.5 
DnB Nor Bank  10.5 
HSBC  10.5 
KeyBank  10.5 
Carolina First Corp  6.0 
UBS  6.0 
Lehman Brothers(1)
  6.0 
Total $150.0 
 (1)The bankruptcyAs of December 31, 2013, we had $311.3 million of Lehman Brothers resulted in their default under the terms of the revolver and we will not be able to draw on Lehman Brothers’ commitment of $6.0 million.  The Credit Agreement was amended on February 14, 2011 to eliminate Lehman Brothers’ commitment, thereby reducing the total amount of the revolving credit line to $144.0 million.

Comparative Cash Flows
and cash equivalents, a decrease of $171.1 million from $482.4 million as of December 31, 2012. The following table below presents selectedsummarizes the change in Cash and cash flow data forequivalents during the periods indicated:
  Year ended December 31, 
(Amounts in millions) 2010  2009  2008 
          
Net cash provided by (used in) operating activities $62.0  $38.7  $(33.0)
             
Purchases of fixed assets  (12.5)  (11.0)  (18.6)
Net cash paid for acquisitions  (28.0)  (1.7)  (0.4)
Other sources, net  0.1   0.2   (0.1)
             
Net cash used in investing activities $(40.4) $(12.5) $(19.1)
             
Proceeds and repayments of borrowings, net  (8.8)  (5.0)  (110.3)
Net proceeds from the issuance of common stock  -   -   193.0 
Dividends paid to preferred shareholders  -   -   (38.5)
Repurchases of common stock  -   -   (5.7)
Payments made for loan costs  -   -   (3.3)
Other sources (uses), net  0.8   (0.4)  (0.4)
Net cash (used in) provided by financing activities $(8.0) $(5.4) $34.8 
 Year Ended December 31,
 2013 2012 2011
 (In millions)
Net cash provided by operating activities$362.2
 $174.0
 $57.2
Purchases of fixed assets, net(71.5) (83.2) (13.6)
Acquisitions, net of cash received(372.5) (1,859.6) (56.3)
Loans to non-trade creditors(31.0) —
 —
Other sources, net—
 1.9
 —
Net cash used in investing activities(475.0) (1,940.9) (69.9)
(Repayments) proceeds from borrowings, net(309.0) 1,159.8
 29.0
Proceeds from issuance of common stock, net324.2
 756.8
 3.7
Proceeds from issuance of preferred stock, net—
 333.0
 —
Acquisition of shares held by noncontrolling interest(14.9) (29.3) —
Other uses(45.3) (37.1) —
Net cash (used in) provided by financing activities(45.0) 2,183.2
 32.7
Effect of exchange rates on Cash and cash equivalents(13.3) (8.9) (5.4)
(Decrease) increase in Cash and cash equivalents$(171.1) $407.4
 $14.6

Cash flows from operating activities can fluctuate significantly from period to period asdue to changes in working capital needs,and the timing of payments for items such as asbestos-related cash flows, pension funding decisions and otherasbestos-related costs. Changes in significant operating cash flow items impact reported cash flows.are discussed below.

Net cash provided by (used in) operating activities was $62.0 million, $38.7 million and $(33.0) millionreceived or paid for the years ended December 31, 2010, 2009 and 2008, respectively.  The two most significant items causing the variability in these reported amounts were asbestos-related cash flows (includingcosts, net of insurance proceeds, including the disposition of claims, defense costs insurer reimbursements and settlements and legal expenses related to litigation against our insurers)insurers, creates variability in our operating cash flows. We had net cash outflows of $39.6 million, $24.7 million and IPO-related costs$7.9 million during 2013, 2012 and 2011, respectively.
Funding requirements of our defined benefit plans, including pension plans and other post-retirement benefit plans, can vary significantly from period to period due to changes in 2008.the fair value of plan assets and actuarial assumptions. For 2013, 2012 and 2011 cash contributions for defined benefit plans were $46.9 million, $61.2 million and $9.3 million, respectively. Contributions for 2012 included $18.9 million of supplemental contributions to pension plans in the years ended United Kingdom as a result of the financing of the Charter Acquisition.
During 2013, 2012 and 2011 cash payments of $47.3 million, $45.1 million and $6.8 million, respectively, were made related to our restructuring initiatives. Additionally, during 2012 and 2011 cash payments of approximately $46.1 million and $1.6 million were made for advisory, legal, valuation and other professional service fees related to the Charter Acquisition.
Changes in net working capital also affected the operating cash flows for the periods presented. We define working capital as Trade receivables, net and Inventories, net reduced by Accounts payable. During 2013, net working capital decreased $110.0 million, primarily due to a decrease in inventory and an increase in payables partially offset by an increase in receivables, which increased our cash flows from operating activities. During 2012, net working capital decreased, primarily due to a decrease in inventory and an increase in payable levels, which increased our cash flows from operating activities by $78.3 million, a significant contributor to 2012 cash flows from operating activities. During 2011, net working capital increased, primarily due to an increase in receivables, which reduced our cash flows from operating activities.
During 2013, the acquisitions of GII, Clarus, ČKDK, TLT-Babcock, Alphair and Sicelub resulted in net cash outflows of $399.9 million. There were significant investing activities associated with the Charter Acquisition. The cash cost of the Charter Acquisition, which was completed in 2012, was approximately $1.7 billion, net of cash acquired. During 2011, the acquisitions of Rosscor and COT-Puritech resulted in net cash outflows of $56.3 million. During 2013, the Company also made a loan in connection with an acquisition of $31.0 million, which is expected to be repaid in 2015.

35


Cash flows from financing activities for 2013 were impacted by the amendments to the Deutsche Bank Credit Agreement further discussed above under “—Borrowing Arrangements” and the May 2013 sale of newly issued Common stock further discussed above under “—Equity Capital.” The sale of our Common stock in May 2013 generated $319.9 million cash inflows from financing activities.

Cash flows from financing activities for 2012 were significantly impacted by the Charter Acquisition. As discussed above under “—Equity Capital,” we raised $805.0 million of cash from sales of our equity securities to the BDT Investor, Steven and Mitchell Rales, and Markel. We borrowed approximately $1.8 billion of term loans, $70.3 million of which was repaid in 2012. The additional payment of borrowings under term loans of $455 million primarily represents the repayment of borrowings under our Bank of America Credit Agreement, in conjunction with the financing of the Charter Acquisition. Additionally, financing activities for 2012 included $293 million raised in a primary offering of our Common stock settled in March 2012.

Cash flows from financing activities were also impacted by acquisitions of shares of less than wholly owned subsidiaries. During 2013, cash flows from financing activities included a $14.9 million acquisition of common and investment shares of Soldex resulting in an increase in our ownership of the subsidiary from approximately 91% to 99%. During 2012, cash flows from financing activities included a $29.3 million acquisition of shares in ESAB India Limited, a publicly traded, less than wholly owned subsidiary in which the Company acquired a controlling interest in the Charter Acquisition. This acquisition of shares was pursuant to a statutorily mandated tender offer triggered as a result of the Charter Acquisition.

Cash flows from financing activities during 2011 included net borrowings of $29.0 million, which were primarily related to the acquisitions of Rosscor and COT-Puritech.

Our Cash and cash equivalents as of December 31, 2010, 20092013 includes $290.2 held in jurisdictions outside the U.S., which may be subject to tax penalties if repatriated into the U.S. and 2008, net cash paid for asbestos liabilities, net of insurance settlements received, was $11.4 million, $19.7 million and $21.8 million, respectively. For the year ended December 31, 2008, cash paid for IPO-related costs were $42.4 million. Additionally, in the year ended December 31, 2008, cash paid for legacy legal settlements were $11.7 million. Excluding the effect of asbestos-related cash flows, IPO-related costs, and legacy legal settlements, net cash provided by operating activities would have been $73.4 million, $58.4 million and $42.9 million for the years ended December 31, 2010, 2009 and 2008, respectively.

other restrictions.
32
Other changes in operating cash flow items are discussed below.
ŸFunding requirements of our defined benefit plans, including both pensions and other post-employment benefits, can vary significantly among periods due to changes in the fair value of plan assets and actuarial assumptions. For the years ended December 31, 2010, 2009 and 2008, cash contributions for defined benefit plans were $12.1 million, $8.3 million, and $6.4 million, respectively.
ŸFor the years ended December 31, 2010 and 2009, cash payments of $16.3 million and $7.9 million, respectively, were made related to the Company’s restructuring initiatives.
ŸChanges in working capital also affected the operating cash flows for the years presented. We define working capital as trade receivables plus inventories less accounts payable.
ŸWorking capital, excluding the effects of acquisitions and foreign currency translation, decreased $18.7 million from December 31, 2009 to December 31, 2010 and decreased $10.3 million from December 31, 2008 to December 31, 2009. These changes were primarily due to decreases in inventory levels as a result of inventory reduction programs.
Investing activities consist primarily of purchases of fixed assets and cash paid for acquisitions.
ŸIn all years presented, capital expenditures were invested in new and replacement machinery, equipment and information technology. We generally target capital expenditures at approximately 2.0% to 2.5% of revenues.
ŸOn August 19, 2010, we completed the acquisition of Baric, a supplier of highly engineered fluid handling systems primarily for lubrication applications, with its primary operations based in Blyth, United Kingdom, for $27.2 million, net of cash acquired in the transaction.
ŸWe paid $0.7 million in 2010 and $0.4 million in both 2009 and 2008 for contingent purchase price adjustments related to our 2007 acquisition of Fairmount Automation, Inc.
ŸOn August 31, 2009, we completed the acquisition of PD-Technik, a provider of marine aftermarket related products and services located in Hamburg, Germany, for $1.3 million, net of cash acquired in the transaction.
Financing cash flows consist primarily of borrowings and repayments of indebtedness, payment of dividends to shareholders and redemptions of stock.
·During 2010, we repaid $8.8 million of long-term borrowings.
·In the fourth quarter of 2008, we purchased 795,000 shares of our common stock for approximately $5.7 million.  We did not purchase any shares in 2009 or 2010.
��
·Our IPO proceeds in May 2008 were $193.0 million after deducting estimated accounting, legal and other expenses of $5.9 million.  We used these proceeds to: (i) repay approximately $105.4 million of indebtedness outstanding under our credit facility, (ii) pay dividends to existing preferred stockholders of record immediately prior to the consummation of the IPO in the amount of $38.5 million, (iii) pay $11.8 million to the selling stockholders in the IPO as reimbursement for the underwriting discount incurred on the shares sold by them, and (iv) pay special bonuses of approximately $27.8 million to certain of our executives under previously adopted executive compensation plans.  The remainder of the net proceeds was applied to working capital.
·We paid approximately $3.3 million in deferred loan costs related to our new credit facility entered into May 13, 2008.

33
Contractual Obligations

We are party to numerous contracts and arrangements that obligate us to make cash payments in future years.  These contracts include financing arrangements such as debt agreements and leases, as well as contracts for the purchase of goods and services.
The following table is a summary ofsummarizes our future contractual obligations as of December 31, 2010 (in millions):2013.

  Total  
Less than
One Year
  
1-3 Years
  
3-5 Years
  
More Than
5 Years
 
                
Debt & Leases:
               
Term Loan A $82.5  $10.0  $72.5  $-  $- 
Interest Payments on Long-Term Debt (1)
  6.6   3.7   2.9   -   - 
Operating Leases  12.7   3.8   5.1   3.1   0.7 
Purchase Obligations (2)
  50.9   47.7   3.2   -   - 
Total $152.7  $65.2  $83.7  $3.1  $0.7 
  
Less Than
One Year
 1-3 Years 3-5 Years 
More Than
5 Years
 Total
  (In millions)
Debt $29.4
 $280.2
 $1,195.2
 $—
 $1,504.8
Interest payments on debt(1)
 29.2
 53.9
 32.5
 —
 115.6
Mandatorily redeemable preferred stock of a subsidiary —
 31.4
 —
 —
 31.4
Dividend payment on mandatorily redeemable preferred stock of a subsidiary —
 3.1
 —
 —
 3.1
Operating leases 36.5
 40.2
 24.6
 55.9
 157.2
Capital leases 4.1
 1.3
 —
 —
 5.4
Purchase obligations(2)
 418.8
 13.1
 1.1
 0.4
 433.4
Total $518.0
 $423.2
 $1,253.4
 $56.3
 $2,250.9
__________
(1)Includes estimated interest rate swap payments.
(1)
Variable interest payments are estimated using a static rate of 3.2%1.99%.
(2)Amounts exclude
(2)
Excludes open purchase orders for goods or services that are provided on demand, the timing of which is not certain.
    
We have cash funding requirements associated with our pension and other post-retirement benefit plans as of December 31, 2013, which are estimated to be approximately $6.7$71.7 million for the year ending December 31, 2011.2014, of which approximately $10 million is expected to be satisfied with a contribution of Colfax Common stock, with the balance in cash. Other long-term liabilities, such as those for asbestos and other legal claims, employee benefit plan obligations, and deferred income taxes and liabilities for unrecognized income tax benefits, are excluded from the above table since they are not contractually fixed as to timing and amount.


36

Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that provide liquidity, capital resources, market or credit risk support that expose us to any liability that is not reflected in our consolidated financial statementsConsolidated Financial Statements at December 31, 2013 other than outstanding letters of credit of $14.1$398.2 million and $16.4$157.2 million of bank guarantees at December 31, 2010 and future operating lease payments of $12.7 million.payments.
 
The Company and its subsidiaries have in the past divested certain of its businesses and assets. In connection with these divestitures, certain representations, warranties and indemnities were made to purchasers to cover various risks or unknown liabilities. We cannot estimate the potential liability, if any, that may result from such representations, warranties and indemnities because they relate to unknown and unexpected contingencies; however, the Company doeswe do not believe that any such liabilities will have a material adverse effect on our financial condition, results of operations or liquidity.

Critical Accounting Policies

The methods, estimates and judgments we use in applying our critical accounting policies have a significant impact on theour results we report in ourof operations and financial statements.position. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates and different assumptions or estimates about the future could changehave a material impact on our reported results.results of operations and financial position.
 
We believe the following accounting policies are the most critical in that they are important to the financial statements and they require the most difficult, subjective or complex judgments in the preparation of the financial statements. For a detailed discussion on the application of these and other accounting policies, see Note 2, “Summary of Significant Accounting Policies” in the accompanying Notes to the Consolidated Financial Statements.Statements in this Form 10-K.
 
34
Asbestos Liabilities and Insurance Assets

Two of our
Certain subsidiaries are each one of many defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured with components that are alleged to have contained asbestos. Such components were acquired from third-party suppliers, and were not manufactured by any of ourthe Company’s subsidiaries nor were the subsidiaries producers or direct suppliers of asbestos. The manufactured products that are alleged to have contained asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the U.S. Navy.
 
The subsidiaries settle asbestos claims for amounts management considers reasonable given the facts and circumstances of each claim. The annual average settlement payment per asbestos claimant has fluctuated during the past several years. Management expects such fluctuations to continue in the future based upon, among other things, the number and type of claims settled in a particular period and the jurisdictions in which such claims arise. To date, the majority of settled claims have been dismissed for no payment.
Claims activity related to asbestos is as follows (1):
  Year ended December 31, 
  2010  2009  2008 
          
Claims unresolved at the beginning of the period  25,295   35,357   37,554 
Claims filed (2)
  3,692   3,323   4,729 
Claims resolved (3)
  (4,223)  (13,385)  (6,926)
             
Claims unresolved at the end of the period  24,764   25,295   35,357 
             
Average cost of resolved claims (4)
 $12,037  $11,106  $5,378 

(1)Excludes claims filed by one legal firm that have been “administratively dismissed.”
(2)Claims filed include all asbestos claims for which notification has been received or a file has been opened.
(3)Claims resolved include asbestos claims that have been settled or dismissed or that are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants.
(4)Average cost of settlement to resolve claims in whole dollars. These amounts exclude claims settled in Mississippi for which the majority of claims have historically been resolved for no payment. These amounts exclude insurance recoveries.  The increase in average cost of resolved claims from 2008 to 2009 is driven primarily by a shift in the mix of settled claims from dismissals with no dollar value to mesothelioma settlements.

We have projected each subsidiary’s future asbestos-related liability costs with regard to pending and future unasserted claims based upon the Nicholson methodology. The Nicholson methodology is a standard approach used by experts and has been accepted by numerous courts. This methodology is based upon risk equations, exposed population estimates, mortality rates, and other demographic statistics. In applying the Nicholson methodology for each subsidiary we performed: 1)(1) an analysis of the estimated population likely to have been exposed or claim to have been exposed to products manufactured by the subsidiaries based upon national studies undertaken of the population of workers believed to have been exposed to asbestos; 2) the use(2) a review of epidemiological and demographic studies to estimate the number of potentially exposed people that would be likely to develop asbestos-related diseases in each year; 3)(3) an analysis of the subsidiaries’ recent claims history to estimate likely filing rates for these diseases;diseases and 4)(4) an analysis of the historical asbestos liability costs to develop average values, which vary by disease type, jurisdiction and the nature of claim, to determine an estimate of costs likely to be associated with currently pending and projected asbestos claims. Our projections, based upon the Nicholson methodology, estimate both claims and the estimated cash outflows related to the resolution of such claims for periods up to and including the endpoint of asbestos studies referred to in item 2)(2) above. It is our policy to record a liability for asbestos-related liability costs for the longest period of time that we can reasonably estimate. Accordingly, no accrual has been recorded for any costs which may be paid after the next 15 years.
 
Projecting future asbestos-related liability costs is subject to numerous variables that are difficult to predict, including, among others, the number of claims that might be received, the type and severity of the disease alleged by each claimant, the latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the financial resources of other companies that are co-defendants in the claims, funds available in post-bankruptcy trusts, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, including fluctuations in the timing of court actions and rulings, and the impact of potential changes in legislative or judicial standards, including potential tort reform. Furthermore, any projections with respect to these variables are subject to even greater uncertainty as the projection period lengthens. These trend factors have both positive and negative effects on the dynamics of asbestos litigation in the tort system and the related best estimate of our asbestos liability, and these effects do not move in linear fashion but rather change over multiple year periods. Accordingly, we monitor these trend

37

factors over time and periodically assessesassess whether an alternative forecast period is appropriate. Taking these factors into account and the inherent uncertainties, we believe that we can reasonably estimate the asbestos-related liability for pending and future claims that will be resolved in the next 15 years and have recorded that liability as our best estimate. While it is reasonably possible that the subsidiaries will incur costs after this period, we do not believe the reasonably possible loss or range of reasonably possible loss is estimable at the current time. Accordingly, no accrual has been recorded for any costs which may be paid after the next 15 years. Defense costs associated with asbestos-related liabilities as well as costs incurred related to litigation against the subsidiaries’ insurers are expensed as incurred.

35
We assessed the subsidiaries’ existing insurance arrangements and agreements, estimated the applicability of insurance coverage for existing and expected future claims, analyzed publicly available information bearing on the current creditworthiness and solvency of the various insurers, and employed such insurance allocation methodologies as we believed appropriate to ascertain the probable insurance recoveries for asbestos liabilities. The analysis took into account self-insurance retentions, policy exclusions, pending litigation, liability caps and gaps in coverage, existing and potential insolvencies of insurers as well as how legal and defense costs will be covered under the insurance policies.
 
During the third quarter of 2009, an analysis of claims data including filing and dismissal rates, alleged disease mix, filing jurisdiction, as well as settlement values resulted in the determination that the Company should revise its rolling 15-year estimate of asbestos-related liability for pending and future claims.  The analysis reflected that a statistically significant increase in mesothelioma filings had occurred and was expected to continue for both subsidiaries.  As a result, the Company recorded an $11.6 million pretax charge in the third quarter of 2009, which was comprised of an increase to its asbestos-related liabilities of $111.3 million offset by expected insurance recoveries of $99.7 million.
Each subsidiary has separate insurance coverage acquired prior to Companyour ownership of each independent entity. In itsour evaluation of the insurance asset, the Company usedwe use differing insurance allocation methodologies for each subsidiary based upon the applicable law pertaining to the affected subsidiary.
In November 2008, one of the subsidiaries entered into a settlement agreement with the primary and umbrella carrier governing all aspects of the carrier’s past and future handling of the asbestos related bodily injury claims against the subsidiary. As a result of this agreement, during the third quarter of 2008, the Company increased its insurance asset by $7.0 million attributable to resolution of a dispute concerning certain pre-1966 insurance policies and recorded a corresponding pretax gain. The Company reimbursed the primary insurer for $7.6 million in deductibles and retrospective premiums in the fourth quarter of 2008 and has no further liability to the insurer under these provisions of the primary policies.
For this subsidiary, the Delaware Court of Chancery ruled on October 14, 2009, that asbestos-related costs should be allocated among excess insurers using an “all sums” allocation (which allows an insured to collect all sums paid in connection with a claim from any insurer whose policy is triggered, up to the policy’s applicable limits) and that the subsidiary has rights to excess insurance policies purchased by a former owner of the business.  Based upon this ruling mandating an “all sums” allocation, as well as the language of the underlying insurance policies and the assertion and belief that defense costs are outside policy limits, the Company, as of October 2, 2009, increased its future expected recovery percentage from 67% to 90% of asbestos-related costs following the exhaustion of its primary and umbrella layers of insurance and recorded a pretax gain of $17.3 million. The subsidiary expects to be responsible for approximately 10% of its future asbestos-related costs.

During the third quarter of 2010, an insolvent carrier that had written approximately $1.4 million in limits for which this subsidiary had assumed no recovery made a cash settlement offer of approximately $0.7 million.  As such, the subsidiary recorded a gain for this amount and a receivable from the insurer.

The subsidiary was notified during the third quarter of 2010 by the primary and umbrella carrier who had been fully defending and indemnifying the subsidiary for twenty years that the limits of liability of its primary and umbrella layer policies had been exhausted.  Since then, the subsidiary has sought coverage from certain excess layer insurers whose terms and conditions follow form to the umbrella carrier.  Certain first-layer excess insurers have defended and/or indemnified the subsidiary and/or agreed to defend and/or indemnify the subsidiary, subject to their reservations of rights and their applicable policy limits.  Litigation between this subsidiary and its excess insurers is continuing and it is anticipated that the trial phase will be completed in 2011. The subsidiary continues to work with its excess insurers to obtain defense and indemnity payments while the litigation is proceeding.  Given the uncertainties of litigation, there are a variety of possible outcomes, including but not limited to the subsidiary being required to fund all or a portion of the subsidiary’s defense and indemnity payments until such time a final ruling orders payment by the insurers.  While not impacting the results of operations, the funding requirement could range up to $10 million per quarter until final resolution.

36
In 2003, the other subsidiary filed a lawsuit against a large number of its insurers and its former parent to resolve a variety of disputes concerning insurance for asbestos-related bodily injury claims asserted against it.  Although none of these insurance companies contested coverage, they disputed the timing, reasonableness and allocation of payments.
For this subsidiary it was determined by court ruling in the fourth quarter of 2007, that the allocation methodology mandated by the New Jersey courts will apply. Further court rulings in December of 2009, clarified the allocation calculation  related to amounts currently due from insurers as well as amounts the Company expects to be reimbursed for asbestos-related costs incurred in future periods.  As a result, in the fourth quarter of 2009, the Company increased its receivable for past costs by $11.9 million and decreased its insurance asset for future costs by $9.8 million and recorded a pretax gain of $2.1 million.
In connection with this litigation, the court engaged a special master to review the appropriate information and recommend an allocation formula in accordance with applicable law and the facts of the case.  During the fourth quarter of 2010, the court-appointed special allocation master made its recommendation which has not yet been and may not be accepted by the court.   Based upon the recommendation, the Company reduced the current asbestos receivable by $2.3 million, increased the long-term asbestos asset by $0.4 million and recorded a net charge to asbestos liability and defense costs of $1.9 million in the third quarter of 2010. As a result of the current status of this litigation, we decreased the amount currently due from insurers by $0.5 million and decreased the insurance asset for future periods by $1.6 million and recorded a pretax loss of $2.1 million in the fourth quarter of 2010.   We currently anticipate that the trial phase in this litigation will be complete in 2011.  We cannot predict the outcome of this litigation with certainty, or whether the outcome will be more or less favorable than our best estimate included in the consolidated financial statements.  Given the uncertainty inherent in litigation, we would estimate the range of possible results from positive $30 million to negative $30 million relative to our reported insurance assets on our consolidated balance sheets.  The timing of any cash inflows or outflows related to these matters cannot be estimated. The subsidiary expects to be responsible for approximately 15% of all future asbestos-related costs.
The Company has established reserves of $429.7 million and $443.8 million as of December 31, 2010 and December 31, 2009, respectively, for the probable and reasonably estimable asbestos-related liability cost it believes the subsidiaries will pay through the next 15 years.  It has also established recoverables of $374.4 million and $389.4 million as of December 31, 2010 and December 31, 2009, respectively, for the insurance recoveries that are deemed probable during the same time period. Net of these recoverables, the expected cash outlay on a non-discounted basis for asbestos-related bodily injury claims over the next 15 years was $55.3 million and $54.3 million as of December 31, 2010 and December 31, 2009, respectively. In addition, the Company has recorded a receivable for liability and defense costs previously paid in the amount of $51.8 million and $52.8 million as of December 31, 2010 and December 31, 2009, respectively, for which insurance recovery is deemed probable.  The Company has recorded the reserves for the asbestos liabilities as “Accrued asbestos liability” and “Long-term asbestos liability” and the related insurance recoveries as “Asbestos insurance asset” and “Long-term asbestos insurance asset”.  The receivable for previously paid liability and defense costs is recorded in “Asbestos insurance receivable” and “Long-term asbestos insurance receivable”.  The Company also has reflected in other accrued liabilities $23.3 million and $15.8 million as of December 31, 2010 and December 31, 2009, respectively, for overpayments by certain insurers and unpaid legal costs related to defending itself against asbestos-related liability claims and legal action against the Company’s insurers.
The expense (income) related to these liabilities and legal defense was $7.9 million, net of estimated insurance recoveries, for the year ended December 31, 2010 compared to ($2.2) million and ($4.8) million for the years ended December 31, 2009 and 2008, respectively.  Legal costs related to the subsidiaries’ action against their asbestos insurers were $13.2 million for the year ended December 31, 2010 compared to $11.7 million and $17.2 million for the years ended December 31, 2009 and 2008, respectively.
 
Management’s analyses are based on currently known facts and a number of assumptions. However, projecting future events, such as new claims to be filed each year, the average cost of resolving each claim, coverage issues among layers of insurers, the method in which losses will be allocated to the various insurance policies, interpretation of the effect on coverage of various policy terms and limits and their interrelationships, the continuing solvency of various insurance companies, the amount of remaining insurance available, as well as the numerous uncertainties inherent in asbestos litigation could cause the actual liabilities and insurance recoveries to be higher or lower than those projected or recorded which could materially affect our financial condition, results of operations or cash flow.

 
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As of December 31, 2013, we had total asbestos liabilities, including current portion, of $409.4 million and total asbestos insurance assets, including current portion, of $395.3 million. See Note 15, “Commitments and Contingencies” in the accompanying Notes to Consolidated Financial Statements for additional information regarding our asbestos liabilities and insurance assets.
 
Retirement Benefits

Pension obligations and other post-retirement benefits are actuarially determined and are affected by several assumptions, including the discount rate, assumed annual rates of return on plan assets, and per capita cost of covered health care benefits. Changes in discount rate and differences from actual results for each assumption will affect the amounts of pension expense and other post-retirement expense recognized in future periods. These assumptions may also have an effect on the amount and timing of future cash contributions. See Note 1113, “Defined Benefit Plans” in the accompanying Notes to our Consolidated Financial Statements for further information.
 
Impairment of Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the costs in excess of the fair value of net assets acquired associated with our acquisitions.

We evaluate the recoverability of goodwillGoodwill and indefinite-lived intangible assets annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. Goodwill isand indefinite-lived intangible assets are considered to be impaired when the net book value of a reporting unit or asset exceeds its estimated fair value.

During the year ended December 31, 2010, the Company changed the date of its annual goodwill and indefinite-lived intangible assets impairment testing from the last day of the fourth quarter to the first day of the fourth quarter.  The Company adopted this change in timing in order to provide additional time to quantify the fair value of our reporting units and, if necessary, to determine the implied fair value of goodwill.  This change in timing will also reduce the likelihood that the annual impairment analysis would not be completed by the required filing date of the Company’s annual financial statements.  The revised date also better aligns with our strategic planning and budgeting process, which is an integral component of the impairment testing. In accordance with GAAP, the Company will also perform interim impairment testing should circumstances requiring it arise.  We believe this accounting change is preferable and does not result in the delay, acceleration, or avoidance of an impairment charge.

In the evaluation of goodwillGoodwill for impairment, we first compareassess qualitative factors to determine whether it is more likely than not that the fair value of thea reporting unit toentity is less than its carrying value. If we determine that it is not more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the fair value is not performed. If we determine that it is more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the reporting entity’s fair value is performed and compared to the carrying value of that entity. If the carrying value of a reporting unit exceeds its fair value, the goodwillGoodwill of that reporting unit is potentially impaired and step two of the impairment analysis is performed. In step two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwillGoodwill over its implied fair value should such a circumstance arise.


38

We measure fair value of reporting units based on a present value of future discounted cash flows or a market valuation approach. The discounted cash flows model indicates the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future. Significant estimates in the discounted cash flows model include: the weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company against certain market information. Significant estimates in the market approach model include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization (EBITDA) in estimating the fair value of the reporting units.

In the evaluation of indefinite-lived intangible assets for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. If we determine that it is not more likely than not for the indefinite-lived intangible asset’s fair value to be less than its carrying value, a calculation of the fair value is not performed. If we determine that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value, a calculation is performed and compared to the carrying value of the asset. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We measure the fair value of our indefinite-lived intangible assets using the “relief from royalty” method. Significant estimates in this approach include royalty and discount rates for each trade name evaluated.
The analysisanalyses performed as of September 28, 2013, September 29, 2012, and October 2, 2010 and December 31, 2009 and 20081, 2011 indicated no impairment to be present.  However, actualpresent, except for $0.2 million of impairment loss related to an indefinite-lived intangible asset included in the gas- and fluid-handling segment for the year ended December 31, 2013. This impairment results from a decline in anticipated revenue related to this asset. The impairment loss is included in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations and was calculated as the difference between the fair value of the asset under the relief from royalty method and its carrying value as of the date of the impairment test. The fair value of that intangible asset of $2.8 million as of December 31, 2013 is not material to our Consolidated Financial Statements. See Note 2, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements for further information.

Actual results could differ from our estimates and projections, which would affect the assessment of impairment. As of December 31, 2010,2013, we have goodwillGoodwill of $172.3$2.4 billion and indefinite lived trade names of $412.3 million that isare subject to at least annual review offor impairment. See Note 107, “Goodwill and Intangible Assets” in the accompanying Notes to our Consolidated Financial Statements for further information.

Income Taxes
 
We account for income taxes under the asset and liability method, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating the need for a valuation allowance, we take into account various factors, including the expected level of future taxable income and available tax planning strategies. If actual results differ from the assumptions made in the evaluation of our valuation allowance, we record a change in valuation allowance through income tax expense in the period such determination is made.

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During the year ending December 31, 2010,2013, the valuation allowance increased from $45.1$357.6 million to $52.9 million with $4.2 million$358.4 million.
Accounting Standards Codification 740, “Income Taxes” prescribes a recognition threshold and $3.6 million ofmeasurement attribute for a position taken in a tax return. Under this standard, we must presume the increase recognized in income tax expenseposition will be examined by a relevant tax authority and in other comprehensive income, respectively.  The $7.8 million net increase in 2010 was primarily attributable to U.S. deferred tax assets we believe may not be realized. Consideration was given to U.S. tax planning strategies and future U.S. taxable income as to how much of the total U.S. deferred tax asset could be realized on adetermine whether it is more likely than not basis.that the income tax position will be sustained upon examination based on its technical merits. An income tax position that meets the more-likely-than-not recognition threshold is then measured to determine the amount of the benefit to be recognized in the financial statements. Liabilities for unrecognized income tax benefits are reviewed periodically and are adjusted as events occur that effect our estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits and, if applicable, the conclusion of any court proceedings. To the extent we prevail in matters for which liabilities for unrecognized tax benefits have been established or are required to pay amounts in excess of our liabilities for unrecognized tax benefits, our effective income tax rate in a given period could be materially affected. The Company recognizes interest and penalties related to unrecognized tax benefits in the Provision for income taxes in the Consolidated Statements of Operations. Net liabilities for unrecognized income tax benefits, including accrued interest and penalties were $68.8 million as of December 31, 2013 and are included in Other liabilities in the accompanying Consolidated Balance Sheet.
 

The determination of our provision for income tax requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. We establish reserves when, despite the belief that the tax return positions are fully supportable, we believe that certain positions may be successfully challenged. When facts and circumstances change, the reserves are adjusted through the provision for income taxes. Tax benefits are not recognized until minimum recognition thresholds are met as prescribed by applicable accounting standards.
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Revenue Recognition
 
We recognize revenuesrevenue and costs from product sales when title passes to the buyer and all of the following criteria are met: persuasive evidence of an arrangement exists, the price is fixed or determinable, product delivery has occurred or services have been rendered, there are no further obligations to customers, and collectibility is probable. Product delivery occurs when title and risk of loss transfer to the customer. Our shipping terms vary based on the contract. If any significant obligations to the customer with respect to such sale remain to be fulfilled following shipment, typically involving obligations relating to installation and acceptance by the buyer, revenue recognition is deferred until such obligations have been fulfilled. Any customer allowances and discounts are recorded as a reduction in reported revenues at the time of sale because these allowances reflect a reduction in the purchasesales price for the products purchased.sold. These allowances and discounts are estimated based on historical experience and known trends. Revenue related to service agreements is recognized as revenue over the term of the agreement.
We recognize revenue and cost of sales on gas-handling construction projects using the “percentage of completion method” in accordance with U.S. GAAP. Under this method, contract revenues are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Any recognized revenues that have not been billed to a customer are recorded as a component of Trade receivables and any billings of customers in excess of recognized revenues are recorded as a component of Accounts payable. As of December 31, 2013, there were $231.3 million of revenues in excess of billings and $214.8 million of billings in excess of revenues on construction contracts in the Consolidated Balance Sheet.
We have contracts in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. Significant management judgments and estimates, including estimated costs to complete projects, must be made and used in connection with revenue recognized during each period. Current estimates may be revised as additional information becomes available. The revisions are recorded in income in the period in which they are determined using the cumulative catch-up method of accounting.
 
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. These allowances are based on recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire pool of customers. The allowance for doubtful accounts was $2.6$31.3 million and $2.8$16.5 million as of December 31, 20102013 and 2009,2012, respectively. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances maycould be required.
The foregoing criteria are used for all classes of customers including original equipment manufacturers, distributors, government contractors and other end users.
Stock-Based Compensation

Pursuant to our 2008 omnibus incentive plan, our board of directors may make awards in the form of shares of restricted stock, stock options and restricted stock units (“RSUs”) and other stock-based awards. We measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions. That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period or vesting period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. We have equity incentive plans to encourage employees and non-employee directors to remain with us and to more closely align their interests with those of our shareholders.Recently Issued Accounting Pronouncements
 
For purposes of calculating stock-based compensation, the fair value of restricted stock or restricted stock units granted is equal to the market value of a share of common stock on the date of the grant. For grants that were awarded on May 7, 2008 in conjunction with our initial public offering, we used the initial public offering price as the fair value of the restricted stock and restricted stock units granted. For stock options, we estimate the fair value on the date of grant using the Black-Scholes option-pricing model. The determination of fair value using the Black-Scholes model requires a number of complex and subjective variables. One key input into the model is the fair value of our common stock on the date of grant, the initial public offering price in the case of stock optionsdetailed information regarding recently issued on May 7, 2008. Other key variables in the Black-Scholes option-pricing model include the expected volatility of our common stock price, the expected term of the award and the risk-free interest rate. In addition, we are required to estimate forfeitures of unvested awards when recognizing compensation expense. Significant assumptions used to calculate stock-based compensation during the years ended December 31, 2010 and 2009 were a stock price volatility of 52.2% and 32.5%, respectively, an expected option life of 4.5 years, a risk-free interest rate based on the 5-year treasury note yield on the date of grant ranging from 1.1% to 2.6% in 2010 and 1.9% to 2.5% in 2009 and a 0% expected dividend yield.

39
Stock-based compensation expense recognized for the years ended December 31, 2010, 2009 and 2008 was $3.1 million, $2.6 million and $11.3 million, respectively. We cannot predict with certainty the impact of stock-compensation expense to be recognized in the future because the actual amount of stock-based compensation expense we record in any fiscal period will be dependent on a number of factors, including the number of shares subject to the stock awards issued, the fair value of our common stock at the time of issuanceaccounting pronouncements and the expected volatility ofimpact on our stock price over time. However, based on awards we currently expect to make in 2011, stock-based compensation for the year ended December 31, 2011 is projected to be approximately $3.5 million.
Recent Pronouncements
Seefinancial statements, see Note 3, “Recently Issued Accounting Pronouncements” in the accompanying Notes to our Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.included in this Form 10-K.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in short-term interest rates, foreign currency exchange rates and commodity prices that could impact our results of operations and financial condition. We address our exposure to these risks through our normal operating and financing activities.
Information concerning market risk for the year ended December 31, 2010 is discussed below.

Interest Rate Risk

We are subject to exposure from changes in short-term interest rates basedrelated to interest payments on our financing activities.borrowing arrangements. Under our credit facility,the Deutsche Bank Credit Agreement, all of our borrowings at as of December 31, 20102013 are variable rate facilities based on LIBOR or EURIBOR. In order to mitigate our interest rate risk, we periodically enter into interest rate swap or collar agreements. A hypothetical increase in the interest rate of 1.00% during 2010 on our variable rate debt that is not hedged2013 would have increased our interest costInterest expense by approximately $0.3$16.4 million.

On June 24, 2008, we entered into an interest rate swap with an aggregate notional value of $75.0 million whereby we exchanged our LIBOR-based variable rate interest for a fixed rate of 4.1375%.  The notional value decreased to $50.0 million on June 30, 2010 and will decrease to $25.0 million on June 30, 2011, and expires on June 29, 2012. The fair value of the swap agreement, based on third-party quotes, was a liability of $1.8 million at December 31, 2010.  The swap agreement has been designated as a cash flow hedge, and therefore changes in its fair value are recorded as an adjustment to other comprehensive income.
Exchange Rate Risk

We have manufacturing sites throughout the world and sell our products globally. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar and against the currencies of other countries in which we manufacture and sell products and services. During 2010,2013, approximately 66%80% of our sales were derived from operations outside the U.S., We have significant manufacturing operations in European countries that are not part of the Eurozone. Sales revenues are

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more highly weighted toward the Euro and U.S. dollar. We also have significant contractual obligations in U.S. dollars that are met with approximately 62% generatedcash flows in other currencies as well as U.S. dollars. To better match revenue and expense as well as cash needs from contractual liabilities, we regularly enter into cross currency swaps and forward contracts.

We also face exchange rate risk from our investments in subsidiaries owned and operated in foreign countries. The Euro denominated borrowings under the Deutsche Bank Credit Agreement, provide a natural hedge to a portion of our European operations.net asset position. The effect of a change in currency exchange rates on our net investment in international subsidiaries, net of the translation effect of the Company’s euro denominated borrowings, is reflected in the Accumulated other comprehensive loss component of Equity. A 10% depreciation in major currencies, relative to the U.S. dollar as of December 31, 2013 (net of the translation effect of our euro denominated borrowings) would result in a reduction in Equity of approximately $150 million.

We also face exchange rate risk from transactions with customers in countries outside the U.S. and from intercompany transactions between affiliates. Although we use the U.S. dollar as our functional currency for reporting purposes, we have manufacturing sites throughout the world, and a substantial portion of our costs are incurred and sales are generated in foreign currencies. Costs incurred and sales recorded by subsidiaries operating outside of the U.S. are translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar. In particular, we havethe Company has more sales in European currencies than we haveit has expenses in those currencies. Therefore,Although a significant portion of this difference is hedged, when European currencies strengthen or weaken against the U.S. dollar, operating profits are increased or decreased, respectively. To assist with

We have generally accepted the matchingexposure to exchange rate movements without using derivative financial instruments to manage this risk. Both positive and negative movements in currency exchange rates against the U.S. dollar will, therefore, continue to affect the reported amount of revenues and expenses andsales, profit, assets and liabilities in foreign currencies, we may periodically enter into derivative instruments such as cross currency swaps or forward contracts. To illustrate the potential impact of changes in foreign currency exchange rates, assuming a 10% increase in average foreign exchange rates compared to the U.S. dollar, 2010 income before income taxes would have increased by $3.7 million.our Consolidated Financial Statements.

Commodity Price Risk

We are exposed to changes in the prices of raw materials used in our production processes. Commodity futures contracts are periodically used to manage such exposure. As of December 31, 2010,2013, we had no open commodity futures contracts.

See Note 14, “Financial Instruments and Fair Value Measurements” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K for additional information regarding our derivative instruments.


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40

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 Page
Audited Financial Statements for the Years Ended December 31, 2010, 2009 and 2008:
  
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm on– Internal Control Over Financial Reporting42
43
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm – Consolidated Financial Statements43
44
Consolidated Statements of Operations44
45
Consolidated Statements of Comprehensive Income (Loss)
46
Consolidated Balance Sheets45
47
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)46
48
Consolidated Statements of Cash Flows47
49
Notes to Consolidated Financial Statements
50
Note 1. Organization and Nature of Operations48
50
Note 2. Summary of Significant Accounting Policies
50
Note 3. Recently Issued Accounting Pronouncements
55
Note 4. Acquisitions
56
Note 5. Net Income (Loss) Per Share
59
Note 6. Income Taxes
60
Note 7. Goodwill and Intangible Assets
63
Note 8. Property, Plant and Equipment, Net
64
Note 9. Inventories, Net
64
Note 10. Debt
64
Note 11. Equity
66
Note 12. Accrued Liabilities
70
Note 13. Defined Benefit Plans
72
Note 14. Financial Instruments and Fair Value Measurements
79
Note 15. Commitments and Contingencies
83
Note 16. Segment Information
86
Note 17. Selected Quarterly Data—(unaudited)
89
 


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41

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting

The Board of Directors and Shareholders of Colfax Corporation

We have audited Colfax Corporation’s internal control over financial reporting as of December 31, 2010,2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Colfax Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Colfax Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2013, based on the COSO criteria.criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Colfax Corporation as of December 31, 20102013 and 20092012, and the related consolidated statements of operations, comprehensive income shareholders’(loss), equity, and cash flows for each of the three years in the period ended December 31, 20102013 of Colfax Corporation and our report dated February 25, 201112, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Baltimore, Maryland
Richmond, VirginiaFebruary 12, 2014
February 25, 2011

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42

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Consolidated Financial Statements
The Board of Directors and Shareholders of Colfax Corporation

We have audited the accompanying consolidated balance sheets of Colfax Corporation as of December 31, 20102013 and 2009,2012, and the related consolidated statements of operations, comprehensive income shareholders'(loss), equity, and cash flows for each of the three years in the period ended December 31, 2010.2013. Our audits also included the financial statement schedule listed in the Index at Item 15(a).15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Colfax Corporation at December 31, 20102013 and 2009,2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010,2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Colfax Corporation'sCorporation’s internal control over financial reporting as of December 31, 2010,2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 25, 201112, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Richmond, VirginiaBaltimore, Maryland
February 25, 201112, 2014


44
43

COLFAX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands, except per share amounts


 Year Ended December 31,
 2013 2012 2011
      
Net sales$4,207,209
 $3,913,856
 $693,392
Cost of sales2,900,987
 2,761,731
 453,293
Gross profit1,306,222
 1,152,125
 240,099
Selling, general and administrative expense860,994
 895,452
 162,761
Charter acquisition-related expense—
 43,617
 31,052
Restructuring and other related charges35,502
 60,060
 9,680
Asbestos coverage litigation expense3,334
 12,987
 10,700
Operating income406,392
 140,009
 25,906
Interest expense103,597
 91,570
 5,919
Income before income taxes302,795
 48,439
 19,987
Provision for income taxes93,652
 90,703
 15,432
Net income (loss)209,143
 (42,264) 4,555
Less: income attributable to noncontrolling interest, net of taxes30,515
 22,138
 —
Net income (loss) attributable to Colfax Corporation178,628
 (64,402) 4,555
Dividends on preferred stock20,396
 18,951
 —
Net income (loss) available to Colfax Corporation common shareholders$158,232
 $(83,353) $4,555
Net income (loss) per share- basic$1.56
 $(0.92) $0.10
Net income (loss) per share- diluted$1.54
 $(0.92) $0.10
  Year ended December 31, 
  2010  2009  2008 
          
Net sales $541,987  $525,024  $604,854 
Cost of sales  350,579   339,237   387,667 
             
Gross profit  191,408   185,787   217,187 
Selling, general and administrative expenses  119,426   112,503   124,105 
Research and development expenses  6,205   5,930   5,856 
Restructuring and other related charges  10,323   18,175   - 
Initial public offering related costs  -   -   57,017 
Asbestos liability and defense costs (income)  7,876   (2,193)  (4,771)
Asbestos coverage litigation expenses  13,206   11,742   17,162 
Operating income  34,372   39,630   17,818 
Interest expense  6,684   7,212   11,822 
             
Income before income taxes  27,688   32,418   5,996 
Provision for income taxes  11,473   8,621   5,465 
             
Net income  16,215   23,797   531 
             
Dividends on preferred stock  -   -   (3,492)
             
Net income (loss) available to common shareholders $16,215  $23,797  $(2,961)
             
Net income (loss) per share—basic and diluted $0.37  $0.55  $(0.08)


See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.


45


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

44
 Year Ended December 31,
 2013 2012 2011
Net income (loss)$209,143
 $(42,264) $4,555
Other comprehensive income (loss):     
Foreign currency translation, net of tax of $(3,634), $(304) and $(18)6,202
 117,703
 (11,465)
Unrealized loss on hedging activities, net of tax of $404, $632 and $0(10,404) (4,008) (161)
Changes in unrecognized pension and other post-retirement benefits cost, net of tax of $575, $(5,835) and $(654)77,071
 (91,495) (34,291)
Amounts reclassified from Accumulated other comprehensive loss:     
Realized gain on hedging activities, net of tax of $0, $0 and $0—
 471
 1,479
Net pension and other postretirement benefit cost, net of tax of $715, $256 and $11410,022
 8,557
 4,160
Other comprehensive income (loss)82,891
 31,228
 (40,278)
Comprehensive income (loss)292,034
 (11,036) (35,723)
Less: comprehensive income attributable to noncontrolling interest13,039
 26,523
 —
Comprehensive income (loss) attributable to Colfax Corporation$278,995
 $(37,559) $(35,723)


See Notes to Consolidated Financial Statements.

46


COLFAX CORPORATION
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except per share amounts

  December 31, 
  2010  2009 
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $60,542  $49,963 
Trade receivables, less allowance for doubtful accounts of $2,562 and $2,837  98,070   88,493 
Inventories, net  57,941   71,150 
Deferred income taxes, net  6,108   7,114 
Asbestos insurance asset  34,117   31,502 
Asbestos insurance receivable  46,108   35,891 
Prepaid expenses  11,851   11,109 
Other current assets  6,319   2,426 
         
Total current assets  321,056   297,648 
Deferred income taxes, net  52,385   51,838 
Property, plant and equipment, net  89,246   92,090 
Goodwill  172,338   163,418 
Intangible assets, net  28,298   11,952 
Long-term asbestos insurance asset  340,234   357,947 
Long-term asbestos insurance receivable  5,736   16,876 
Deferred loan costs and other assets  12,784   14,532 
Total assets $1,022,077  $1,006,301 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
CURRENT LIABILITIES:        
Current portion of long-term debt and capital leases $10,000  $8,969 
Accounts payable  50,896   36,579 
Accrued asbestos liability  37,875   34,866 
Accrued payroll  21,211   17,756 
Advance payments from customers  17,250   5,896 
Accrued taxes  6,173   2,154 
Accrued termination benefits  2,180   9,473 
Other accrued liabilities  45,925   35,406 
         
Total current liabilities  191,510   151,099 
Long-term debt, less current portion  72,500   82,516 
Long-term asbestos liability  391,776   408,903 
Pension and accrued post-retirement benefits  112,257   105,230 
Deferred income tax liability  13,529   10,375 
Other liabilities  24,134   31,353 
Total liabilities  805,706   789,476 
Shareholders’ equity:        
Common stock: $0.001 par value; authorized 200,000,000; issued and outstanding 43,413,553 and 43,229,104  43   43 
Additional paid-in capital  406,901   402,852 
Accumulated deficit  (60,058)  (76,273)
Accumulated other comprehensive loss  (130,515)  (109,797)
Total shareholders’ equity  216,371   216,825 
Total liabilities and shareholders' equity $1,022,077  $1,006,301 

 December 31,
 2013 2012
ASSETS   
  CURRENT ASSETS:   
     Cash and cash equivalents$311,301
 $482,449
     Trade receivables, less allowance for doubtful accounts of $31,282 and $16,4641,030,892
 873,382
     Inventories, net445,752
 493,649
     Other current assets350,401
 282,266
  Total current assets2,138,346
 2,131,746
  Property, plant and equipment, net757,140
 688,570
  Goodwill2,384,522
 2,098,836
  Intangible assets, net832,553
 779,049
  Other assets470,292
 450,086
Total assets$6,582,853
 $6,148,287
    
LIABILITIES AND EQUITY   
  CURRENT LIABILITIES:   
     Current portion of long-term debt$29,449
 $34,799
     Accounts payable860,380
 699,626
     Accrued liabilities485,261
 447,220
  Total current liabilities1,375,090
 1,181,645
  Long-term debt, less current portion1,457,642
 1,693,512
  Other liabilities1,009,006
 1,116,844
Total liabilities3,841,738
 3,992,001
 Equity:   
Preferred stock, $0.001 par value; 20,000,000 shares authorized; 13,877,552 issued and outstanding14
 14
Common stock, $0.001 par value; 400,000,000 shares authorized; 101,921,613 and 94,067,418 issued and outstanding102
 94
  Additional paid-in capital2,541,005
 2,197,694
  Retained earnings (accumulated deficit)19,376
 (138,856)
  Accumulated other comprehensive loss(46,608) (146,594)
Total Colfax Corporation equity2,513,889
 1,912,352
Noncontrolling interest227,226
 243,934
Total equity2,741,115
 2,156,286
Total liabilities and equity$6,582,853
 $6,148,287


See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

47
45


COLFAX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 2010, 2009 and 2008
Dollars in thousands, except share amounts and as noted

  
Preferred
Stock
  
Common
Stock
  
Additional
Paid-In
Capital
  
Accumulated
Deficit
  
Accumulated Other
Comprehensive
Loss
  Total 
                   
Balance at December 31, 2007 $1  $22  $201,660  $(97,109) $(38,138) $66,436 
Comprehensive income (loss):                        
Net income  -   -   -   531   -   531 
Foreign currency translation, net of $-0- tax  -   -   -   -   (10,662)  (10,662)
Unrealized losses on hedging activities, net of $-0- tax  -   -   -   -   (5,815)  (5,815)
Changes in unrecognized pension and postretirement benefit costs, net of $1,731 tax benefit  -   -   -   -   (67,630)  (67,630)
Amounts reclassified to net income:                        
Losses on hedging activities, net of $-0- tax  -   -   -   -   766   766 
Net pension and other postretirement benefit costs, net of $128 tax expense  -   -   -   -   2,622   2,622 
Total comprehensive loss  -   -   -   531   (80,719)  (80,188)
Net proceeds from initial public offering and conversion of preferred stock  (1)  22   192,999   -   -   193,020 
Stock repurchase  -   (1)  (5,730)  -   -   (5,731)
Stock-based award activity  -   -   11,330   -   -   11,330 
Preferred dividends declared  -   -   -   (3,492)  -   (3,492)
Balance at December 31, 2008  -   43   400,259   (100,070)  (118,857)  181,375 
Comprehensive income (loss):                        
Net income  -   -   -   23,797   -   23,797 
Foreign currency translation, net of $7 tax benefit  -   -   -   -   5,401   5,401 
Unrealized losses on hedging activities, net of $-0- tax  -   -   -   -   (866)  (866)
Changes in unrecognized pension and postretirement benefit costs, net of $572 tax benefit  -   -   -   -   (910)  (910)
Amounts reclassified to net income:                        
Losses on hedging activities, net of $-0- tax  -   -   -   -   2,881   2,881 
Net pension and other postretirement benefit costs, net of $1,438 tax expense  -   -   -   -   2,554   2,554 
Total comprehensive income  -   -   -   23,797   9,060   32,857 
Stock-based award activity  -   -   2,593   -   -   2,593 
Balance at December 31, 2009  -   43   402,852   (76,273)  (109,797)  216,825 
Comprehensive income (loss):                        
Net income  -   -   -   16,215   -   16,215 
Foreign currency translation, net of $1,224 tax benefit  -   -   -   -   (8,260)  (8,260)
Unrealized losses on hedging activities, net of $-0- tax  -   -   -   -   (1,201)  (1,201)
Changes in unrecognized pension and postretirement benefit costs, net of $1,717 tax benefit  -   -   -   -   (18,690)  (18,690)
Amounts reclassified to net income:                        
Losses on hedging activities, net of $-0- tax  -   -   -   -   2,447   2,447 
Net pension and other postretirement benefit costs, net of $89 tax expense  -   -   -   -   4,986   4,986 
Total comprehensive loss  -   -   -   16,215   (20,718)  (4,503)
Stock-based award activity  -   -   4,049   -   -   4,049 
Balance at December 31, 2010 $-  $43  $406,901  $(60,058) $(130,515) $216,371 

 Common StockPreferred StockAdditional Paid-In Capital(Accumulated Deficit) Retained EarningsAccumulated Other Comprehensive LossNoncontrolling InterestTotal
 Shares$ AmountShares$ Amount
Balance at January 1, 201143,413,553
$43
—
$—
$406,901
$(60,058)$(130,515)$—
$216,371
Net income—
—
—
—
—
4,555
—
—
4,555
Other comprehensive loss—
—
—
—
—
—
(40,278)—
(40,278)
Common stock-based award activity284,017
1
—
—
8,626
—
—
—
8,627
Balance at December 31, 201143,697,570
44
—
—
415,527
(55,503)(170,793)—
189,275
Net (loss) income—
—
—
—
—
(64,402)—
22,138
(42,264)
Acquisitions—
—
—
—
—
—
—
259,229
259,229
Sale of stock of entity previously controlled—
—
—
—
—
—
—
(4,414)(4,414)
Distributions to noncontrolling owners—
—
—
—
—
—
—
(9,721)(9,721)
Acquisition of shares held by noncontrolling interest—
—
—
—
1,035
—
(2,644)(27,683)(29,292)
Preferred stock dividend—
—
—
—
—
(18,951)—
—
(18,951)
Other comprehensive income, net of tax of $5.3 million—
—
—
—
—
—
26,843
4,385
31,228
Common stock issuances, net of costs of $20.2 million49,917,786
50
—
—
1,432,921
—
—
—
1,432,971
Preferred stock issuances, net of costs of $7.0 million—
—
13,877,552
14
332,958
—
—
—
332,972
Common stock-based award activity452,062
—
—
—
15,253
—
—
—
15,253
Balance at December 31, 201294,067,418
94
13,877,552
14
2,197,694
(138,856)(146,594)243,934
2,156,286
Net income—
—
—
—
—
178,628
—
30,515
209,143
Distributions to noncontrolling owners—
—
—
—
—
—
—
(14,260)(14,260)
Acquisition of shares held by noncontrolling interest—
—
—
—
955
—
(381)(15,487)(14,913)
Preferred stock dividend—
—
—
—
—
(20,396)—
—
(20,396)
Other comprehensive income (loss), net of tax of $1.9 million—
—
—
—
—
—
100,367
(17,476)82,891
Common stock issuances, net of costs of $12.0 million7,500,000
8
—
—
319,890
—
—
—
319,898
Common stock-based award activity265,995
—
—
—
17,589
—
—
—
17,589
Contribution to defined benefit pension plan88,200
—
—
—
4,877
—
—
—
4,877
Balance at December 31, 2013101,921,613
$102
13,877,552
$14
$2,541,005
$19,376
$(46,608)$227,226
$2,741,115


See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

48
46


COLFAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
  Year ended December 31, 
  2010  2009  2008 
Cash flows from operating activities:         
Net income $16,215  $23,797  $531 
Adjustments to reconcile net income to cash provided by (used in) operating activities:            
Depreciation, amortization and fixed asset impairment charges  16,130   15,074   14,788 
Noncash stock-based compensation  3,137   2,593   11,330 
Write off of deferred loan costs  -   -   4,614 
Amortization of deferred loan costs  677   677   934 
Loss (gain) on sale of fixed assets  90   (64)  60 
Deferred income taxes  (296)  2,689   (13,330)
Changes in operating assets and liabilities, net of acquisitions:            
Trade receivables  (6,060)  16,280   (20,612)
Inventories  11,598   10,763   (15,556)
Accounts payable and accrued liabilities, excluding asbestos            
related accrued expenses  21,759   (20,899)  7,044 
Other current assets  (934)  2,605   (3,285)
Change in asbestos liability and asbestos-related accrued expenses, net of asbestos insurance asset and receivable  9,659   (10,166)  (9,457)
Changes in other operating assets and liabilities  (10,010)  (4,645)  (10,042)
             
Net cash provided by (used in) operating activities  61,965   38,704   (32,981)
             
Cash flows from investing activities:            
Purchases of fixed assets  (12,527)  (11,006)  (18,645)
Acquisitions, net of cash received  (27,960)  (1,678)  (439)
Proceeds from sale of fixed assets  74   219   23 
Net cash used in investing activities  (40,413)  (12,465)  (19,061)
             
Cash flows from financing activities:            
Borrowings under term credit facility  -   -   100,000 
Payments under term credit facility  (8,750)  (5,000)  (210,278)
Proceeds from borrowings on revolving credit facilities  5,500   -   28,185 
Repayments of borrowings on revolving credit facilities  (5,500)  -   (28,158)
Payments on capital leases  (205)  (417)  (309)
Payments for loan costs  -   -   (3,347)
Net proceeds from stock-based awards  912   -   - 
Proceeds from the issuance of common stock, net of offering costs  -   -   193,020 
Repurchases of common stock  -   -   (5,731)
Dividends paid to preferred shareholders  -   -   (38,546)
Net cash (used in) provided by financing activities  (8,043)  (5,417)  34,836 
             
Effect of exchange rates on cash  (2,930)  379   (2,125)
             
Increase (decrease) in cash and cash equivalents  10,579   21,201   (19,331)
Cash and cash equivalents, beginning of year  49,963   28,762   48,093 
Cash and cash equivalents, end of year $60,542  $49,963  $28,762 
             
Cash interest paid $6,105  $6,615  $9,970 
Cash income taxes paid $5,819  $16,596  $18,534 
 Year Ended December 31,
 2013 2012 2011
      
Cash flows from operating activities:     
Net income (loss)$209,143
 $(42,264) $4,555
Adjustments to reconcile net income (loss) to net cash provided by operating activities:     
Depreciation, amortization and fixed asset impairment charges119,258
 183,403
 22,598
Stock-based compensation expense13,334
 9,373
 4,908
Non-cash interest expense44,377
 16,997
 735
Gain on revaluation of Sicelub investment(13,784) —
 —
Unrealized loss on acquisition-related foreign currency derivative—
 —
 21,146
Deferred income tax provision (benefit)9,946
 7,222
 (1,722)
Changes in operating assets and liabilities, net of acquisitions:     
Trade receivables, net(98,912) (37,338) (5,972)
Inventories, net79,987
 26,694
 10,844
Accounts payable128,889
 88,927
 (7,298)
Changes in other operating assets and liabilities(130,069) (78,994) 7,359
Net cash provided by operating activities362,169
 174,020
 57,153
Cash flows from investing activities:     
Purchases of fixed assets, net(71,482) (83,187) (13,624)
Acquisitions, net of cash received(372,476) (1,859,645) (56,346)
Loans to non-trade creditors(31,012) —
 —
Other, net—
 1,857
 —
Net cash used in investing activities(474,970) (1,940,975) (69,970)
Cash flows from financing activities:     
Borrowings under term credit facility50,861
 1,731,523
 —
Payments under term credit facility(679,755) (531,415) (10,000)
Proceeds from borrowings on revolving credit facilities648,000
 13,149
 141,203
Repayments of borrowings on revolving credit facilities(328,133) (53,414) (102,180)
Proceeds from issuance of common stock, net324,153
 756,762
 3,719
Proceeds from issuance of preferred stock, net—
 332,969
 —
Acquisition of shares held by noncontrolling interest(14,913) (29,292) —
Payments of dividend on preferred stock(20,396) (17,446) —
Other(24,870) (19,608) —
Net cash (used in) provided by financing activities(45,053) 2,183,228
 32,742
Effect of foreign exchange rates on Cash and cash equivalents(13,294) (8,932) (5,359)
(Decrease) increase in Cash and cash equivalents(171,148) 407,341
 14,566
Cash and cash equivalents, beginning of period482,449
 75,108
 60,542
Cash and cash equivalents, end of period$311,301
 $482,449
 $75,108
      
Supplemental Disclosure of Cash Flow Information:     
Interest payments$58,970
 $79,857
 $5,209
Income tax payments, net93,856
 70,677
 16,731

See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

49
47
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
Dollars in thousands, unless otherwise noted


1. Organization and Nature of Operations
 
Colfax Corporation (the “Company”, or “Colfax”, “we”, “our” or “us”) is a diversified global supplierindustrial manufacturing and engineering company that provides gas- and fluid-handling and fabrication technology products and services to customers around the world under the Howden, ESAB and Colfax Fluid Handling brand names.

During the three months ended March 29, 2013, adjustments were made retrospectively to provisional amounts recorded as of a broad range of fluid handling products, including pumps, fluid handling systems and controls, and specialty valves. We believe that we are a leading manufacturer of rotary positive displacement pumps, which include screw pumps, gear pumps and progressive cavity pumps. We have a global manufacturing footprint, with production facilities in Europe, North America and Asia, as well as worldwide sales and distribution channels. Our products serve a variety of applications in five strategic markets: commercial marine, oil and gas, power generation, defense and general industrial. We design and engineer our productsDecember 31, 2012, due to high quality and reliability standards for use in critical fluid handling applications where performance is paramount. We also offer customized fluid handling solutions to meet individual customer needs based on our in-depth technical knowledgethe finalization of the applications in which our products are used. Our products are marketed principally undervaluation of specific tax items related to the Allweiler, Baric, Fairmount, Houttuin, Imo, LSC, Portland Valve, Tushaco, Warren, and Zenith brand names. We believe that our brands are widely known and have a premium position in our industry. Allweiler, Houttuin, Imo and Warren are among the oldest and most recognized brands in the fluid handling industry, with Allweiler dating back to 1860.acquisition of Charter International plc (“Charter”) by Colfax (the “Charter Acquisition”). See Note 4, “Acquisitions” for additional information regarding these adjustments.

2. Summary of Significant Accounting Policies
 
Principles of Consolidation
 
The consolidated financial statementsCompany’s Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Less than wholly owned subsidiaries, including joint ventures, are consolidated when it is determined that the Company has a controlling financial interest, which is generally determined when the Company holds a majority voting interest. When protective rights, substantive rights or other factors exist, further analysis is performed in order to determine whether or not there is a controlling financial interest. The Company owns 44%Consolidated Financial Statements reflect the assets, liabilities, revenues and expenses of consolidated subsidiaries and the common shares of Sistemas Centrales de Lubricación S.A. de C.V., a Mexican company and 28% of the common shares of Allweiler Al-Farid Pumps Company (S.A.E.), an Egyptian Corporation.  These investments are recorded in these financial statements using the equity method of accounting. Accordingly, $7.2 million and $6.6 million are recorded in other assets on the consolidated balance sheets at December 31, 2010 and 2009, respectively. The Company records itsnoncontrolling parties’ ownership share of these investments’ net earnings, based on its economic ownership percentage. Accordingly, $1.8 million, $1.5 million and $1.5 million of earnings from equity investments were includedis presented as a reduction of selling, general and administrative expenses on the consolidated statements of operations for each of the three years ended December 31, 2010, 2009 and 2008, respectively.noncontrolling interest. All significant intercompany accounts and transactions have been eliminated.
Equity Method Investments
Investments in joint ventures, where the Company has a significant influence but not a controlling interest, are accounted for using the equity method of accounting. Investments accounted for under the equity method are initially recorded at the amount of the Company’s initial investment and adjusted each period for the Company’s share of the investee’s income or loss and dividends paid. All equity investments are reviewed periodically for indications of other than temporary impairment, including, but not limited to, significant and sustained decreases in quoted market prices or a series of historic and projected operating losses by investees. If the decline in fair value is considered to be other than temporary, an impairment loss is recorded and the investment is written down to a new carrying value. Investments in joint ventures acquired in a business combination are recognized in the opening balance sheet at fair value.
 
Revenue Recognition
 
The Company generally recognizes revenues and costs from product sales when title passes to the buyer and all of the following criteria are met: persuasive evidence of an arrangement exists, the price is fixed andor determinable, product delivery has occurred or services have been rendered, there are no further obligations to customers, and collectibilitycollectability is probable.reasonably assured. Product delivery occurs when title and risk of loss transfer to the customer. The Company’s shipping terms vary based on the contract. If any significant obligations to the customer with respect to such sale remain to be fulfilled following shipments, typically involving obligations relating to installation and acceptance by the buyer, revenue recognition is deferred until such obligations have been fulfilled. Any customer allowances and discounts are recorded as a reduction in reported revenues at the time of sale because these allowances reflect a reduction in the sales price for the products sold. These allowances and discounts are estimated based on historical experience and known trends. Revenue related to service agreements is recognized as revenue over the term of the agreement. Progress billings are generally shown as a reduction of Inventories, net unless such billings are in excess of accumulated costs, in which case such balances are included in Accrued liabilities in the Consolidated Balance Sheets.

The Company recognizes revenue and cost of sales on gas-handling construction projects using the “percentage of completion method” in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method, contract revenues are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Any recognized revenues that have not been billed to a customer are recorded as a component of Trade receivables and any billings of customers in excess of recognized revenues are recorded as a component of Accounts payable. As of December 31, 2013, there were $231.3 million of revenues in excess of billings and $214.8 million of billings in excess of revenues on construction contracts in the Consolidated Balance Sheet. As of December 31, 2012, there were $97.1 million of revenues in excess of billings and $178.3 million of billings in excess of revenues on construction contracts in the Consolidated Balance Sheet.

50
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


 
In some cases, customerThe Company has contracts in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. Significant management judgments and estimates, including estimated costs to complete projects, must be made and used in connection with revenue recognized during each period. Current estimates may include multiple deliverables for product shipments and installation or maintenance labor. Deliverablesbe revised as additional information becomes available. The revisions are recorded in income in the period in which they are determined to be separate unitsusing the cumulative catch-up method of accounting if they have standalone value and there is no general right of refund.  Revenues fromaccounting. See Note 16, “Segment Information” for sales by major product shipments on this type of contract are recognized when title and risk of loss transfer to the customer, and the service revenue components are recognized as services are performed.
In some cases, customers may request that we store products on their behalf until the product is needed.  Under these arrangements, revenue is recognized when title and risk of loss have passed to the customer.

48
group.
 
Amounts billed for shipping and handling are recorded as revenue. Shipping and handling expenses are recorded as cost of sales. Progress billings are generally shown as a reduction of inventory unless such billings are in excess of accumulated costs, in which case such balances are included in accrued liabilities. The Company accrues for bad debts, as a component of selling, general, and administrative expenses, based upon estimatesCost of amounts deemed uncollectible and a specific review of significant delinquent accounts factoring in current and expected economic conditions. Product return reserves are accrued at the time of sale based on historical rates, and are recorded as a reduction to net sales.
 
Taxes Collected from Customers and Remitted to Governmental Authorities
 
The Company collects various taxes and fees as an agent in connection with the sale of products and remits these amounts to the respective taxing authorities. These taxes and fees have been presented on a net basis in the consolidated statementsConsolidated Statements of operationsOperations and are recorded as a liabilitycomponent of Accrued liabilities in the Consolidated Balance Sheets until remitted to the respective taxing authority.
 
Research and Development Expense
 
Research and development costs are expensed as incurred.
Advertising
Advertising costs of $0.5$27.4 million, $0.5$19.4 million and $0.9$5.7 million for the years endingended December 31, 2010, 20092013, 2012 and 2008,2011, respectively, are expensed as incurred and have beenare included in selling,Selling, general and administrative expenses.expense in the Consolidated Statements of Operations.
Advertising Costs
Advertising costs of $17.0 million, $15.7 million, and $1.2 million for the years ended December 31, 2013, 2012 and 2011, respectively, are expensed as incurred and are included in Selling, general and administrative expense in the Consolidated Statements of Operations.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include all financial instruments purchased with an initial maturity of three months or less.
 
Trade Receivables
 
ReceivablesAccounts receivable are presented net of allowancesan allowance for doubtful accounts. The Company records thean allowance for doubtful accounts based on its best estimateupon estimates of probable losses incurredamounts deemed uncollectible and a specific review of significant delinquent accounts factoring in the collection of accounts receivable.current and expected economic conditions. Estimated losses are based on historical collection experience, and are reviewed periodically by management.
 
Inventories
 
Inventories, net include the costscost of material, labor and overhead. Inventoriesoverhead and are stated at the lower of cost (determined under various methods, but predominantly first-in, first-out) or market. CostFor gas-handling construction projects, cost is primarily determined using the first-in, first-out method.based upon actual cost. The Company periodically reviews its quantities of inventories on hand and compares these amounts to the expected usage of each particular product. The Company records as a charge to costCost of sales any amounts required to reduce the carrying value of inventories to net realizable value.

Property, Plant and Equipment
 
Property, plant and equipment, net are stated at historical cost, which includes the fair values of such assets acquired. Depreciation of property, plant and equipment is provided forrecorded on a straight-line basis over estimated useful lives ranging from three to 40 years.lives. Assets recorded under capital leases are amortized over the shorter of their estimated useful lives or the lease terms. The estimated useful lives or lease terms, of assetswhich range from three to 4015 years. RepairsRepair and maintenance expenditures are expensed as incurred unless the repair extends the useful life of the asset.
 

51
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Impairment of Goodwill and Indefinite-Lived Intangible Assets
 
Goodwill represents the costs in excess of the fair value of net assets acquired associated with acquisitions by the Company. Indefinite-lived intangible assets consist of trade names.

The Company evaluates the recoverability of goodwillGoodwill and indefinite-lived intangible assets annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value.

 
49

During the year ended December 31, 2010, the Company changed the date of its annual goodwill and indefinite-lived intangible assets impairment testing from the last day of the fourth quarter to the first day of the fourth quarter.  The Company adopted this change in timing in order to provide additional time to quantify the fair value of our reporting units and, if necessary, to determine the implied fair value of goodwill.  This change in timing will also reduce the likelihood that the annual impairment analysis would not be completed by the required filing date of the Company’s annual financial statements.  The revised date also better aligns with our strategic planning and budgeting process, which is an integral component of the impairment testing. In accordance with GAAP, the Company will also perform interim impairment testing should circumstances requiring it arise.  We believe this accounting change is preferable and does not result in the delay, acceleration, or avoidance of an impairment charge.

In the evaluation of goodwillGoodwill for impairment, the Company first comparesassesses qualitative factors to determine whether it is more likely than not that the fair value of thea reporting unit toentity is less than its carrying value. If the Company determines that it is not more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the fair value is not performed. If the Company determines that it is more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the reporting entity’s fair value is performed and compared to the carrying value of that entity. If the carrying value of a reporting unit exceeds its fair value, the goodwill ofGoodwill attributable to that reporting unit is potentially impaired and step two of the impairment analysis is performed. In step two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwillGoodwill over its implied fair value should such a circumstance arise.

The Company measures fair value of reporting units based on a present value of future discounted cash flows or a market valuation approach. The discounted cash flows model indicates the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future. Significant estimates in the discounted cash flows model include: the weighted averageweighted-average cost of capital; long-term rate of growth and profitability of ourthe Company’s business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company against certain market information. Significant estimates in the market approach model include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization (EBITDA) in estimating the fair value of the reporting units.

In the evaluation of indefinite-lived intangible assets for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. If the Company determines that it is not likely for the indefinite-lived intangible asset’s fair value to be less than its carrying value, a calculation of the fair value is not performed. If the Company determines that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value, a calculation is performed and compared to the carrying value of the asset. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company measures the fair value of its indefinite-lived intangible assets using the “relief from royalty” method. Significant estimates in this approach include royalty and discount rates for each trade name evaluated.
The analysis performed as of October 2, 2010,September 28, 2013, indicated no impairment to be present, except for $0.2 million of impairment loss related to an indefinite-lived intangible asset included in the gas- and fluid-handling segment for the year ended December 31, 20092013. This impairment results from a decline in anticipated revenue related to this asset. The impairment loss is included in Selling, general and 2008administrative expense in the Consolidated Statement of Operations and was calculated as the difference between the fair value of the asset under the relief from royalty method and its carrying value as of the date of the impairment test. The fair value of that intangible asset of $2.8 million as of December 31, 2013 is included in Level Three of the fair value hierarchy and is not material to the Consolidated Financial Statements.

The impairment analyses performed as of September 29, 2012 and October 1, 2011 indicated no impairment to be present.

Impairment of Long-Lived Assets Other than Goodwill and Indefinite-Lived Intangible Assets
 
Intangibles primarily represent acquired customer relationships, acquired order backlog, acquired technology and software license agreements and patents.agreements. Acquired order backlog is amortized in the same period the corresponding revenue is recognized. A portion of the Company’s acquired customer relationships is being amortized over seven years based on the present value of the future cash flows expected to be generated from the acquired customers. All other intangibles are being amortized on a straight-line basis over their estimated useful lives, generally ranging from threetwo to 1520 years.

The Company assesses its long-lived assets other than goodwillGoodwill and indefinite-lived intangible assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge

52
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets. Assets to be disposed of are reported at the lower of the carrying amounts or fair value less cost to sell. Management determines fair value using the discounted cash flow method or other accepted valuation techniques. The Company recorded asset impairment losses related to facility closures totaling $0.6$1.9 million and $3.2 million during the years ended December 31, 2013 and 2012, respectively, as a component of Restructuring and other related charges in 2009the Consolidated Statements of Operations and $0.1 million during the year ended December 31, 2011 as a component of Selling, general and administrative expense in connection with the closureConsolidated Statement of two facilities. No such impairments were recorded in 2010 or 2008.Operations.
 
Derivatives
 
The Company periodically enters intois subject to foreign currency interest rate swap, and commodity derivative contracts. The Company uses interest rate swaps to manage exposure to interest rate fluctuations. Foreign currency contracts are used to manage exchange rate fluctuations and generally hedge transactions betweenrisk associated with the Euro and the U.S. dollar. Commodity futures contracts are used to manage costs of raw materials used in the Company’s production processes.
The Company enters into such contracts with financial institutions of good standing, and the total credit exposure related to non-performance by those institutions is not material to the operationstranslation of the Company.net assets of foreign subsidiaries to United States (“U.S.”) dollars on a periodic basis. The Company does not enter into contracts for trading purposes.
We designateCompany’s Deutsche Bank Credit Agreement (as defined and further discussed in Note 10, “Debt”) includes a €149.7 million term A-3 facility, €100.0 million term A-4 facility and €72.0 million outstanding on the multicurrency revolving credit subfacility, which have been designated as net investment hedges in order to mitigate a portion of our derivativethis risk.
Derivative instruments are generally recognized on a gross basis in the Consolidated Balance Sheets in either Other current assets, Other assets, Accrued liabilities or Other liabilities depending upon their respective fair values and maturity dates. The Company designates a portion of its foreign exchange contracts as fair value hedges. For all instruments designated as hedges, including net investment hedges, cash flow hedges for accounting purposes. For all derivatives designated asand fair value hedges, wethe Company formally documentdocuments the relationship between the hedging instrument and the hedged item, as well as the risk management objective and the strategy for using the hedging instrument. We assessThe Company assesses whether the hedging relationship between the derivativehedging instrument and the hedged item is highly effective at offsetting changes in the cash flowsfair value both at inception of the hedging relationship and on an ongoing basis. AnyFor cash flow hedges and net investment hedges, unrealized gains and losses are recognized as a component of Accumulated other comprehensive loss in the Consolidated Balance Sheets to the extent that it is effective at offsetting the change in the fair value of the derivative that is not effective at offsetting changeshedged item and realized gains and losses are recognized in the cash flows or fair valuesConsolidated Statements of Operations consistent with the underlying hedged item is recognized currently in earnings.

50
Interest rate swapsinstrument. Gains and other derivative contracts are recognized on the balance sheet as assets and liabilities, measured atlosses related to fair value on a recurring basis using significant observable inputs, which is Level 2hedges are recorded as defined in the fair value hierarchy. For transactions in which we are hedging the variability of cash flows, changes inan offset to the fair value of the derivative are reported in accumulated other comprehensive income until earnings are affected by the hedged item. Changesunderlying asset or liability, primarily Trade receivables and Accounts payable in the fair value of derivativesConsolidated Balance Sheets.

The Company does not designated as hedges are recognized currently in earnings.enter into derivative contracts for trading purposes.
See Note 14, “Financial Instruments and Fair Value Measurements” for additional information regarding the Company’s derivative instruments.
 
Self-Insurance
 
We areThe Company is self-insured for a portion of ourits product liability, workers’ compensation, general liability, medical coverage and certain other liability exposures. The Company accrues loss reservesfor losses up to the retention amounts when such amounts are reasonably estimable and probable. The accompanying consolidated balance sheets include estimated amounts for claims exposure based on experience factors and management estimates for known and anticipated claimsCompany’s accruals, included in Accrued liabilities in the Consolidated Balance Sheets, related to self-insurance are as follows:
  December 31,
  2013 2012
  (In thousands)
Medical insurance $2,846
 $383
Workers’ compensation 1,616
 1,868
Total self-insurance accruals $4,462
 $2,251

  December 31, 
  2010  2009 
       
Medical insurance $702  $697 
Workers' compensation  153   189 
         
Total self-insurance reserves $855  $886 
Warranty Costs
 
Estimated expenses related to product warranties are accrued atas the timerevenue is recognized on products are sold to customers and recorded as partincluded in Cost of costsales in the Consolidated Statements of sales.Operations. Estimates are established using historical information as to the nature, frequency, and average costs of warranty claims.
 

Warranty
53
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The activity forin the years ended December 31, 2010Company’s warranty liability, which is included in Accrued liabilities and 2009Other liabilities in the Company’s Consolidated Financial Statements, consisted of the following:

  2010  2009 
       
Warranty liability at beginning of the year $2,852  $3,108 
Accrued warranty expense, net of adjustments  2,079   1,651 
Changes in estimates related to pre-existing warranties  (589)  (798)
Cost of warranty service work performed  (1,264)  (1,191)
Foreign exchange translation effect  (115)  82 
         
Warranty liability at end of the year $2,963  $2,852 
 Year Ended December 31,
 2013 2012
 (In thousands)
Warranty liability, beginning of period$40,437
 $2,987
Accrued warranty expense25,013
 10,468
Changes in estimates related to pre-existing warranties(638) 9
Cost of warranty service work performed(21,082) (23,457)
Acquisitions18,569
 51,367
Foreign exchange translation effect(827) (937)
Warranty liability, end of period$61,472
 $40,437

Income Taxes
 
Income taxes for the Company are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities in the Consolidated Financial Statements and their respective tax bases.basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to applybe applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is generally recognized in Provision for income taxes in the period that includes the enactment date.
 
Valuation allowances are recorded if it is more likely than not that some portion of the deferred income tax assetassets will not be realized. In evaluating the need for a valuation allowance, we takethe Company takes into account various factors, including the expected level of future taxable income and available tax planning strategies. If actual results differ fromAny changes in judgment about the assumptions madevaluation allowance are recorded through Provision for income taxes and are based on changes in facts and circumstances regarding realizability of deferred tax assets.
The Company must presume that an income tax position taken in a tax return will be examined by the relevant tax authority and determine whether it is more likely than not that the tax position will be sustained upon examination based upon the technical merits of the position. An income tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the evaluation of our valuation allowance, we recordfinancial statements. The Company establishes a change in valuation allowance throughliability for unrecognized income tax expense or other comprehensivebenefits for income tax positions for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority to the extent such tax positions reduce the Company’s income tax liability. The Company recognizes interest and penalties related to unrecognized income tax benefits in the period such determination is made.

51
Provision for income taxes in the Consolidated Statements of Operations.
 
Foreign Currency Exchange Gains and Losses
 
The Company’s financial statements are presented in U.S. dollars. The functional currencies of the Company’s operating subsidiaries are generally the local currencies of the countries in which each subsidiary is located. Assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the balance sheet date. Revenues and expenses are translated at average rates of exchange in effect during the year. The amounts recorded in each year are net of income taxes to the extent the underlying equity balances in the entities are not deemed to be permanently reinvested.

Transactions in foreign currencies are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated for inclusion in the consolidated balance sheetsConsolidated Balance Sheets are recognized in Selling, general and administrative expense or Interest expense in the consolidatedConsolidated Statements of Operations for that period.

During the three months ended March 29, 2013, Venezuela devalued its currency to an official rate of 6.3 bolivar fuerte (“bolivar”) to the U.S. dollar, representing an approximate 32% devaluation of its currency relative to the U.S. dollar. The Company currently considers the bolivar a highly inflationary currency under GAAP. Therefore, financial statements of the Company’s

54
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Venezuelan operations are remeasured into their parents’ reporting currency. Exchange gains and losses from the re-measurement of monetary assets and liabilities are reflected in current earnings. Future impacts to earnings of applying highly inflationary accounting for that period.Venezuela on the Company’s Consolidated Financial Statements will be dependent upon movements in the applicable exchange rates between the bolivar and the parents’ reporting currency and the amount of monetary assets and liabilities included in the Company’s Venezuelan operations’ balance sheets. As of and for the year ended December 31, 2013, the Company’s Venezuelan operations represented less than 1% of the Company’s Total assets and Net sales. The bolivar-denominated monetary net asset position, primarily related to Cash and cash equivalents, was $5.5 million in the Consolidated Balance Sheet as of December 31, 2013. The devaluation of the bolivar and the change to the Colombian peso as the functional currency resulted in a foreign currency transaction gain (loss)loss of $2.9 million recognized in income was $(0.4) million, $(1.4)Selling, general and administrative expense for the three months ended March 29, 2013.

During the year ended December 31, 2013, the Company recognized net foreign currency transaction losses of $4.1 million and $0.3$5.2 million in Interest expense and Selling, general and administrative expense in the Consolidated Statement of Operations, respectively, including the $2.9 million loss related to the devaluation of the bolivar discussed above. The net foreign currency transaction (loss) gain recognized in Selling, general and administrative expense in the Consolidated Statements of Operations was $(1.2) million and $0.2 million for the years ended December 31, 2010, 20092012 and 2008,2011, respectively.
 
Debt Issuance Costs and Debt Discount
 
Costs directly related to the placement of debt are capitalized and amortized to Interest expense primarily using the straight-line method, which approximates the effective interest method over the term of the related obligation. Amounts written off due to early extinguishment of debt are charged to earnings. Cost and accumulated amortization related to debtDeferred issuance costs amounted to approximately $3.4of $18.2 million and 1.8$21.1 million, respectively, were included in Other assets in the Consolidated Balance Sheets as of December 31, 20102013 and $3.42012 net of $4.7 million and $1.1$4.8 million, respectively, as of accumulated amortization. During the years ended December 31, 2009.2013 and 2012, the Company deferred $7.1 million and $9.9 million, respectively, of debt issuance costs. There were no debt issuance costs deferred during the year ended December 31, 2011. Further, the carrying value of Long-term debt is reduced by an original issue discount, which is accreted to Interest expense using the effective interest method over the term of the related obligation. See Note 10, “Debt” for additional discussion regarding the Company’s borrowing arrangements.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to makeCompany makes certain estimates and assumptions thatin preparing its Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, andthe disclosure of contingent assets and liabilities at the date of the financial statementsConsolidated Financial Statements and the reported amounts of revenues and expenses for the periodsperiod presented. Actual results couldmay differ from those estimates.
 
Reclassifications
 
Certain prior period amounts have been reclassified to conform to current year presentations.

3. RecentRecently Issued Accounting Pronouncements

In October 2009,March 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (ASU)(“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force2013-05, “Foreign Currency Matters (Topic 830)” (“ASU No. 2013-05”). ASU No. 2009-13 addresses2013-05 is intended to clarify the unit ofparent’s accounting for arrangements involving multiple deliverables and how arrangement considerationthe cumulative translation adjustment upon the sale or transfer of a group of assets within a consolidated foreign entity. When a parent ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the parent is required to release any related cumulative translation adjustment into Net income. ASU No. 2013-05 further clarifies that the cumulative translation adjustment should be allocatedreleased into Net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU No. 2013-05 also clarifies application of this guidance to the separate units of accounting.step acquisitions. ASU No. 2013-05 is effective prospectively for fiscal years beginning after December 15, 2013, with early adoption permitted. The Company has adoptedwill apply the provisions of ASU No. 2009-132013-05 to future sales or transfers of assets of a consolidated foreign entity.

In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740)” (“ASU No. 2013-11”). ASU No. 2013-11 is intended to clarify the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain circumstances. To the extent a carryforward is not available at the reporting date or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such

55
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


purpose, the unrecognized tax benefit should be presented in the financial statements as a liability. ASU No. 2013-11 is effective prospectively to all unrecognized tax benefits that exist at the effective date for fiscal years beginning January 1, 2011.after December 15, 2013, with early adoption permitted. The Company does not anticipateis currently evaluating the impact of adopting ASU No. 2013-11 on the Company’s Consolidated Balance Sheet.

4. Acquisitions

Charter International plc

On January 13, 2012, Colfax completed the acquisition of Charter for a material impacttotal purchase price of approximately $2.6 billion, comprised of $1.9 billion of cash consideration and $0.7 billion fair value of Colfax Common stock on itsthe date of acquisition. Charter is a global industrial manufacturing company focused on welding, cutting and automation and air and gas handling. The acquisition has:
enhanced the Company’s business profile by providing a meaningful recurring revenue stream and considerable exposure to emerging markets;
enabled Colfax to benefit from strong secular growth drivers, with a balance of short- and long-cycle businesses; and
provided an additional growth platform in the fragmented fabrication technology industry.

The Charter Acquisition was accounted for using the acquisition method of accounting and accordingly, the Consolidated Financial Statements include the financial position and results of operations from adopting the provisionsdate of ASU No. 2009-13.acquisition. The measurement period was completed during the three months ended March 29, 2013. During the measurement period, the Company retrospectively adjusted provisional amounts with respect to the Charter Acquisition that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. The aggregate adjustments for the three months ended March 29, 2013 of $23.5 million increased the Goodwill balance and relate to the Company’s valuation of specific tax items.

4. AcquisitionsOther

The following acquisitions were accounted for using the acquisition method of accounting, except as otherwise noted, and, accordingly, the accompanying financial statementsConsolidated Financial Statements include the financial position and the results of operations from the datesrespective date of acquisition.

52
acquisition:

Gas and Fluid Handling

On August 19, 2010, weNovember 29, 2013, the Company completed the acquisition of Baricthe global infrastructure and industry division of Fläkt Woods Group (“Baric”GII”) for $27.0approximately $246.0 million net, including the assumption of cash acquired. Duringdebt, subject to certain adjustments. GII has operations around the fourth quarterworld and will expand the Company’s product offerings in the heavy duty industrial and cooling fan market.

On November 25, 2013, the Company converted the common shares of 2010,Sistemas Centrales de Lubrication S.A. de C.V. (“Sicelub”), previously a final working capital settlementless than wholly owned subsidiary in which the Company did not have a controlling interest, that were held by the majority owner into shares of $0.2mandatorily redeemable non-voting preferred stock of Sicelub valued at $31.7 million, was paid pursuantwhich resulted in an increase in the Company’s ownership from 44% to terms100%. On the date of the purchase agreements. Baricacquisition, the Company held a $7.4 million equity investment representing the Company’s 44% investment in Sicelub and recognized a $13.8 million gain as a reduction in Selling, general and administrative expense in the Consolidated Statement of Operations to remeasure the investment to fair value at the acquisition date based upon the total enterprise value, adjusting for a control premium. Changes in fair value of the mandatorily redeemable preferred stock are determined, in part, by the achievement of certain performance goals. The change in the fair value of the mandatorily redeemable preferred stock for each period will be reflected in Interest expense.

On November 1, 2013, the Company completed the acquisition of ČKD Kompresory a.s. (“ČKDK”) for approximately $69.4 million, including the assumption of debt. ČKDK is a leading supplier of highly engineered fluid handling systemsmulti-stage centrifugal compressors to the oil & gas, petrochemical, power and steel industries, based in Prague, Czech Republic.

On September 30, 2013, the Company completed the acquisition of certain business units of The New York Blower Company, including TLT-Babcock Inc. (“TLT-Babcock”) and Alphair Ventilating Systems Inc. (“Alphair”) for an approximate aggregate purchase price of $55.7 million. TLT-Babcock and Alphair are suppliers of heavy duty and industrial fans in Akron, Ohio and Winnepeg, Ontario, respectively.


56
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


On July 9, 2013, the Company completed the acquisition of the common stock of Clarus Fluid Intelligence, LLC (“Clarus”) for $13.2 million, which includes the fair value of an estimated additional contingent cash payment of $2.5 million at the acquisition date. The additional contingent payment, if any, will be paid during the year ending December 31, 2016 subject to the achievement of certain performance goals. See Note 14, “Financial Instruments and Fair Value Measurements” for discussion regarding the Company’s liability for contingent payments. Clarus is a domestic supplier of flushing services for marine applications primarily to U.S. government agencies, with primary operations based in Bellingham, Washington.

On September 13, 2012, the Company completed the acquisition of the common stock of Co-Vent Group Inc. (“Co-Vent”) for lubrication applications,$34.6 million. Co-Vent specializes in the custom design, manufacture, and testing of industrial fans, with its primary operations based in Blyth, United Kingdom. Quebec, Canada. As a result of this acquisition, the Company has expanded its product offerings in the industrial fan market.
On December 6, 2011, the Company completed the acquisition of COT-Puritech, Inc. (“COT-Puritech”), a domestic supplier of oil flushing and remediation services to power generation plants, refinery and petrochemical operators and other industrial manufacturing sites, with primary operations based in Canton, Ohio, for a total purchase price, net of cash acquired, of $39.4 million which includes the fair value of estimated additional contingent cash payments of $4.3 million at the acquisition date. The additional contingent cash payments will be paid over two years subject to the achievement of certain performance goals. See Note 14, “Financial Instruments and Fair Value Measurements” for discussion regarding the Company’s liability for contingent payment associated with the acquisition of COT-Puritech, which is included in the total purchase price. As a result of this acquisition, the Company has expanded its lubrication services offerings in the oil and gas and power generation end markets to include oil flushing and remediation services.
On February 14, 2011, the Company completed the acquisition of Rosscor Holding B.V. (“Rosscor”) for $22.3 million, net of cash acquired. Rosscor is a supplier of multiphase pumping technology and certain other highly engineered fluid-handling systems, with its primary operations based in Hengelo, The Netherlands. As a result of this acquisition, the Company has expanded its product offerings in the oil and gas end market to include multiphase pump systems that many of its customers already purchase.

Fabrication Technology

On October 31, 2012, the Company completed the acquisition of approximately 91% of the outstanding common and investment shares of Soldex S.A. (“Soldex”) for approximately $187.2 million (the “Soldex Acquisition”). Soldex is organized under the laws of Peru and complements the Company’s existing fabrication technology segment by supplying welding products from its plants in Colombia and Peru. On August 5, 2013, the Company completed a $14.9 million tender offer for additional common and investment shares of Soldex. This resulted in an increase in the Company’s ownership of the subsidiary from approximately 91% to 99% and was accounted for as an equity transaction, as the Company increased its controlling interest.

On April 13, 2012, the Company completed a $29.3 million acquisition of shares in ESAB India Limited, a publicly traded, less than wholly owned subsidiary in which the Company acquired a controlling interest in the Charter Acquisition. This resulted in an increase in the Company’s ownership of the subsidiary from 56% to 74%. This acquisition of shares was pursuant to a statutorily mandated tender offer triggered as a result of the Charter Acquisition and was accounted for as an equity transaction, as the Company increased its controlling interest.
In May 2012, the Company completed an $8.5 million acquisition, including the assumption of debt, of the remaining ownership of CJSC Sibes (“Sibes”), a less than wholly owned subsidiary in which the Company did not have a controlling interest. This resulted in an increase in the Company’s ownership of Sibes from 16% to 100%.

The following table summarizes intangible assets acquired:

  Asset  
Weighted
Average
Amortization
Period (years)
 
       
Acquired customer relationships $7,053   10.0 
Acquired developed technology  6,492   9.6 
Backlog  3,339   2.3 
Other  395   8.6 
Trade names - indefinite life  2,770     
Goodwill  12,940     
         
Total intangible assets acquired $32,989     
The weighted average amortization period for total acquired amortizing intangibles is approximately 8.3 years. Nonethe estimated fair values of the goodwillassets acquired and liabilities assumed at the date of the acquisition for all acquisitions consummated during the years ended December 31, 2013, 2012 and 2011. For the acquisitions consummated during the year ended December 31, 2013, the amounts represent the Company’s best estimate of the aggregate fair value of the assets acquired and liabilities assumed. These amounts are based upon certain valuations and studies that have yet to be finalized, and accordingly, the assets acquired and liabilities assumed, as detailed below, are subject to adjustment once the detailed analyses are completed. Approximately $27.9 million of the Goodwill recognized for acquisitions consummated during the year ended December 31, 2013 is expected to be deductible for income tax deductible.purposes.


57
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


 2013 2012 2011
 (In thousands)
Trade receivables$80,258
 $714,486
 $12,970
Inventories53,551
 487,835
 11,668
Property, plant and equipment94,258
 595,961
 3,069
Goodwill258,901
 1,793,394
 35,285
Intangible assets104,272
 794,333
 20,796
Accounts payable(68,308) (391,131) (9,852)
Debt(10,942) (437,564) —
Other assets and liabilities, net(87,188) (746,719) (12,236)
 424,802
 2,810,595
 61,700
Less: net assets attributable to noncontrolling interest—
 (259,329) —
Consideration, net of cash acquired$424,802
 $2,551,266
 $61,700

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the individually significant acquisitions consummated, and all of the others collectively, during the year ended December 31, 2012:
 Charter Soldex Other Total 2012
 (In thousands)
Trade receivables$683,976
 $22,848
 $7,662
 $714,486
Inventories449,906
 32,985
 4,944
 487,835
Property, plant and equipment562,129
 28,921
 4,911
 595,961
Goodwill1,649,159
 116,696
 27,539
 1,793,394
Intangible assets715,643
 65,325
 13,365
 794,333
Accounts payable(378,114) (6,682) (6,335) (391,131)
Debt(399,466) (36,734) (1,364) (437,564)
Other assets and liabilities, net(706,052) (33,654) (7,013) (746,719)
 2,577,181
 189,705
 43,709
 2,810,595
Less: net assets attributable to noncontrolling interest(241,201) (18,128) —
 (259,329)
Consideration, net of cash acquired$2,335,980
 $171,577
 $43,709
 $2,551,266

In connection with the Charter Acquisition, the Company incurred advisory, legal, valuation and other professional service fees, termination payments to Charter executives and realized losses on acquisition-related foreign exchange derivatives, which comprised Charter Acquisition-related expense in the Consolidated Statements of Operations. See Note 14, “Financial Instruments and Fair Value Measurements” for additional information regarding the Company’s derivative instruments. Excluding Charter Acquisition-related expenses, the Company incurred advisory, legal, valuation and other professional service fees of $4.3 million, $3.1 million and $0.1 million, during the years ended December 31, 2013, 2012 and 2011, respectively, in connection with completed acquisitions which are included in Selling, general and administrative expense in the Consolidated Statements of Operations.

During the year ended December 31, 2013, the Company’s Consolidated Statement of Operations included $59.9 million of Net sales associated with the acquisitions consummated in the current year. Net income available to Colfax common shareholders associated with acquisitions consummated in the current year was not material. During the year ended December 31, 2012, the Company’s Consolidated Statement of Operations included $3.2 billion and $21.6 million of Net sales associated with the acquisitions of Charter and Soldex, respectively. The Net loss attributable to Colfax Corporation common shareholders for Soldex included in the Consolidated Statements of Operations for the year ended December 31, 2012 was $1.7 million. Due to the refinancing of the Company's borrowing arrangements, the restructuring of the Corporate function of both entities into a single corporate office and numerous other shared resources given the scale of the Charter Acquisition, quantification of the earnings included in the consolidated income statement for the year ended December 31, 2012 related to Charter is impracticable.

58
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Unaudited Pro Forma Financial Information
 
On August 31, 2009, we completedThe following unaudited proforma financial information presents Colfax’s consolidated financial information assuming the acquisitionacquisitions of PD-Technik Ingenieurbüro GmbH (“PD-Technik”), a provider of marine aftermarket related productsCharter and services locatedSoldex had taken place on January 1, 2011. These amounts are presented in Hamburg, Germany, for $1.3 million, net of cash acquired inaccordance with GAAP, consistent with the transaction.
On November 29, 2007, the Company acquired Fairmount Automation, Inc. (“Fairmount”), an original equipment manufacturer of mission critical programmable automation controllers in fluid handling applications primarily for the U.S. Navy, for $4.5 million plus contingent payments based on achievement of revenue and earnings targets over the three year period ending December 31, 2010. In the fourth quarters of 2009 and 2008, the first two targets were achieved, resulting in payments of $0.4 million in each period, which were recorded as goodwill.  In the fourth quarter of 2010, the final target was achieved, resulting in a payment of $0.7 million, which was recorded as goodwill.Company’s accounting policies.
 
53
  Year Ended December 31,
  2012 2011
  (Unaudited, in thousands)
Net sales $4,096,401
 $4,027,796
Net income (loss) available to Colfax common shareholders(1)
 88,212
 (116,862)
__________
(1)Proforma net loss available to Colfax common shareholders for the year ended December 31, 2011 reflects the impact of certain expenses included in the Consolidated Statements of Operations for the year ended December 31, 2012, but excluded from the calculation of proforma net income for that period. These expenses include increased acquisition-related amortization expense of $79.9 million, $43.6 million of Charter acquisition-related expense, and a $50.3 million increase in the valuation allowance related to the Company’s deferred tax assets in the U.S., discussed further in Note 6, “Income Taxes.”

5. Net Income (Loss) Per Share

Net income (loss) per share available to Colfax Corporation common shareholders was computed as follows:
 Year Ended December 31,
 2013 2012 2011
 (In thousands, except share data)
Computation of Net income (loss) per share - basic:     
Net income (loss) available to Colfax Corporation common shareholders$158,232
 $(83,353) $4,555
Less: net income attributable to participating securities(1)
(3,740) —
 —
 $154,492
 $(83,353) $4,555
Weighted-average shares of Common stock outstanding - basic99,198,570
 91,069,640
 43,634,937
Net income (loss) per share - basic$1.56
 $(0.92) $0.10
Computation of Net income (loss) per share - diluted:     
Net income (loss) available to Colfax Corporation common shareholders$158,232
 $(83,353) $4,555
Less: net income attributable to participating securities(1)(2)
(3,740) —
 —
 $154,492
 $(83,353) $4,555
Weighted-average shares of Common stock outstanding - basic99,198,570
 91,069,640
 43,634,937
Net effect of potentially dilutive securities - stock options and restricted stock units1,167,885
 —
 633,173
Weighted-average shares of Common stock outstanding - diluted100,366,455
 91,069,640
 44,268,110
Net income (loss) per share - diluted$1.54
 $(0.92) $0.10
(1) Net income (loss) per share was calculated consistent with the two-class method in accordance with GAAP from January 13, 2012 through April 23, 2013, as further discussed below.
(2) For periods subsequent to April 23, 2013, Net income per share - dilutive was calculated in accordance with the if-converted method, as further discussed below. However, for the year ended December 31, 2013, the calculation under this method was anti-dilutive.

On April 23, 2013, the Company and BDT CF Acquisition Vehicle, LLC (the “BDT Investor”) amended the Certificate of Designations of Series A Perpetual Convertible Preferred Stock of Colfax Corporation to eliminate the right of the Series A Convertible Preferred Stock to share proportionately in any dividends or distributions made in respect of the Company’s Common stock. The BDT Investor is the sole holder of all issued and outstanding shares of the Company’s Series A Convertible Preferred Stock. For periods prior to April 23, 2013, Net income available to Colfax Corporation common shareholders was allocated to participating securities, while any losses for those periods were not allocated to the participating securities. Effective April 23, 2013, the Company’s Series A Convertible Preferred Stock is no longer considered a participating security. For periods subsequent to April 23, 2013, the Company’s Net income per share - dilutive is computed using the “if-converted” method. Under the “if-converted” method, Net income per share - dilutive is calculated under the assumption that the shares of Series A Convertible Preferred Stock have been converted into shares of Common stock as of the beginning of the respective period. For the year ended

59
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5.

December 31, 2013, the weighted-average computation of the dilutive effect of potentially issuable shares of Common stock excludes 12.2 million shares assuming that the shares of Series A Convertible Preferred Stock have been converted, as inclusion of such shares 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 year ended December 31, 2013, 2012 and 2011 excludes approximately 0.6 million, 2.8 million and 0.5 million outstanding stock-based compensation awards, respectively, as their inclusion would be anti-dilutive.

6. Income Taxes

Income before income taxes and the components of the provisionProvision for income taxes wereconsisted of the following:
 Year Ended December 31,
 2013 2012 2011
 (In thousands)
(Loss) income before income taxes: 
  
  
Domestic operations$(7,899) $(73,467) $(27,645)
Foreign operations310,694
 121,906
 47,632
 $302,795
 $48,439
 $19,987
(Benefit from) provision for income taxes: 
  
  
Current: 
  
  
Federal$(464) $—
 $182
State871
 362
 (94)
Foreign83,299
 83,119
 17,066
 83,706
 83,481
 17,154
Deferred: 
  
  
Domestic operations11,603
 50,340
 —
Foreign operations(1,657) (43,118) (1,722)
 9,946
 7,222
 (1,722)
 $93,652
 $90,703
 $15,432
The Company’s Provision for income taxes differs from the amount that would be computed by applying the U.S. federal statutory rate as follows:

  Year ended December 31, 
  2010  2009  2008 
          
Income (loss) before income tax expense:         
Domestic $(12,737) $698  $(54,303)
Foreign  40,425   31,720   60,299 
             
  $27,688  $32,418  $5,996 
Provision for income taxes:            
Current income tax expense (benefit):            
Federal $(30) $(1,323) $(1,145)
State  261   344   239 
Foreign  11,538   6,911   19,701 
             
   11,769   5,932   18,795 
Deferred income tax expense (benefit):            
Domestic  -   2,241   (12,607)
Foreign  (296)  448   (723)
             
   (296)  2,689   (13,330)
  $11,473  $8,621  $5,465 
U.S. income taxes at the statutory rate reconciled to the overall U.S. and foreign provision for income taxes were as follows:
  Year ended December 31, 
  2010  2009  2008 
          
Tax at U.S. federal income tax rate $9,691  $11,346  $2,099 
State taxes  (5)  34   (1,500)
Effect of international tax rates  (2,522)  (2,260)  (3,342)
Payment of non-deductible underwriting fee  -   -   4,483 
Changes in valuation and tax reserves  3,827   (710)  2,903 
Other  482   211   822 
             
Provision for income taxes $11,473  $8,621  $5,465 
54
 Year Ended December 31,
 2013 2012 2011
 (In thousands)
Taxes calculated at the U.S. federal statutory rate$105,978
 $16,954
 $6,995
State taxes871
 362
 (421)
Effect of international tax rates(42,972) (24,070) (2,988)
Change in enacted international tax rates(5,217) (12,305) —
Changes in valuation allowance and tax reserves30,554
 106,802
 11,177
Other4,438
 2,960
 669
Provision for income taxes$93,652
 $90,703
 $15,432


60
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Deferred income taxes, net reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. During the three months ended March 29, 2013, adjustments were made retrospectively to provisional amounts recorded as of December 31, 2012, due to the finalization of the valuation of specific tax items related to the Charter Acquisition. The significant components of deferred tax assets and liabilities, in addition to the reconciliation of the beginning and ending amount of gross unrecognized tax benefits below, include the impact of these retrospective adjustments. Significant components of the deferred tax assets and liabilities wereare as follows:

  December 31, 
  2010  2009 
  Current  Long-Term  Current  Long-Term 
             
Deferred tax assets:            
Post-retirement benefit obligations $1,076  $28,688  $1,003  $23,262 
Expenses not currently deductible  7,401   30,042   9,552   30,200 
Net operating loss carryover  -   49,789   -   42,268 
Tax credit carryover  -   5,728   -   5,560 
Other  918   823   -   837 
                 
Total deferred tax assets  9,395   115,070   10,555   102,127 
Valuation allowance for deferred tax assets  (2,987)  (49,904)  (2,649)  (42,404)
                 
Net deferred tax assets  6,408   65,166   7,906   59,723 
                 
Net tax liabilities:                
Depreciation / amortization  -   14,901   -   10,578 
Other  503   11,410   1,074   7,680 
                 
Total deferred tax liabilities  503   26,311   1,074   18,258 
                 
Net deferred tax assets $5,905  $38,855  $6,832  $41,465 
 December 31,
 2013 2012
 (In thousands)
Deferred tax assets:   
Post-retirement benefit obligation$87,305
 $126,106
Expenses currently not deductible152,539
 133,078
Net operating loss carryover264,893
 256,076
Tax credit carryover15,518
 15,378
Depreciation and amortization4,323
 17,010
Other7,202
 3,556
Valuation allowance(358,386) (357,638)
Deferred tax assets, net$173,394
 $193,566
Deferred tax liabilities: 
  
Depreciation and amortization$(263,996) $(286,173)
Post-retirement benefit obligation(17,844) (4,843)
Inventory(12,558) (12,227)
Other(59,205) (43,456)
Total deferred tax liabilities$(353,603) $(346,699)
Total deferred tax liabilities, net$(180,209) $(153,133)

For purposes of the balance sheet presentation, the Company nets current and non-current tax assets and liabilities within each taxing jurisdiction. The above table is presented prior to the netting of the current and non-current deferred tax items. The Company evaluates the recoverability of its net deferred tax assets on a jurisdictional basis by considering whether net deferred tax assets will be realized on a more likely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded. During the year endingended December 31, 2010,2013, the valuation allowance increased from $45.1$357.6 million to $52.9$358.4 million with $4.2 million and $3.6$30.6 million of thean increase recognized in Provision for income tax expensetaxes and otheran increase of $2.4 million attributable to acquisitions made during the year, which were offset by a decrease of $27.2 million recognized in Other comprehensive income, respectively.  The $7.8a net $3.4 million net increasedecrease related to international tax rate changes and reclassifications and a $1.6 million decrease related to changes in 2010 was primarily attributableforeign currency rates. During the year ended December 31, 2012, the valuation allowance increased from $79.9 million to U.S. deferred tax assets$357.6 million with $103.8 million recognized in Provision for income taxes, $153.3 million recorded in the Company believes may not be realized.opening accounts of the Charter Acquisition and $20.6 million recognized in Other comprehensive income. Consideration was given to U.S. tax planning strategies and future U.S. taxable income as to how much of the relevant deferred tax asset could be realized on a more likely than not basis.
 
The Company has U.S. net operating loss carryforwards of approximately $130.5$275.6 million expiring in years 2021 through 2030,2032, and alternative minimum tax credits of approximately $1.9$7.7 million that may be carried forward indefinitely. Tax credit carryforwards include foreign tax credits that have been offset by a valuation allowance. We experienced an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, as a result of the IPO.  The Company’s ability to use these various carryforwards existing at the time of the ownership change to offset any taxable income generated in future taxable periods after the ownership change may be limited under Section 382 and other federal tax provisions.
 
For the years ended December 31, 2010, 20092013, 2012 and 2008, the Company intends that2011, all undistributed earnings of itsthe Company’s controlled international subsidiaries willare considered to be permanently reinvested outside the U.S. and no tax expense in the United StatesU.S. has been recognized under the applicable accounting standard, for these reinvested earnings. The amount of unremitted earnings from thesethe Company’s international subsidiaries, subject to local statutory restrictions, as of December 31, 20102013 is approximately $151.5$480.2 million. It is not reasonably determinable as to theThe amount of deferred tax liability that would needhave been recognized had such earnings not been permanently reinvested is not reasonably determinable.


61
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The Company records a liability for unrecognized income tax benefits for the amount of benefit included in its previously filed income tax returns and in its financial results expected to be provided if such earnings were not reinvested.
The Company applies an accounting standard which establishes a single modelincluded in income tax returns to address accountingbe filed for uncertainty in tax positions. This accounting standard applies to allperiods through the date of its Consolidated Financial Statements for income tax positions and requires a recognition threshold and measurement offor which it is more likely than not that a tax position taken or expected towill not be taken in a tax return. This standard also provides guidance on classification, interest and penalties, accounting in interim periods and transition, and significantly expanded income tax disclosure requirements.

55
sustained upon examination by the respective taxing authority. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:follows (inclusive of associated interest and penalties):

Balance at December 31, 2008 $10,101 
     
Additions for tax positions in prior periods  73 
Additions for tax positions in current period  308 
Reductions for tax positions in prior periods  (1,896)
Foreign exchange impact / other  160 
     
Balance at December 31, 2009  8,746 
     
Additions for tax positions in prior periods  590 
Additions for tax positions in current period  412 
Reductions for tax positions in prior periods  (1,076)
Foreign exchange impact / other  (81)
     
Balance at December 31, 2010 $8,591 
 (In thousands)
Balance, December 31, 2011$4,077
Acquisitions74,316
Addition for tax positions taken in prior periods1,391
Addition for tax positions taken in the current period5,241
Reduction for tax positions taken in prior periods(3,695)
Other, including the impact of foreign currency translation4,393
Balance, December 31, 201285,723
Acquisitions—
Addition for tax positions taken in prior periods6,988
Addition for tax positions taken in the current period7,730
Reduction for tax positions taken in prior periods(31,156)
Other, including the impact of foreign currency translation(373)
Balance, December 31, 2013$68,912
The Company is routinely examined by tax authorities around the world. Tax examinations remain in process in multiple countries, including but not limited to Sweden, Indonesia, France, Germany, Finland, Mexico, Brazil and various states. The Company files numerous group and separate tax returns in U.S. federal and state jurisdictions, as well as many international jurisdictions. In the U.S., tax years dating back to 2006 remain subject to examination, as well as the 2003 tax year due to tax attributes available to be carried forward to open or future tax years. With some exceptions, other major tax jurisdictions generally are not subject to tax examinations for years beginning before 2005.
 
The Company’s total unrecognized tax benefits were $68.9 million and $85.7 million as of December 31, 20102013 and 2009 totaled $8.92012, respectively, inclusive of $13.2 million and $9.3$16.5 million, inclusiverespectively, of $0.3interest and penalties. These amounts were offset by tax benefits of $0.1 million and $0.5 million as of interest and penalties, respectively.  These amounts were offset in part by tax benefits of approximately $0.6 million and $0.7 million for the years ended December 31, 20102013 and 2009,2012, respectively. The net liabilities for uncertain tax positions for the years endedas of December 31, 20102013 and 20092012 were $8.3$68.8 million and $8.6$85.2 million, respectively, and if recognized, would favorably impact the effective tax rate.
The Company records interest and penalties on uncertain tax positions for post-adoption periods as a component of Provision for income tax expense. The interesttaxes, which was $4.0 million, $1.3 million and penalty expense recorded in income tax expense attributed to uncertain tax positions$0.1 million for the years ended December 31, 2010, 20092013, 2012 and 2008 was $0.1 million, $0.2 million and $0.2 million,2011, respectively.
The Company is subject to income tax in the U.S., state, and international locations. The Company’s significant operations outside the U.S. are located in Germany and Sweden. In Sweden, tax years 2005 to 2010 and in Germany, tax years 2006 to 2010 remain subject to examination. In the U.S., tax years 2005 and beyond generally remain open for examination by U.S. and state tax authorities as well as tax years ending in 1997, 1998, 2000 and 2003 that have U.S. tax attributes available that have been carried forward to open tax years or are available to be carried forward to future tax years.
 
Due to the difficulty in predicting with reasonable certainty when tax audits will be fully resolved and closed, the range of reasonably possible significant increases or decreases in the liability for unrecognized tax benefits that may occur within the next 12 months is difficult to ascertain. Currently, we estimatethe Company estimates that it is reasonably possible that the expiration of various statutes of limitations, and resolution of tax audits and court decisions may reduce ourits tax expense in the next 12 months ranging from zeroup to $5.7$2.3 million.


6. Restructuring
62
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


7. Goodwill and Other Related ChargesIntangible Assets
 
The Company initiated a series of restructuring actions beginningfollowing table summarizes the activity in 2009 in response to then current and expected future economic conditions. As a result, forGoodwill, by segment during the years ended December 31, 20102013 and 2009,2012:
 
Gas and Fluid
Handling
 
Fabrication
Technology
 Total
 (In thousands)
Balance, January 1, 2012$204,844
 $—
 $204,844
Goodwill attributable to Charter Acquisition941,178
 707,981
 1,649,159
Goodwill attributable to Soldex Acquisition—
 116,696
 116,696
Goodwill attributable to other acquisitions21,840
 5,699
 27,539
Impact of foreign currency translation and other57,632
 42,966
 100,598
Balance, December 31, 20121,225,494
 873,342
 2,098,836
Goodwill attributable to acquisitions258,901
 —
 258,901
Impact of foreign currency translation and other22,629
 4,156
 26,785
Balance, December 31, 2013$1,507,024
 $877,498
 $2,384,522
The following table summarizes the Company recorded pre-tax restructuring and other related costs of $10.3 million and $18.2 million, respectively. The costs incurred in the year ended December 31, 2010 include $2.2 million of termination benefits, including $0.6 million of non-cash stock-based compensationIntangible assets, excluding Goodwill:
 December 31,
 2013 2012
 Gross
Carrying
Amount		 Accumulated
Amortization		 Gross
Carrying
Amount		 Accumulated
Amortization
 (In thousands)
Trade names – indefinite life$412,341
 $—
 $401,123
 $—
Acquired customer relationships353,337
 (51,675) 300,253
 (24,763)
Acquired technology114,647
 (22,757) 107,018
 (12,466)
Acquired backlog73,476
 (65,919) 63,984
 (62,432)
Other intangible assets26,061
 (6,958) 12,352
 (6,020)
 $979,862
 $(147,309) $884,730
 $(105,681)
Amortization expense related to the departure of the Company’s former President and Chief Executive Officer (CEO) in January of 2010.  Additionally, the costs incurredamortizable intangible assets was included in the year ended December 31, 2010 include $1.3 millionConsolidated Statements of termination benefits related to the October 2010 departures of the Company’s former Chief Financial Officer and General Counsel.  The costs incurred in the year ended December 31, 2009 include a $0.6 million non-cash asset impairment charge related to closure of a repair facility.Operations as follows:
 Year Ended December 31,
 2013 2012 2011
 (In thousands)
Selling, general and administrative expense$41,172
 $85,106
 $7,821
 
As of December 31, 2010, excluding additions from businesses acquired in 20092013, total amortization expense for amortizable intangible assets is expected to be $50.9 million, $49.3 million, $44.5 million, $41.1 million and 2010, we have reduced our company-wide workforce by 237 associates from$38.7 million for the years ending December 31, 2008.  Additionally, through the second quarter of 2010, we participated in a German government-sponsored furlough program in which the government paid the wage-related costs for participating associates.  Payroll taxes2014, 2015, 2016, 2017 and other employee benefits related to employees’ furlough time are included in restructuring costs.2018, respectively.


63
56COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has relocated its Richmond, Virginia corporate headquarters to the Columbia, Maryland area, in order to provide improved access to international travel and to its key advisors.  In connection with the move, the Company has incurred $0.6 million of employee termination benefit costs, reflected in restructuring and other related charges, and $0.4 million of other relocation related costs in 2010, which are reflected in selling, general and administrative expenses.  We expect to incur an additional $1.5 million of employee termination benefit costs, operating lease exit costs and other relocation expenses related to the headquarters relocation in the first six months of 2011.
During the second quarter of 2009, we closed a repair facility in Aberdeen, NC. Further, during the fourth quarter of 2009, we closed a manufacturing facility in Sanford, NC and moved its production to the Company’s facilities in Monroe, NC and Columbia, KY. We recorded non-cash impairment charges of $0.6 million to reduce the carrying value of the real estate and equipment at these facilities to their estimated fair values.
We recognize the cost of involuntary termination benefits at the communication date or ratably over any remaining expected future service period.  Voluntary termination benefits are recognized as a liability and a loss when employees accept the offer and the amount can be reasonably estimated. We record asset impairment charges to reduce the carrying amount of long-lived assets that will be sold or disposed of to their estimated fair values. Fair values are estimated using observable inputs including third party appraisals and quoted market prices.
A summary of restructuring activity for the year ended December 31, 2010 is shown below.
     Year Ended December 31, 2010    
   Restructuring        Foreign  Restructuring 
   Liability at        Currency  Liability at 
   Dec. 31, 2009  Provisions  Payments  Translation  Dec. 31, 2010 
Restructuring and Other RelatedCharges:               
Termination benefits (1)
 $9,473  $7,610  $(14,169) $(734) $2,180 
Furlough charges (2)
  -   327   (319)  (8)  - 
Facility closure charges (3)
  -   909   (909)  -   - 
Consulting costs (4)
  -   903   (903)  -   - 
  $9,473   9,749  $(16,300) $(742) $2,180 
                     
Non-cash termination benefits (5)
      574             
                     
Total     $10,323             
(1)Includes severance and other termination benefits such as outplacement services.
(2)Includes payroll taxes and other employee benefits related to German employees’ furlough time.
(3)Includes the cost of relocating and training associates and relocating equipment in connection with the closing of the Sanford, NC facility.
(4)Includes outside consulting fees directly related to the Company’s restructuring and performance improvement initiatives.
(5)Includes stock-based compensation expense related to the accelerated vesting of certain share-based payments in connection with the departure of the Company’s former President and CEO in January 2010.

57

7. Earnings (Loss) Per Share
The following table presents the computation of basic and diluted earnings (loss) per share:
  Year ended December 31, 
  2010  2009  2008 
Numerator:         
Net income $16,215  $23,797  $531 
Dividends on preferred stock  -   -   (3,492)
Net income (loss) available to common shareholders $16,215  $23,797  $(2,961)
             
Denominator:            
Weighted-average shares of common stock outstanding - basic  43,389,878   43,222,616   36,240,157 
Net income (loss) per share - basic $0.37  $0.55  $(0.08)
             
Weighted-average shares of common stock outstanding - basic  43,389,878   43,222,616   36,240,157 
Net effect of potentally dilutive securities (1)
  277,347   103,088   - 
Weighted-average shares of common stock outstanding - diluted  43,667,225   43,325,704   36,240,157 
Net income (loss) per share - diluted $0.37  $0.55  $(0.08)
(1)Potentially dilutive securities consist of options and restricted stock units.
In the years ended December 31, 2010, 2009 and 2008, respectively, approximately 1.3 million, 0.6 million and 0.5 million potentially dilutive stock options, restricted stock units and deferred stock units were excluded from the calculation of diluted loss per share since their effect would have been anti-dilutive.

8. Inventories
Inventories consisted of the following:
  December 31, 
  2010  2009 
       
Raw materials $23,758  $28,445 
Work in process  29,565   32,888 
Finished goods  20,121   21,013 
         
   73,444   82,346 
Less-Customer progress billings  (7,726)  (3,171)
Less-Allowance for excess, slow-moving and obsolete inventory  (7,777)  (8,025)
         
  $57,941  $71,150 
58
9. Property, Plant and Equipment, Net

   December 31,
 Depreciable Life 2013 2012
 (In years) (In thousands)
Landn/a $48,353
 $40,319
Buildings and improvements5-40 372,197
 314,216
Machinery and equipment3-15 504,184
 440,975
Software3-5 88,463
 70,092
   1,013,197
 865,602
Accumulated depreciation  (256,057) (177,032)
Property, plant and equipment, net  $757,140
 $688,570
 
Property, plant and equipment consisted of the following:
  Depreciable  December 31, 
  Lives in Years  2010  2009 
          
Land  -  $15,106  $16,618 
Buildings and improvements  3 - 40   39,666   36,651 
Machinery and equipment  3 - 15   121,933   119,727 
Software  3 - 5   17,063   17,324 
             
       193,768   190,320 
Less-Accumulated depreciation      (104,522)  (98,230)
      $89,246  $92,090 

Depreciation expense, including the amortization of assets recorded under capital leases, for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, was approximately $12.1$78.1 million, $11.8$71.7 million and $12.1$13.1 million, respectively. These amounts include depreciation expense related to software for the years ended December 31, 2010, 20092013, 2012 and 20082011 of $1.9$11.8 million, $10.5 million and $1.7 million, respectively.

9. Inventories, Net

Inventories, net consisted of the following:
 December 31,
 2013 2012
 (In thousands)
Raw materials$145,689
 $154,771
Work in process112,722
 99,459
Finished goods224,192
 263,211
 482,603
 517,441
Less: customer progress payments(4,078) (14,571)
Less: allowance for excess, slow-moving and obsolete inventory(32,773) (9,221)
Inventories, net$445,752
 $493,649

10. Debt

Long-term debt consisted of the following:
 December 31,
 2013 2012
 (In thousands)
Term loans$1,115,238
 $1,682,177
Revolving credit facilities and other371,853
 46,134
Total Debt1,487,091
 1,728,311
Less: current portion(29,449) (34,799)
Long-term debt$1,457,642
 $1,693,512

The Company entered into a credit agreement by and $2.0among the Company, Colfax UK Holdings Ltd, the other subsidiaries of the Company party thereto, the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent (the “Deutsche Bank Credit Agreement”) on September 12, 2011. In connection with the closing of the Charter Acquisition, the Deutsche Bank Credit Agreement was amended on January 13, 2012 and the Company terminated its existing credit agreement as well as Charter’s outstanding indebtedness.


64
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


On February 22, 2013, the Company entered into the Second Amendment to the Deutsche Bank Credit Agreement to, among other things, (i) reallocate the borrowing capacities of the tranches of loans, (ii) provide for an interest rate margin on the term A-1 facility, the term A-2 facility and the revolving credit subfacilities ranging from 0.75% to 1.50% per annum for base rate loans and 1.75% to 2.50% per annum for Eurocurrency rate loans, in each case, determined by the Company’s leverage ratio, (iii) provide for an interest rate margin on the term A-3 facility and the term A-4 facility ranging from 1.50% to 2.25% per annum for base rate loans and 2.50% to 3.25% per annum for Eurocurrency rate loans, in each case, determined by the Company’s leverage ratio and (iv) provide for an interest rate margin on the term B facility of 1.50% per annum for base rate loans and 2.50% per annum for Eurocurrency rate loans.

On November 7, 2013, the Company entered into the Third Amendment to the Deutsche Bank Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the Company further amended its credit agreement to, among other things, (i) reallocate borrowing capacities of the tranches of loans as follows: a $408.7 million respectively.term A-1 facility, a $380 million term A-2 facility, a €149.7 million term A-3 facility, a €100 million term A-4 facility and two revolving credit subfacilities which total $898 million in commitments, (ii) provide for an interest rate margin on the term A-1 facility, the term A-2 facility and the revolving credit subfacilities ranging from 0.50% and 1.25% per annum for base rate loans and 1.50% to 2.25% per annum for Eurocurrency rate loans, in each case determined by the Company’s leverage ratio, (iii) provide for an interest margin on the term A-3 facility and the term A-4 facility ranging from 0.75% to 1.50% per annum for base rate loans and 1.75% and 2.50% per annum for Eurocurrency loans, in each case, determined by the Company’s leverage ratio and (iv) reset the maturity date for the term A facilities and the two revolving credit subfacilities as well as the amortization schedule for the term A facilities to a five year term commencing on November 7, 2013. In connection with the Third Amendment, the prior term B facility under the credit agreement was repaid in its entirety.

In conjunction with the amendments to the Deutsche Bank Credit Agreement, the Company recorded a charge to Interest expense in the Consolidated Statement of Operations for the year ended December 31, 2013 of $29.4 million to write-off certain deferred financing fees and original issue discount and expensed approximately $1.2 million of costs incurred in connection with the refinancing. The Company had an original issue discount of $17.7 million and deferred financing fees of $13.5 million included in its Consolidated Balance Sheet as of December 31, 2013, which will be accreted to Interest expense primarily using the effective interest method, over the life of the Deutsche Bank Credit Agreement. As of December 31, 2013, the weighted-average interest rate of borrowings under the amended Deutsche Bank Credit Agreement was 1.99%, excluding accretion of original issue discount, and there was $560.6 million available on the revolving credit subfacilities, including $199.9 million available on a letter of credit subfacility.

The Company is also party to additional letter of credit facilities with total capacity of $688.7 million. Total letters of credit of $398.2 million were outstanding as of December 31, 2013.

The contractual maturities of the Company’s debt as of December 31, 2013 are as follows(1):

 (In thousands)
2014$29,449
201590,551
2016189,638
2017344,119
2018851,006
Total contractual maturities1,504,763
Debt discount(17,672)
Total debt$1,487,091
________
(1) Represents scheduled payments required under the Deutsche Bank Credit Agreement through November 7, 2018, as well as the contractual maturities of other debt outstanding as of December 31, 2013.

In connection with the Deutsche Bank Credit Agreement, the Company has pledged substantially all of its domestic subsidiaries’ assets and 65% of the shares of certain first tier international subsidiaries as collateral against borrowings to its U.S. companies. In addition, subsidiaries in certain foreign jurisdictions have guaranteed the Company’s obligations on borrowings of one of its European subsidiaries, as well as pledged substantially all of their assets for such borrowings to this European subsidiary under the Deutsche Bank Credit Agreement. The Deutsche Bank Credit Agreement contains customary covenants limiting the Company’s ability to, among other things, pay dividends, incur debt or liens, redeem or repurchase equity, enter into transactions with affiliates,

65
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


make investments, merge or consolidate with others or dispose of assets. In addition, the Deutsche Bank Credit Agreement contains financial covenants requiring the Company to maintain a total leverage ratio, as defined therein, of not more than 4.95 to 1.0 and a minimum interest coverage ratio, as defined therein, of 2.25 to 1.0, measured at the end of each quarter, through the year ended December 31, 2013. The minimum interest coverage ratio increases by 25 basis points each year until it reaches 3.0 to 1.0 for the year ending December 31, 2016 and each year thereafter. The maximum total leverage ratio decreases to 4.75 to 1.0 for the year ending December 31, 2014 and decreases by 25 basis points each year until it reaches 4.25 to 1.0 for the year ending December 31, 2016 and each year thereafter. The Deutsche Bank Credit Agreement contains various events of default, including failure to comply with the financial covenants referenced above, and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the term loans and the revolving credit subfacilities and foreclose on the collateral. The Company is in compliance with all such covenants as of December 31, 2013.

11. Equity

Common and Preferred Stock

During the years ended December 31, 2013, 2012 and 2011, 265,995, 452,062 and 248,017 shares of Common stock, respectively, were issued in connection with stock option exercises and employee share-based payment arrangements that vested during the year.
 
10. GoodwillOn January 24, 2012, following approval by the Company’s stockholders, the Company’s Certificate of Incorporation was amended to increase the number of authorized shares from 210,000,000 shares to 420,000,000 shares, comprised of an increase in Common stock from 200,000,000 shares to 400,000,000 shares and Intangible Assetsan increase in Preferred stock from 10,000,000 shares to 20,000,000 shares.
 
ChangesIn connection with the financing of the Charter Acquisition, on January 24, 2012, the Company sold (i) 14,756,945 newly issued shares of Colfax Common stock and (ii) 13,877,552 shares of newly created Series A perpetual convertible preferred stock, referred to as the Series A Preferred Stock, for an aggregate of $680 million (representing $24.50 per share of Series A Preferred Stock and $23.04 per share of Common stock) pursuant to a securities purchase agreement (the “BDT Purchase Agreement”) with BDT CF Acquisition Vehicle, LLC (the “BDT Investor”) as well as BDT Capital Partners Fund I-A, L.P., and Mitchell P. Rales, Chairman of Colfax’s Board of Directors, and his brother, Steven M. Rales (for the limited purpose of tag-along sales rights provided to the BDT Investor in the carryingevent of a sale or transfer of shares of Colfax Common stock by either or both of Mitchell P. Rales and Steven M. Rales). Under the terms of the Series A Preferred Stock, holders are entitled to receive cumulative cash dividends, payable quarterly, at a per annum rate of 6% of the liquidation preference (defined as $24.50, subject to customary antidilution adjustments), provided that the dividend rate shall be increased to a per annum rate of 8% if Colfax fails to pay the full amount of goodwillany dividend required to be paid on such shares until the date that full payment is made.
The Series A Preferred Stock is convertible, in whole or in part, at the option of the holders at any time after the date the shares were issued into shares of Colfax Common stock at a conversion rate determined by dividing the liquidation preference by a number equal to 114% of the liquidation preference, subject to certain adjustments. The Series A Preferred Stock is also convertible, in whole or in part, at the option of Colfax on or after the third anniversary of the issuance of the shares at the same conversion rate if, among other things: (i) for the preceding thirty trading days, the closing price of Colfax Common stock on the New York Stock Exchange exceeds 133% of the applicable conversion price and (ii) Colfax has declared and paid or set apart for payment all accrued but unpaid dividends on the Series A Preferred Stock.
On January 24, 2012, Colfax sold 2,170,139 to each of Mitchell P. Rales, Chairman of Colfax’s Board of Directors, and his brother Steven M. Rales and 1,085,070 to Markel Corporation, a Virginia corporation (“Markel”) of newly issued Colfax Common stock at $23.04 per share, for a total aggregate of $125 million, pursuant to separate securities purchase agreements with Mitchell P. Rales and Steven M. Rales, each of whom were beneficial owners of 20.9% of Colfax’s Common stock at the time of the sale, and Markel. Thomas S. Gayner, a member of Colfax’s Board of Directors, is President and Chief Investment Officer of Markel.
Consideration paid to Charter shareholders included 0.1241 shares of newly issued Colfax Common stock in exchange for each share of Charter’s ordinary stock, which resulted in the issuance of 20,735,493 shares of Common stock on January 24, 2012.

In conjunction with the issuance of the Common and Preferred stock discussed above, the Company recognized $14.7 million in equity issuance costs, which were recorded as a reduction to Additional paid-in capital during the year ended December 31, 2012.


66
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


On March 5, 2012, the Company sold 8,000,000 shares of newly issued Colfax Common stock to underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $272 million. Further, on March 9, 2012, the underwriters of the March 5, 2012 equity offering exercised their over-allotment option and the Company sold an additional 1,000,000 shares of newly issued Colfax Common stock to the underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $34 million. In conjunction with these issuances, the Company recognized $12.6 million in equity issuance costs which were recorded as a reduction to Additional paid-in capital during the year ended December 31, 2012.

On May 13, 2013, the Company sold 7,500,000 shares of newly issued Colfax Common stock to underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $331.9 million. In conjunction with this issuance, the Company recognized $12.0 million in equity issuance costs which were recorded as a reduction to Additional paid-in capital during the year ended December 31, 2013.

On September 12, 2013, the Company contributed 88,200 shares of newly issued Colfax Common stock to its U.S. defined benefit pension plan.

Dividend Restrictions
The Company is subject to dividend restrictions under the Deutsche Bank Credit Agreement, which limit the total amount of cash dividends the Company may pay and Common stock repurchases the Company may make to $50 million annually, in the aggregate.

Accumulated Other Comprehensive Loss

The following table presents the changes in the balances of each component of Accumulated other comprehensive loss including current period reclassifications out of Accumulated other comprehensive loss for the year ended December 31, 2013. All amounts are net of tax and noncontrolling interest.

 Accumulated Other Comprehensive Loss Components
 Net Unrecognized Pension And Other Post-Retirement Benefit Cost Foreign Currency Translation Adjustment Unrealized Loss On Hedging Activities Total
 (In thousands)
        
Beginning balance$(247,332) $104,718
 $(3,980) $(146,594)
Acquisition of shares held by noncontrolling interest—
 (381) —
 (381)
Other comprehensive income (loss) before reclassifications:       
Net actuarial gain77,515
 —
 —
 77,515
Foreign currency translation adjustment—
 21,083
 —
 21,083
Gain on long-term intra-entity foreign currency transactions—
 2,176
 —
 2,176
Loss on net investment hedges—
 —
 (14,261) (14,261)
Unrealized gain on cash flow hedges—
 —
 3,832
 3,832
Other comprehensive income (loss) before reclassifications77,515
 23,259
 (10,429) 90,345
Amounts reclassified from Accumulated other comprehensive loss10,022
 —
 —
 10,022
Net current period Other comprehensive income (loss)87,537
 23,259
 (10,429) 100,367
Ending balance$(159,795) $127,596
 $(14,409) $(46,608)


67
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The effect on Net income of amounts reclassified out of each component of Accumulated other comprehensive loss for the year ended December 31, 2013 is as follows:
 Year Ended December 31, 2013
 Amounts Reclassified From Accumulated Other Comprehensive Loss Tax Benefit Total
 (In thousands)
      
Pension and other post-retirement benefit cost:     
Amortization of net loss (1)
$10,489
 $(715) $9,774
Amortization of prior service cost(1)
248
 —
 248
 $10,737
 $(715) $10,022
(1) Included in the computation of net periodic benefit cost. See Note 13, “Defined Benefit Plans” for additional details.

During the year ended December 31, 2013, Noncontrolling interest decreased by $17.5 million as a result of Other comprehensive loss, primarily due to currency translation adjustment.

Share-Based Payments
The Company adopted the Colfax Corporation 2008 Omnibus Incentive Plan on April 21, 2008, as amended and restated on April 2, 2012 (the “2008 Plan”). The 2008 Plan provides the Compensation Committee of the Company’s Board of Directors discretion in creating employee equity incentives. Awards under the 2008 Plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, and other stock-based awards.
The Company measures and recognizes compensation expense related to share-based payments based on the fair value of the instruments issued. Stock-based compensation expense is generally recognized as a component of Selling, general and administrative expense in the Consolidated Statements of Operations, as payroll costs of the employees receiving the awards are recorded in the same line item.
The Company’s Consolidated Statements of Operations reflect the following amounts related to stock-based compensation:
  Year Ended December 31,
  2013 2012 2011
  (In thousands)
Stock-based compensation expense $13,334
 $9,373
 $4,908
Deferred tax benefit 434
 305
 1,719

As of December 31, 2013, the Company had $25.5 million of unrecognized compensation expense related to stock-based awards that will be recognized over a weighted-average period of approximately 1.9 years. The intrinsic value of awards exercised or converted was $9.2 million, $9.9 million and $3.8 million during the years ended December 31, 20102013, 2012 and 20092011, respectively.
Stock Options
Under the 2008 Plan, the Company may grant options to purchase Common stock, with a maximum term of 10 years at a purchase price equal to the market value of the Company’s Common stock on the date of grant. In the case of an incentive stock option granted to a holder of 10% of the Company’s outstanding Common stock, the Company may grant options to purchase Common stock with a maximum term of 5 years, at a purchase price equal to 110% of the market value of the Company’s Common stock on the date of grant.

68
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Stock-based compensation expense for stock option awards is based upon the grant-date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the entire award. The following table shows the weighted-average assumptions used to calculate the fair value of stock option awards using the Black-Scholes option pricing model, as well as the weighted-average fair value of options granted: 
  Year Ended December 31,
  2013 2012 2011
Expected period that options will be outstanding (in years) 4.90
 5.41
 4.50
Interest rate (based on U.S. Treasury yields at the time of grant) 1.06% 0.99% 2.10%
Volatility 43.22% 42.59% 52.50%
Dividend yield —
 —
 —
Weighted-average fair value of options granted $18.07
 $13.14
 $9.68
Expected volatility is estimated based on the historical volatility of comparable public companies. The Company considers historical data to estimate employee termination within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Since the Company has limited option exercise history, it has generally elected to estimate the expected life of an award based upon the Securities and Exchange Commission-approved “simplified method” noted under the provisions of Staff Accounting Bulletin No. 107 with the continued use of this method extended under the provisions of Staff Accounting Bulletin No. 110.
Stock option activity is as follows:
 
  Goodwill 
    
Balance December 31, 2008 $161,694 
     
Contingent purchase price payment for Fairmount acquisition  418 
Attributable to 2009 acquisition of PD-Technik  6 
Impact of changes in foreign exchange rates  1,300 
     
Balance December 31, 2009  163,418 
     
Contingent purchase price payment for Fairmount acquisition  736 
Attributable to 2010 acquisition of Baric  12,940 
Impact of changes in foreign exchange rates  (4,756)
     
Balance December 31, 2010 $172,338 
  Number
of Options		 Weighted-
Average
Exercise
Price		 Weighted-
Average
Remaining
Contractual
Term
(In years)		 
Aggregate
Intrinsic
Value(1)(In thousands)
Outstanding at January 1, 2013 2,210,116
 $25.35
    
Granted 551,480
 46.99
    
Exercised (244,519) 15.11
    
Forfeited (81,446) 34.66
    
Expired (3,841) 21.15
    
Outstanding at December 31, 2013 2,431,790
 $30.98
 4.94 $79,528
Vested or expected to vest at December 31, 2013 2,378,775
 $30.77
 4.92 $78,305
Exercisable at December 31, 2013 797,724
 $18.92
 3.63 $35,717
__________
(1)
The aggregate intrinsic value is based upon the difference between the Company’s closing stock price at the date of the Consolidated Balance Sheet and the exercise price of the stock option for in-the-money stock options. The intrinsic value of outstanding stock options fluctuates based upon the trading value of the Company’s Common stock.

Restricted Stock Units
 
Other intangible assetsUnder the 2008 Plan, the Compensation Committee of the Board of Directors may award performance-based restricted stock units (“PRSUs”), the vesting of which is contingent upon meeting various performance goals. The vesting of the stock units is determined based on whether the Company achieves the applicable performance criteria established by the Compensation Committee of the Board of Directors. If the performance criteria are satisfied, the units are subject to additional time vesting requirements, by which units will vest fully in two equal installments on the fourth and fifth anniversary of the grant date, provided the individual remains an employee during this period. Under the 2008 Plan, the Compensation Committee of the Board of Directors may award non-performance-based restricted stock units (“RSUs”) to select executives, employees and outside directors. The Compensation Committee determines the terms and conditions of each award, including the restriction period and other criteria applicable to the awards. Directors may also elect to defer their annual board fees into RSUs with immediate vesting. Delivery of the shares underlying these director restricted stock units is deferred until termination of the director’s service on the Company’s Board of Directors.

69
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The fair value of PRSUs and RSUs is equal to the market value of a share of Common stock on the date of grant and the related compensation expense is recognized ratably over the requisite service period and, for PRSUs, when it is expected that any of the performance criterion will be achieved. The performance criterion was met for PRSUs granted during the year ended December 31, 2011, including PRSUs granted to the Company’s former Chief Executive Officer (“CEO”) as part of his initial employment agreement in January 2010, which were subject to a separate criterion. The performance criterion was met for PRSUs granted during the year ended December 31, 2012, including PRSUs granted to the Company’s CEO as part of his initial employment agreement in April 2012, which were subject to a separate criterion. The performance criterion was met for the PRSUs granted during the year ended December 31, 2013, except for PRSUs granted to one employee that were subject to a separate criterion.
The activity in the Company’s PRSUs and RSUs is as follows:
  PRSUs RSUs
  Number
of Units		 Weighted-
Average
Grant Date
Fair Value		 Number
of Units		 Weighted-
Average
Grant Date
Fair Value
Nonvested at January 1, 2013 560,951
 $24.40
 54,876
 $26.23
Granted 81,549
 45.20
 105,778
 46.78
Vested (15,507) 18.13
 (35,761) 25.85
Forfeited (50,251) 20.35
 (3,104) 41.06
Nonvested at December 31, 2013 576,742
 $27.86
 121,789
 $43.81
The fair value of shares vested during the years ended December 31, 2013, 2012 and 2011 was $2.5 million, $1.9 million and $1.1 million, respectively.

12. Accrued Liabilities

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

  December 31, 
  2010  2009 
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
 
             
Acquired customer relationships $22,084  $(10,719) $15,512  $(8,989)
Trade names - indefinite life  4,819   -   2,062   - 
Acquired developed technology  12,231   (3,331)  5,811   (2,444)
Acquired backlog of open orders  3,311   (474)  -   - 
Other intangibles  591   (214)  146   (146)
                 
  $43,036  $(14,738) $23,531  $(11,579)
59
 December 31, 2013 December 31, 2012
 (In thousands)
Accrued payroll$136,645
 $99,583
Advance payment from customers53,280
 61,431
Accrued taxes and deferred tax liability - current portion71,314
 34,165
Accrued asbestos-related liability51,142
 58,501
Warranty liability - current portion54,977
 35,678
Accrued restructuring liability - current portion12,856
 25,406
Accrued third-party commissions13,095
 12,320
Other91,952
 120,136
Accrued liabilities$485,261
 $447,220

Accrued Restructuring Liability

The Company’s restructuring programs include a series of restructuring actions at its fluid-handling operations that began in 2009 and ongoing initiatives as a result of acquisitions, as well as efforts to reduce the structural costs and rationalize the corporate overhead of the combined businesses.


70
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


InA summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Consolidated Balance Sheets is as follows:

 Year Ended December 31, 2013
 Balance at Beginning of Period Provisions Payments Foreign Currency Translation 
Balance at End of Period(3)
 (In thousands)
Restructuring and other related charges:
Gas and Fluid Handling:         
Termination benefits(1)
$3,060
 $9,413
 $(8,680) $(155) $3,638
Facility closure costs(2)
1,177
 683
 (1,137) 33
 756
Other related charges—
 333
 (520) 187
 —
 4,237
 10,429
 (10,337) 65
 4,394
Fabrication Technology:         
Termination benefits(1)
14,637
 22,775
 (30,056) (323) 7,033
Facility closure costs(2)
6,925
 280
 (5,736) (40) 1,429
Other related charges33
 124
 (432) 275
 —
 21,595
 23,179
 (36,224) (88) 8,462
   Non-cash impairment  1,894
      
   25,073
      
Corporate and Other:         
Facility closure costs(2)
1,522
 —
 (718) 455
 1,259
 1,522
 —
 (718) 455
 1,259
 $27,354
 33,608
 $(47,279) $432
 $14,115
   Non-cash impairment  1,894
      
   $35,502
      
(1) Includes severance and other termination benefits, including outplacement services. The Company recognizes the cost of involuntary
termination benefits at the communication date or ratably over any remaining expected future service period. Voluntary termination benefits
are recognized as a liability and an expense when employees accept the offer and the amount can be reasonably estimated.
(2) Includes the cost of relocating associates, relocating equipment and lease termination expense in connection with the acquisitionclosure of PD-Technikfacilities.
(3) As of December 31, 2013, $12.9 million and $1.2 million of the Company’s restructuring liability was included in 2009, customer relationship intangiblesAccrued liabilities and
Other liabilities, respectively.


71
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


 Year Ended December 31, 2012
 Balance at Beginning of Period Acquisitions Provisions Payments Foreign Currency Translation 
Balance at End of Period(3)
 (In thousands)
Restructuring and other related charges:
Gas and Fluid Handling:           
Termination benefits(1)
$3,868
 $—
 $7,062
 $(8,014) $144
 $3,060
Facility closure costs(2)
633
 —
 1,301
 (756) (1) 1,177
Other related charges72
 —
 289
 (363) 2
 —
 4,573
 —
 8,652
 (9,133) 145
 4,237
Fabrication Technology:           
Termination benefits(1)
—
 6,276
 30,292
 (22,277) 346
 14,637
Facility closure costs(2)
—
 3,994
 10,584
 (7,800) 147
 6,925
Other related charges—
 —
 1,205
 (1,174) 2
 33
 —
 10,270
 42,081
 (31,251) 495
 21,595
Non-cash impairment    3,155
      
     45,236
      
Corporate and Other:           
Termination benefits(1)
—
 —
 3,020
 (3,020) —
 —
Facility closure costs(2)
—
 —
 1,899
 (415) 38
 1,522
Other related charges—
 —
 1,253
 (1,253) —
 —
 —
 —
 6,172
 (4,688) 38
 1,522
 $4,573
 $10,270
 56,905
 $(45,072) $678
 $27,354
Non-cash impairment    3,155
      
     $60,060
      
(1) Includes severance and other termination benefits, including outplacement services. The Company recognizes the cost of $0.9involuntary
termination benefits at the communication date or ratably over any remaining expected future service period. Voluntary termination benefits
are recognized as a liability and an expense when employees accept the offer and the amount can be reasonably estimated.
(2) Includes the cost of relocating associates, relocating equipment and lease termination expense in connection with the closure of facilities.
(3) As of December 31, 2012, $25.4 million were acquired and are being amortized over a period$1.9 million of six years.the Company’s restructuring liability was included in Accrued liabilities and
Other liabilities, respectively.

Amortization expense forThe Company expects to incur Restructuring and other related charges of approximately $50 million during the years endedyear ending December 31, 2010, 2009 and 2008 was approximately $3.5 million, $2.6 million and $2.7 million, respectively. Amortization expense for the next five fiscal years is expected2014 related to be: 2011—$5.3 million, 2012—$5.0 million, 2013—$2.4 million, 2014—$2.1 million, and 2015—$1.7 million.these restructuring activities.


11. Retirement and13. Defined Benefit Plans

The Company sponsors various defined benefit plans, defined contribution plans and other post-retirement benefits plans, including health and life insurance, for certain eligible employees or former employees. We useThe Company uses December 31st as the measurement date for all of ourits employee benefit plans.
As a result of a settlement agreement reached in October of 2010, we assumed directly the pension obligation for a group of former employees of a divested subsidiary in place of an obligation to indemnify the purchaser of the subsidiary for all pension-related costs of the former employees.  The pension plan covering those employees transferred the rights to the assets and liabilities to one of our foreign plans.  The amounts related to this settlement are reflected as “Plan combinations” in the tables below.  The net underfunded position of $2.9 million has been recorded as current year pension expense.  This expense is substantially offset within SG&A by the reversal of an accrual established in prior years for this matter.

72
60COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The following table summarizes the total changes in ourthe Company’s pension and otheraccrued post-retirement benefit plan obligationsbenefits and plan assets and includes a statement of the plans’ funded status:
 
        Other 
  Pension Benefits  Post-retirement Benefits 
Year ended December 31, 2010  2009  2010  2009 
             
Change in benefit obligation:            
Projected benefit obligation at beginning of year $306,571  $295,165  $10,859  $10,370 
Service cost  1,168   1,381   -   - 
Interest cost  16,514   17,577   553   525 
Actuarial loss  20,344   10,662   3,671   772 
Acquisitions  -   72   -   - 
Plan combinations  12,639   -   -   - 
Foreign exchange effect  (4,827)  2,958   -   - 
Benefits paid  (21,121)  (21,244)  (1,280)  (808)
                 
Projected benefit obligation at end of year $331,288  $306,571  $13,803  $10,859 
                 
Accumulated benefit obligation at end of year $327,498  $303,598  $-  $- 
                 
Change in plan assets:                
Fair value of plan assets at beginning of year $209,921  $192,859  $-  $- 
Actual return on plan assets  22,886   29,193   -   - 
Employer contribution  10,797   7,517   1,280   808 
Acquisitions  -   60   -   - 
Plan combinations  9,762   -         
Foreign exchange effect  (1,005)  1,536   -   - 
Benefits paid  (21,121)  (21,244)  (1,280)  (808)
                 
Fair value of plan assets at end of year $231,240  $209,921  $-  $- 
                 
Funded status at end of year $(100,048) $(96,650) $(13,803) $(10,859)
                 
Amounts recognized in the balance sheet at December 31:                
Non-current assets $290  $244  $-  $- 
Current liabilities  (1,050)  (1,114)  (834)  (1,409)
Non-current liabilities  (99,288)  (95,780)  (12,969)  (9,450)
                 
Total $(100,048) $(96,650) $(13,803) $(10,859)
  Pension Benefits Other Post-Retirement Benefits
  Year Ended December 31, Year Ended December 31,
  2013 2012 2013 2012
  (In thousands)
Change in benefit obligation:  
  
  
  
Projected benefit obligation, beginning of year $1,665,138
 $347,911
 $35,519
 $15,397
Acquisitions 6,356
 1,148,906
 —
 22,629
Service cost 3,985
 3,381
 179
 110
Interest cost 63,132
 67,745
 1,090
 1,507
Actuarial (gain) loss (28,831) 135,715
 (6,072) (1,449)
Foreign exchange effect 17,919
 45,458
 —
 —
Benefits paid (83,060) (84,333) (2,018) (2,675)
Settlements (4,189) —
 —
 —
Other (32) 355
 125
 —
Projected benefit obligation, end of year $1,640,418
 $1,665,138
 $28,823
 $35,519
Accumulated benefit obligation, end of year $1,617,651
 $1,641,252
 $28,823
 $33,405
Change in plan assets:  
  
  
  
Fair value of plan assets, beginning of year $1,287,844
 $221,004
 $—
 $—
Acquisitions 2,787
 954,919
 —
 —
Actual return on plan assets 100,300
 100,153
 —
 —
Employer contribution(1)
 49,772
 58,494
 2,018
 2,675
Foreign exchange effect 13,076
 37,359
 —
 —
Benefits paid (83,060) (84,333) (2,018) (2,675)
Settlements (3,565) ���
 —
 —
Other 161
 248
 —
 —
Fair value of plan assets, end of year $1,367,315
 $1,287,844
 $—
 $—
Funded status, end of year $(273,103) $(377,294) $(28,823) $(35,519)
Amounts recognized on the Consolidated Balance Sheet at December 31:  
  
  
  
Non-current assets $38,177
 $31,826
 $—
 $—
Current liabilities (6,048) (5,639) (2,747) (3,076)
Non-current liabilities (305,232) (403,481) (26,076) (32,443)
Total $(273,103) $(377,294) $(28,823) $(35,519)
__________
(1)
Contributions during the year ended December 31, 2013 includes the contribution of 88,200 shares of Colfax Common stock with a value on the contribution date of approximately $4.9 million. Contributions during the year ended December 31, 2012 included $18.9 million of supplemental contributions to pension plans in the United Kingdom as a result of financing the Charter Acquisition.

The accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $324.8 million$1.2 billion and $228.1$935.2 million, respectively, as of December 31, 20102013 and $301.2 million$1.3 billion and $207.2$864.6 million, respectively, as of December 31, 2009.2012.

The projected benefit obligation and fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets were $328.5 million$1.2 billion and $228.1$936.8 million, respectively, as of December 31, 20102013 and $304.1 million$1.3 billion and $207.2$868.2 million, respectively, as of December 31, 2009.2012.


73
61COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The following table summarizes the changes in ourthe Company’s foreign pension plans’ obligationsbenefit obligation, which is determined based upon an employee’s expected date of separation, and plan assets, included in the previous disclosure,table above, and includes a statement of the foreign plans’ funded status:

  Foreign Pension Benefits 
Year ended December 31, 2010  2009 
       
Change in benefit obligation:      
Projected benefit obligation at beginning of year $80,960  $82,253 
Service cost  1,168   1,381 
Interest cost  4,138   4,668 
Actuarial loss (gain)  5,494   (5,947)
Acquisitions  -   72 
Plan combinations  12,639   - 
Foreign exchange effect  (4,827)  2,958 
Benefits paid  (4,436)  (4,425)
         
Projected benefit obligation at end of year $95,136  $80,960 
         
Accumulated benefit obligation at end of year $91,346  $77,988 
         
Change in plan assets        
Fair value of plan assets at beginning of year $24,841  $23,219 
Actual return on plan assets  1,638   1,390 
Employer contribution  3,271   3,061 
Acquisitions  -   60 
Plan combinations  9,762   - 
Foreign exchange effect  (1,005)  1,536 
Benefits paid  (4,436)  (4,425)
         
Fair value of plan assets at end of year $34,071  $24,841 
         
Funded status at end of year $(61,065) $(56,119)
  Foreign Pension Benefits
  Year Ended December 31,
  2013 2012
  (In thousands)
Change in benefit obligation:  
  
Projected benefit obligation, beginning of year $1,181,024
 $97,108
Acquisitions 3,952
 957,080
Service cost 3,985
 3,381
Interest cost 46,775
 49,291
Actuarial loss 11,093
 85,167
Foreign exchange effect 17,919
 45,458
Benefits paid (54,978) (56,816)
Settlements (4,189) —
Other (27) 355
Projected benefit obligation, end of year $1,205,554
 $1,181,024
Accumulated benefit obligation, end of year $1,182,786
 $1,157,140
Change in plan assets:  
  
Fair value of plan assets, beginning of year $938,167
 $32,339
Acquisitions 651
 817,258
Actual return on plan assets 62,914
 58,139
Employer contribution(1)
 42,769
 49,640
Foreign exchange effect 13,076
 37,359
Benefits paid (54,978) (56,816)
Settlements (3,565) —
Other 163
 248
Fair value of plan assets, end of year $999,197
 $938,167
Funded status, end of year $(206,357) $(242,857)
__________
(1)
Contributions during the year ended December 31, 2012 included $18.9 million of supplemental contributions to pension plans in the United Kingdom as a result of financing the Charter Acquisition.
 
Expected contributions to the Company’s pension and other post-employment benefit plans for 2011the year ending December 31, 2014, related to plans as of December 31, 2013, are $6.7$71.7 million. The following benefit payments are expected to be paid during the years ending December 31:each respective fiscal year:

  Pension Benefits Other Post-Retirement Benefits
  All Plans Foreign Plans 
  (In thousands)
2014 $91,567
 $60,457
 $2,747
2015 88,857
 57,878
 2,558
2016 89,680
 58,861
 2,507
2017 92,667
 62,068
 2,415
2018 92,292
 62,029
 2,276
Thereafter 473,061
 326,741
 8,278
 
        Other 
  Pension Benefits  Post-retirement 
  All Plans  Foreign Plans  Benefits 
          
2011 $23,080  $4,554  $834 
2012  22,232   4,752   895 
2013  22,182   4,833   922 
2014  22,228   4,923   932 
2015  22,424   5,003   945 
Years 2016-2020  110,002   25,782   4,534 

74
62COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The Company’s primary investment objective for its pension plan assets is to provide a source of retirement income for the plans’ participants and beneficiaries. The assets are invested with the goal of preserving principal while providing a reasonable real rate of return over the long term. Diversification of assets is achieved through strategic allocations to various asset classes. Actual allocations to each asset class vary due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions, and the timing of benefit payments and contributions. The asset allocation is monitored and rebalanced as required, as frequently as on a quarterly basis in some instances. The following are the actual and target allocation percentages for the Company’s pension plan assets:

 Actual Allocation    
 December 31,  Target 
 2010  2009  Allocation  Actual Asset Allocation
December 31,		  
Target
          2013 2012 Allocation
United States Plans:         
U.S. Plans:    
Equity securities:           
  
  
U.S.  34%  39%  32% - 42% 41% 36% 30% - 45%
International  16   12   10% - 16% 16% 15% 10% - 20%
Fixed income securities  32   34   27% - 43%
Hedge fund  18   15   13% - 20%
            
Fixed income 39% 37% 30% - 50%
Hedge funds 3% 11% 0% - 20%
Cash and cash equivalents 1% 1% 0% - 5%
Foreign Plans:              
  
  
Large cap equity securities  11   15   0% - 20%
Equity securities 30% 37% 10% - 50%
Fixed income securities  57   83   80% - 100% 65% 58% 50% - 90%
Cash and cash equivalents  32   2   0% - 5% 2% 2% 0% - 25%
Other 3% 3% 0% - 5%
 
The large proportionA summary of assets in cash for foreign plans at December 31, 2010 is a temporary situation due to the transfer of assets resulting from the October settlement agreement.
The following table presents the Company’s pension plan assets usingfor each fair value hierarchy level for the periods presented follows (See Note 14, “Financial Instruments and Fair Value Measurements” for further description of the levels within the fair value hierarchy):
  December 31, 2013
  Level
One		 Level
Two		 Level
Three		  
Total
  (In thousands)
U.S. Plans:  
  
  
  
Cash and cash equivalents $2,854
 $—
 $—
 $2,854
Equity securities:  
  
  
  
U.S. large cap 101,702
 —
 —
 101,702
U.S. small/mid cap 6,714
 43,199
 —
 49,913
International 16,458
 41,646
 —
 58,104
Fixed income mutual funds:  
  
  
  
U.S. government and corporate 143,903
 —
 —
 143,903
Multi-strategy hedge funds —
 —
 11,642
 11,642
Foreign Plans:  
  
  
  
Cash and cash equivalents 22,421
 —
 —
 22,421
Equity securities 266,021
 38,485
 —
 304,506
Non-U.S. government and corporate bonds 277,565
 372,191
 —
 649,756
Other(1)
 2,107
 20,407
 —
 22,514
  $839,745
 $515,928
 $11,642
 $1,367,315
__________
(1)
Represents diversified portfolio funds and reinsurance contracts maintained for certain foreign plans.


75
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


  December 31, 2012
  Level
One		 Level
Two		 Level
Three		  
Total
  (In thousands)
U.S. Plans:  
  
  
  
Cash and cash equivalents $2,645
 $—
 $—
 $2,645
Equity securities:  
  
  
  
U.S. large cap 89,293
 —
 —
 89,293
U.S. small/mid cap —
 37,671
 —
 37,671
International 15,579
 37,323
 —
 52,902
Fixed income mutual funds:  
  
  
  
U.S. government and corporate 128,334
 —
 —
 128,334
Multi-strategy hedge funds —
 —
 38,832
 38,832
Foreign Plans:  
  
  
  
Cash and cash equivalents 19,594
 —
 —
 19,594
Equity securities 234,228
 108,598
 —
 342,826
Non-U.S. government and corporate bonds 250,891
 298,160
 —
 549,051
Other(1)
 2,108
 24,588
 —
 26,696
  $742,672
 $506,340
 $38,832
 $1,287,844
__________
(1)
Represents diversified portfolio funds and reinsurance contracts maintained for certain foreign plans.

The Company’s pension assets included in Level Three of the fair value hierarchy asconsist of December 31, 2010multi-strategy hedge funds and 2009.  Thethe fair value hierarchy has three levels based onis equal to the reliability of the inputs used to determine fair value.  Level 1 refers to fair values determined based on quoted prices in active markets for identical assets.  Level 2 refers to fair values estimated using significant observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs.
  December 31, 2010 
  Total  Level 1  Level 2  Level 3 
             
United States Plans:            
Cash and cash equivalents $3  $3  $-  $- 
Equity mutual funds:                
U.S. large cap  54,086   54,086   -   - 
U.S. small / mid-cap  12,339   12,339   -   - 
International  32,271   32,271   -   - 
Fixed income mutual funds:                
U.S. government and corporate  39,923   39,923   -   - 
High yield bonds  16,011   16,011         
Emerging markets debt  6,194   6,194   -   - 
Multi-strategy hedge funds  36,342   -   -   36,342 
                 
Foreign Plans:                
Cash and cash equivalents  10,638   10,638   -   - 
Large cap equity securities  3,885   3,885   -   - 
Non-U.S. Government bonds  13,520       13,520     
Other (a)
  6,028   -   6,028   - 
                 
  $231,240  $175,350  $19,548  $36,342 

(a)  This class includes diversified portfolio funds maintained for certain foreign plans.

63

  December 31, 2009 
  Total  Level 1  Level 2  Level 3 
             
United States Plans:            
Cash and cash equivalents $1,180  $1,180  $-  $- 
Equity mutual funds:                
U.S. large cap  56,400   56,400   -   - 
U.S. small / mid-cap  15,992   15,992   -   - 
International  22,548   22,548   -   - 
Fixed income mutual funds:                
U.S. government and corporate  39,192   39,192   -   - 
High yield bonds  11,613   11,613         
Emerging markets debt  11,386   11,386   -   - 
Multi-strategy hedge funds  26,769   -   -   26,769 
                 
Foreign Plans:                
Cash and cash equivalents  568   568   -   - 
Large cap equity securities  3,688   3,688   -   - 
Non-U.S. Government bonds  15,498       15,498     
Other (a)
  5,087   -   5,087   - 
                 
  $209,921  $162,567  $20,585  $26,769 

(a)  This class includes diversified portfolio funds maintained for certain foreign plans.

Fixed income securities held by the foreign plans are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads and estimated prepayment rates.  The hedge fund investment is valued at theaggregate net asset value of units held by the plans at year end.

The table below presents aCompany’s pension plans. There were no transfers in or out of Level One, Two or Three during the years ended December 31, 2013 or 2012. A summary of the changes in the fair value of the Company’s pension assets included in Level 3 assets held.

Balance at January 1, 2009 $25,983 
Unrealized gains  786 
Balance at December 31, 2009  26,769 
Net purchases and sales  9,036 
Realized losses  (316)
Unrealized gains  853 
Balance at December 31, 2010 $36,342 
Three of the fair value hierarchy is as follows:
 
 (In thousands)
Balance, January 1, 2011$36,342
Unrealized loss(21)
Balance, December 31, 201136,321
Realized gain152
Unrealized gain2,359
Balance, December 31, 201238,832
Sale proceeds(28,440)
Realized gain338
Unrealized gain912
Balance, December 31, 2013$11,642


76
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The following table sets forth the components of net periodic benefit cost and Other comprehensive income (loss) of the Company’s defined benefit pension plans and other post-retirement employee benefit plans:
 
  Pension Benefits Other Post-Retirement Benefits
  Year Ended December 31, Year Ended December 31,
  2013 2012 2011 2013 2012 2011
  (In thousands)
Components of Net Periodic Benefit Cost:  
  
  
  
  
  
Service cost $3,985
 $3,381
 $1,383
 $179
 $110
 $—
Interest cost 63,132
 67,745
 16,408
 1,090
 1,507
 690
Amortization 9,672
 8,091
 5,839
 609
 801
 852
Settlement (gain) loss (592) —
 1,499
 —
 —
 —
Other (154) 26
 —
 125
 —
 —
Expected return on plan assets (58,511) (61,094) (18,101) —
 —
 —
Net periodic benefit cost $17,532
 $18,149
 $7,028
 $2,003
 $2,418
 $1,542
Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss):  
  
  
  
  
  
Current year net actuarial (gain) loss $(69,463) $98,784
 $37,037
 $(6,072) $(1,449) $1,507
Less amounts included in net periodic benefit cost:  
  
  
  
  
  
Amortization of net loss (9,672) (8,012) (5,839) (361) (553) (604)
Settlement loss (32) —
 (835) —
 —
 —
Amortization of prior service cost —
 (79) —
 (248) (248) (248)
Total recognized in Other comprehensive income (loss) $(79,167) $90,693
 $30,363
 $(6,681) $(2,250) $655

The following table sets forth the components of net periodic benefit cost and Other comprehensive income (loss) of the foreign defined benefit pension plans, included in the table above:

64
  Foreign Pension Benefits
  Year Ended December 31,
  2013 2012 2011
  (In thousands)
Components of Net Periodic Benefit Cost:  
Service cost $3,985
 $3,381
 $1,383
Interest cost 46,775
 49,291
 5,132
Amortization 2,305
 944
 588
Settlement (gain) loss (592) —
 1,499
Other (154) 28
 —
Expected return on plan assets (34,541) (36,535) (1,400)
Net periodic benefit cost $17,778
 $17,109
 $7,202
Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss):  
  
  
Current year net actuarial (gain) loss $(16,121) $65,689
 $4,101
Less amounts included in net periodic benefit cost:  
  
  
Amortization of net loss (2,305) (865) (588)
Settlement loss (32) —
 (835)
Amortization of prior service cost —
 (79) —
Total recognized in Other comprehensive income (loss) $(18,458) $64,745
 $2,678


77
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The components of net unrecognized pension and other post-retirement benefit cost included in Accumulated other comprehensive loss in the Consolidated Balance Sheets that have not been recognized as a component of net periodic benefit cost are as follows:
  Pension Benefits Other Post-Retirement
Benefits
  December 31, December 31,
  2013 2012 2013 2012
  (In thousands)
Net actuarial loss (gain) $196,044
 $275,211
 $(757) $5,676
Prior service cost —
 —
 1,055
 1,303
Total $196,044
 $275,211
 $298
 $6,979
 
The components of net periodicunrecognized pension and other post-retirement benefit cost andincluded in Accumulated other comprehensive loss (income) were as follows:

  Pension Benefits  Other Post-retirement Benefits 
  2010  2009  2008  2010  2009  2008 
                   
Components of net periodic benefit cost:                  
Service cost $1,168  $1,381  $1,160  $-  $-  $- 
Interest cost  16,514   17,577   17,429   553   525   501 
Amortization  4,593   3,639   2,523   482   353   227 
Plan combinations  2,877   -   -   -   -   - 
Expected return on plan assets  (19,331)  (19,570)  (20,509)  -   -   - 
                         
Net periodic benefit cost $5,821  $3,027  $603  $1,035  $878  $728 
                         
Change in plan assets and benefit obligations recognized in other comprehensive loss (income):                        
Current year net actuarial loss  16,736   710   66,101   3,671   772   901 
Prior service cost  -   -   -   -   -   2,359 
Less amounts included in net periodic cost:              -   -     
Amortization of net loss  (4,593)  (3,639)  (2,523)  (234)  (104)  (165)
Amortization of prior service cost  -   -   -   (248)  (249)  (62)
                         
Total recognized in other comprehensive loss (income) $12,143  $(2,929) $63,578  $3,189  $419  $3,033 

The components of net periodic cost and other comprehensive (income) loss for our foreign pension plans, included withinin the previous disclosure, were as follows:

  Foreign Pension Benefits 
  2010  2009  2008 
          
Components of net periodic benefit cost:         
Service cost $1,168  $1,381  $1,160 
Interest cost  4,138   4,668   4,364 
Recognized net actuarial loss  385   808   348 
Plan combinations  2,877         
Expected return on plan assets  (1,259)  (1,204)  (1,456)
             
Net periodic benefit cost $7,309  $5,653  $4,416 
             
Change in plan assets and benefit obligations recognized in other comprehensive loss (income):            
Current year net actuarial loss (gain)  5,062   (6,464)  6,339 
Less amounts included in net periodic cost:            
Amortization of net loss  (385)  (808)  (348)
             
Total recognized in other comprehensive loss (income) $4,677  $(7,272) $5,991 

The components of accumulated other comprehensive income that have not been recognized as components of net periodic cost are as follows:

     Other 
  Pension Benefits  Post-retirement Benefits 
At December 31, 2010  2009  2010  2009 
             
Net actuarial loss $153,757  $141,614  $6,774  $3,337 
Prior service cost  -   -   1,800   2,048 
                 
Total $153,757  $141,614  $8,574  $5,385 
65

The components of accumulated other comprehensive incomeConsolidated Balance Sheet that are expected to be recognized inas a component of net periodic benefit cost during the year endedending December 31, 20112014 are as follows:

    Other 
 Pension  Post-retirement 
 Benefits  Benefits  Pension Benefits Other Post-
Retirement
Benefits
       (In thousands)
Net actuarial loss $5,854  $567 
Net actuarial loss (gain) $6,859
 $(9)
Prior service cost  -   248  —
 248
        
Total $5,854  $815  $6,859
 $239
 
The key economic assumptions used in the measurement of the Company’s pension and other post-retirement benefit obligations at December 31, 2010 and 2009 are as follows:
     Other 
  Pension Benefits  Post-retirement Benefits 
  2010  2009  2010  2009 
             
Weighted-average discount rate:            
For all plans  5.1%  5.7%  5.2%  5.6%
For all foreign plans  5.4%  5.6%  -   - 
                 
Weighted-average rate of increase in compensation                
levels for active foreign plans  2.6%  2.0%  -   - 
  Pension Benefits Other Post-Retirement
Benefits
  December 31, December 31,
  2013 2012 2013 2012
Weighted-average discount rate:  
  
  
  
All plans 4.4% 4.0% 4.4% 3.4%
Foreign plans 4.4% 4.2% —
 —
Weighted-average rate of increase in compensation levels for active foreign plans 1.6% 1.5% —
 —
 
The key economic assumptions used in the computation of net periodic benefit cost for the years ended December 31, 2010, 2009 and 2008 are as follows:
  Pension Benefits Other Post-Retirement Benefits
  Year Ended December 31, Year Ended December 31,
  2013 2012 2011 2013 2012 2011
Weighted-average discount rate:  
  
  
  
  
  
All plans 4.0% 4.6% 5.0% 3.5% 4.3% 5.2%
Foreign plans 4.2% 4.7% 5.1% —
 —
 —
Weighted-average expected return on plan assets:  
  
  
  
  
  
All plans 5.1% 5.3% 7.7% —
 —
 —
Foreign plans 4.3% 4.5% 4.7% —
 —
 —
Weighted-average rate of increase in compensation levels for active foreign plans 1.5% 1.3% 2.6% —
 —
 —
 
  Pension Benefits  Other Post-retirement Benefits 
  2010  2009  2008  2010  2009  2008 
                   
Weighted-average discount rate:                  
For all plans  5.7%  6.1%  6.0%  5.6%  6.0%  6.3%
For all foreign plans  5.6%  5.8%  4.7%  -   -   - 
                         
Weighted-average expected return on plan assets:                        
For all plans  8.3%  8.3%  8.3%  -   -   - 
For all foreign plans  5.4%  5.0%  5.1%  -   -   - 
                         
Weighted-average rate of increase in compensation levels for active foreign plans
  2.2%  2.1%  2.2%  -   -   - 

In determining discount rates, the Company utilizes the single discount rate equivalent to discounting the expected future cash flows from each plan using the yields at each duration from a published yield curve as of the measurement date.

78
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


For measurement purposes, ana weighted-average annual rate of increase in the per capita cost of covered health care benefits of approximately 16.0%11.5% was assumed. The rate was assumed to decrease gradually to 5.0%4.5% by 2027 for four of the Company’s plans and to 5.25% by 2021 for another plan and remain at that levelthose levels thereafter for benefits covered under the plans.

The expected long-term rate of return on plan assets was based on the Company’s investment policy target allocation of the asset portfolio between various asset classes and the expected real returns of each asset class over various periods of time that are consistent with the long-term nature of the underlying obligations of these plans.

 
66

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following pre-tax effects:
  1% Increase 1% Decrease
  (in thousands)
Effect on total service and interest cost components for the year ended December 31, 2013 $151
 $(118)
Effect on post-retirement benefit obligation at December 31, 2013 2,670
 (2,167)
 
  
1 Percentage 
Point Increase
  
1 Percentage 
Point Decrease
 
       
Effect on total service and interest cost components for 2010 $52  $(43)
Effect on post-retirement benefit obligation at December 31, 2010  1,667   (1,358)

The Company maintains defined contribution plans covering substantially all of their non-union domestic employees, as well as certain union domesticand non-union employees. Under the terms of the plans, eligible employees may generally contribute from 1% to 50% of their compensation on a pre-tax basis. The Company’s contributions are based on 50% of the first 6% of each participant’s pre-tax contribution. Additionally, the Company makes a unilateral contribution of 3% of all employees’ salary (including non-contributing participants) to the defined contribution plans. The Company’s expense for 2010, 2009 and 2008 was $2.4 million, $2.4 million and $2.2 million, respectively, related to these plans.
12. Debt
Long-term debt consisted of the following:
  December 31, 
  2010  2009 
       
Term A notes (senior bank debt) $82,500  $91,250 
Capital leases and other  -   235 
         
Total debt  82,500   91,485 
         
Less-current portion Term A  (10,000)  (8,750)
Less-current portion capital leases and other  -   (219)
         
  $72,500  $82,516 
On May 13, 2008, coinciding with the closing of the IPO, the Company terminated its existing credit facility. There were no material early termination penalties incurred as a result of the termination. Deferred loan costs of $4.6 million were written off in connection with this termination.  On the same day, the Company entered into a new credit agreement (the Credit Agreement).  The Credit Agreement, led by Banc of America Securities LLC and administered by Bank of America, is a senior secured structure with a $150.0 million revolver and a Term A Note of $100.0 million.
The Term A Note bears interest at LIBOR plus a margin ranging from 2.25% to 2.75% determined by the total leverage ratio calculated at quarter end. At December 31, 2010, the interest rate was 2.76% inclusive of 2.50% margin.  The Term A Note, as entered into on May 13, 2008, has $2.5 million due on a quarterly basis on the last day of each March, June, September and December beginning with June 30, 2010 and ending March 31, 2013, and one installment of $60.0 million payable on May 13, 2013.
The $150.0 million revolver contains a $50.0 million letter of credit sub-facility, a $25.0 million swing line loan sub-facility and a €100.0 million sub-facility.  The annual commitment fee on the revolver ranges from 0.4% to 0.5% determined by the total leverage ratio calculated at quarter end. At December 31, 2010, the commitment fee was 0.5% and there was $14.1 million outstanding on the letter of credit sub-facility. The bankruptcy of Lehman Brothers, one of the financial institutions in the consortium that provided the Company’s revolving credit line, resulted in their default under the terms of the revolver and we will not be able to draw on their commitment of $6.0 million, leaving approximately $129.9 million available under the revolver loan.  The Credit Agreement was amended on February 14, 2011 to eliminate Lehman Brothers’ commitment, thereby reducing the total amount of the revolving credit line to $144.0 million.  At December 31, 2009, the commitment fee was 0.4% and there was $14.4 million outstanding on the letter of credit sub-facility, leaving approximately $136 million available under the revolver loan.

67
Substantially all assets and stock of the Company’s domestic subsidiaries and 65% of the shares of certain European subsidiaries are pledged as collateral against borrowings under the Credit Agreement. Certain European assets are pledged against borrowings directly made to our European subsidiary. The Credit Agreement contains customary covenants limiting the Company’s ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase Company stock, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets. In addition, the Credit Agreement contains financial covenants requiring the Company to maintain a total leverage ratio of not more than 3.25 to 1.0 and a fixed charge coverage ratio of not less than 1.50 to 1.0, measured at the end of each quarter. If the Company does not comply with the various covenants under the Credit Agreement and related agreements, the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Term A Note and revolver and foreclose on the collateral. The Company is in compliance with all such covenants as of December 31, 2010.
The future aggregate annual maturities of long-term debt at December 31, 2010 are:
  Term Debt 
    
2011 $10,000 
2012  10,000 
2013  62,500 
     
Total $82,500 
13. Shareholders’ Equity
 Preferred Stock
On May 13, 2008, pursuant to the amended articles of incorporation, the Company’s preferred stock was automatically converted into shares of common stock upon the closing of the IPO, determined by dividing the original issue price of the preferred shares by the issue price of the common shares at the offering date.
The holders of the Company’s preferred stock were entitled to receive dividends in preference to any dividend on the common stock at the rate of LIBOR plus 2.50% per annum, when and if declared by the Company’s board of directors. Preferred dividends of $3.5 million, $12.2 million and $13.7 million were declared on May 12, 2008, December 31, 2007, and May 15, 2007, respectively.  These amounts were paid immediately prior to the consummation of the Company’s IPO on May 13, 2008.  The holders of the preferred stock did not have voting rights except in certain corporate matters involving the priority and payment rights of such shares.
Stock Split
On April 21, 2008, the Company’s board of directors approved a restatement of capital accounts of the Company through an amendment of the Company’s certificate of incorporation to provide for a stock split to convert each share of common stock issued and outstanding into 13,436.22841 shares of common stock.  The consolidated financial statements give retroactive effect as though the stock split occurred for all periods presented.
Issuance of Common Stock
On May 13, 2008, the Company completed its IPO of 21,562,500 shares of common stock at a per share price of $18.00. Of the 21,562,500 shares sold in the offering, 11,852,232 shares were sold by the Company and 9,710,268 shares were sold by certain selling stockholders. The Company received net proceeds of approximately $193.0 million, net of the underwriter’s discount of $14.4 million and offering-related costs of $5.9 million.
Results for the year ended December 31, 2008, include $57.0 million of nonrecurring costs associated with the IPO, including $10.0 million of share-based compensation and $27.8 million of special cash bonuses paid under previously adopted executive compensation plans, as well as $2.8 million of employer payroll taxes and other related costs.  It also included $11.8 million to reimburse the selling stockholders for the underwriting discount on the shares sold by them and the write off of $4.6 million of deferred loan costs associated with the early termination of a credit facility.
In 2010 and 2009, 194,999 and 18,078 shares of common stock, respectively, were issued in connection with stock option exercises and employee share-based payment arrangements that vested during the year.
68
Repurchases of Common Stock
On November 5, 2008, the Company’s board of directors authorized the repurchase of up to $20 million (up to $10 million per year in 2008 and 2009) of the Company’s common stock from time to time on the open market or in privately negotiated transactions.  The repurchase program was conducted pursuant to SEC Rule 10b5-1. The timing and amount of any shares repurchased was determined by the Company’s management based on its evaluation of market conditions and other factors.  In the fourth quarter of 2008, the Company purchased 795,000 shares of its common stock for approximately $5.7 million.  There were no repurchases in 2009 or 2010.
Dividend Restrictions
The Company’s Credit Agreement limits the amount of cash dividends and common stock repurchases the Company may make to a total of $10 million annually.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (loss) are as follows:

  December 31, 
  2010  2009 
       
Foreign currency translation adjustment $5,928  $14,188 
Unrealized losses on hedging activities  (1,789)  (3,035)
Net unrecognized pension and other post-retirement benefit costs  (134,654)  (120,950)
         
Total accumulated other comprehensive loss $(130,515) $(109,797)

Share-Based Payments
2008 Omnibus Incentive Plan
The Company adopted the Colfax Corporation 2008 Omnibus Incentive Plan (the 2008 Plan) on April 21, 2008. The 2008 Plan provides the compensation committee of the board of directors discretion in creating employee equity incentives. Awards under the 2008 Plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, and other stock-based awards.
The Company measures and recognizes compensation expense relating to share-based payments based on the fair value of the instruments issued. Stock-based compensation expense is recognized as a component of “Selling, general and administrative expenses” in the accompanying consolidated statements of operations as payroll costs of the employees receiving the awards are recorded in the same line item. Stock-based compensation expense related to the departure of the Company’s former President and CEO in January 2010 was recognized as a component of “Restructuring and other related charges”.  In the years ended December 31, 2010, 2009 and 2008, $3.1 million, $2.6 million and $1.3 million, respectively, of compensation cost and deferred tax benefits of approximately $1.1 million, $0.9 million and $0.4 million, respectively, were recognized. Compensation expense for 2010 included $0.6 million related to the former President and CEO’s departure.  Compensation expense recognized for the former President and CEO reflects the accelerated vesting of certain stock options and performance-based restricted stock units on January 9, 2010.  Additional compensation cost of $0.4 million was recognized for the accelerated vesting and extended exercise terms related to the departures of the Company’s former Chief Financial Officer and General Counsel.  At December 31, 2010, the Company had $5.6 million of unrecognized compensation expense related to stock-based awards that will be recognized over a weighted-average period of approximately 2.0 years. The intrinsic value of awards exercised or converted was $1.2 million and $0.1 million in 2010 and 2009, respectively.  There were no awards exercised or converted in 2008.  At December 31, 2010, the Company had issued stock-based awards that are described below.

69
Stock Options
Under the 2008 Plan, the Company may grant options to purchase common stock, with a maximum term of 10 years at a purchase price equal to the market value of the common stock on the date of grant. Or, in the case of an incentive stock option granted to a 10% stockholder, the Company may grant options to purchase common stock with a maximum term of 5 years, at a purchase price equal to 110% of the market value of the common stock on the date of grant. One-third of the options granted pursuant to the 2008 Plan vest on each anniversary of the grant date and the options expire in seven years.
Stock-based compensation expense for stock option awards was based on the grant-date fair value using the Black-Scholes option pricing model. We recognize compensation expense for stock option awards on a ratable basis over the requisite service period of the entire award. The following table shows the weighted-average assumptions we used to calculate fair value of stock option awards using the Black-Scholes option pricing model, as well as the weighted-average fair value of options granted during the years ended December 31, 2010 and 2009.

  Years Ended December 31, 
  2010  2009  2008 
Weighted-average assumptions used in Black-Scholes model:         
Expected period that options will be outstanding (in years)
  4.50   4.50   4.50 
Interest rate (based on U.S. Treasury yields at time of grant)
  2.38%  1.87%  3.08%
Volatility  52.22%  32.50%  32.35%
Dividend yield  -   -   - 
Weighted-average fair value of options granted $5.63  $2.24  $5.75 
Expected volatility is estimated based on the historical volatility of comparable public companies. The Company uses historical data to estimate employee termination within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Since the Company has limited option exercise history, it has elected to estimate the expected life of an award based upon the SEC-approved “simplified method” noted under the provisions of Staff Accounting Bulletin No. 107 with the continued use of this method extended under the provisions of Staff Accounting Bulletin No. 110.

70

Stock option activity for the years ended December 31, 20102013, 2012 and 2009 is2011 was $21.5 million, $19.3 million and $2.4 million, respectively.

14. Financial Instruments and Fair Value Measurements

The company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

  Shares  
Weighted-
Average
Exercise
Price
 
Remaining
Contractual
Term
  
Aggregate
Intrinsic
Value
       (Years)   
Outstanding at January 1, 2008  -  $-     
Granted  531,999   17.94     
Exercised  -   -     
Forfeited  (17,008)  18.00     
Outstanding at December 31, 2008  514,991  $17.93     
             
Granted  844,165   7.44     
Exercised  -   -     
Forfeited  (91,523)  11.70     
Outstanding at December 31, 2009  1,267,633  $11.40     
             
Granted  756,471   12.48     
Exercised  (152,490)  7.48     
Forfeited  (295,125)  10.71     
Expired  (35,833)  15.94     
Outstanding at December 31, 2010  1,540,656  $12.34                5.47 $ 9,380
Vested or expected to vest at December 31, 2010  1,146,682  $13.06                5.11 $ 6,162
Exercisable at December 31, 2010  478,052  $13.82                4.72 $ 2,214
Level One: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

The aggregate intrinsicLevel Two: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument's level within the fair value hierarchy is based on the difference between the Company’s closing stock price at the balance sheet date and the exercise pricelowest level of the stock option, multiplied by the number of in-the-money options.  The amount of intrinsic value will change based onany input that is significant to the fair value of the Company’s stock.
Performance-Based Awards
Under the 2008 Plan, the compensation committee may award performance-based restricted stock and restricted stock units whose vesting is contingent upon meeting various performance goals. The vesting of the stock units is determined based on whether the Company achieves the applicable performance criterion established by the compensation committee of the board of directors. If the performance criteria are satisfied, the units are subject to additional time vesting requirements, by which units will vest fully in two equal installments on the fourth and fifth anniversary of the grant date, provided the individual remains an employee during this period.
The fair value of each grant of performance-based restricted stock or restricted stock units is equal to the market value of a share of common stock on the date of grant and the compensation expense is recognized when it is expected that the performance goals will be achieved.  The performance criterion for the performance-based restricted stock units (PRSUs) granted in 2008 was achieved; however, the performance criterion for those granted in 2009 was not achieved and accordingly, no compensation expense for the 2009 grants was recognized.  The performance criterion for PRSUs granted in 2010 was achieved, except for those granted to the CEO as part of his initial employment agreement in January.  The PRSUs granted to the CEO are subject to separate criterion that may be achieved through 2013.
Other Restricted Stock and Restricted Stock Units
Under the 2008 Plan, the compensation committee may award non-performance based restricted stock and restricted stock units (RSUs) to selected executives, key employees and outside directors. The compensation committee determines the terms and conditions of each award including the restriction period and other criteria applicable to the awards.
The employee RSUs vest either 100% at the 1st anniversary of the grant date or 50% at the 1st anniversary and 50% at the 2nd anniversary of the grant date. The majority of the director RSUs granted to date vest in three equal installments on each anniversary of the grant date over a 3-year period. Directors can also elect to defer their annual board fees into RSUs with immediate vesting. Delivery of the shares underlying these director restricted stock units is deferred until termination of the director’s service on the Company’s board. The fair value of each restricted stock unit is equal to the market value of a share of common stock on the date of grant.

71
The following table summarizes the Company’s PRSU and RSU and activity for 2010 and 2009:
  PRSUs  RSUs 
Nonvested shares Shares  
Weighted-
Average
Grant Date
Fair Value
  Shares  
Weighted-
Average
Grant Date
Fair Value
 
             
Nonvested at January 1, 2008  -  $-   -  $- 
Granted  125,041   17.89   73,305   18.00 
Vested  -   -   -   - 
Forfeited  (694)  18.00   (1,116)  18.00 
Nonvested at December 31, 2008  124,347  $17.89   72,189  $18.00 
Granted  337,716   7.44   69,610   8.35 
Vested  -   -   (48,871)  15.72 
Forfeited  (31,566)  10.69   -   - 
Nonvested at December 31, 2009  430,497  $10.22   92,928  $11.97 
Granted  263,454   12.10   44,693   12.88 
Vested  (25,000)  18.00   (53,828)  13.69 
Forfeited  (385,456)  8.72   -   - 
Nonvested at December 31, 2010  283,495  $13.33   83,793  $11.35 

The fair value of shares vested was $1.0 million and $0.4 million in 2010 and 2009, respectively.  No shares vested during 2008.
2001 Plan and 2006 Plan
In 2001 and 2006, the board of directors implemented long-term cash incentive plans as a means to motivate senior management or those most responsible for the overall growth and direction of the Company. Certain executive officers participated in the Colfax Corporation 2001 Employee Appreciation Rights Plan (the 2001 Plan) or the 2006 Executive Stock Rights Plan (the 2006 Plan).
Generally, each of these plans provided the applicable officers with the opportunity to receive a certain percentage, in cash (or, with respect to the 2001 Plan only, in equity, at the determination of the Board of Directors), of the increase in value of the Company from the date of grant of the award until the date of the liquidity event.
The 2001 Plan rights fully vested on the third anniversary of the grant date. The 2006 Plan rights vested if a liquidity event occurred prior to the expiration of the term of the plan. Amounts were only payable upon the occurrence of a liquidity event. The Board determined that the IPO qualified as a liquidity event for both plans. In conjunction with the IPO, the participants received a total of 557,597 shares of common stock and approximately $27.8 million in cash payments under the 2001 Plan and 2006 Plan and thereafter both plans terminated.  In the year ended December 31, 2008, the Company recognized $10.0 million of stock-based compensation expense associated with the 557,597 shares of common stock awarded and a related tax benefit of approximately $3.8 million.
14. Financial Instrumentsmeasurement.

The carrying values of financial instruments, including accounts receivable, accountsTrade receivables, other receivables and Accounts payable, and other accrued liabilities, approximate their fair values due to their short-term maturities. The estimated fair value of the Company’s long-term debt of $81.6 million$1.5 billion and $88.6 million at $1.7 billion as of December 31, 20102013 and 2009,2012, respectively, was based on current interest rates for similar types of borrowings.borrowings and is in Level Two of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.


79
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

72

A summary of the Company’s assets and liabilities that are measured at fair value on a recurring basis for each fair value hierarchy level for the periods presented is as follows:
 December 31, 2013
 Level
One		 Level
Two		 Level
Three		 Total
 (In thousands)
Assets:       
Cash equivalents$22,032
 $—
 $—
 $22,032
 Foreign currency contracts related to sales - designated as hedges—
 11,241
 —
 11,241
 Foreign currency contracts related to sales - not designated as hedges—
 3,642
 —
 3,642
 Foreign currency contracts related to purchases - designated as hedges—
 428
 —
 428
 Foreign currency contracts related to purchases - not designated as hedges—
 2,543
 —
 2,543
 Deferred compensation plans—
 2,414
 —
 2,414
 $22,032
 $20,268
 $—
 $42,300
        
Liabilities:       
 Foreign currency contracts related to sales - designated as hedges$—
 $1,126
 $—
 $1,126
 Foreign currency contracts related to sales - not designated as hedges—
 3,625
 —
 3,625
 Foreign currency contracts related to purchases - designated as hedges—
 742
 —
 742
 Foreign currency contracts related to purchases - not designated as hedges—
 846
 —
 846
 Deferred compensation plans—
 2,414
 —
 2,414
 Liability for contingent payments—
 —
 6,176
 6,176
 $—
 $8,753
 $6,176
 $14,929

  Total  Level 1  Level 2  Level 3 
As of December 31, 2010            
             
Assets:            
Cash equivalents $24,925  $24,925  $-  $- 
                 
Liabilities:                
Interest rate swap $1,789  $-  $1,789  $- 
Foreign currency contracts  257   -   257   - 
  $2,046  $-  $2,046  $- 
                 
As of December 31, 2009                
                 
Assets:                
Cash equivalents $33,846  $33,846  $-  $- 
                 
Liabilities:                
Interest rate swap $3,035  $-  $3,035  $- 
Foreign currency contracts  121   -   121   - 
  $3,156  $-  $3,156  $- 
 December 31, 2012
 Level
One		 Level
Two		 Level
Three		 Total
 (In thousands)
Assets:       
Cash equivalents$133,878
 $—
 $—
 $133,878
 Foreign currency contracts related to sales - designated as hedges—
 6,832
 —
 6,832
 Foreign currency contracts related to sales - not designated as hedges—
 2,249
 —
 2,249
 Foreign currency contracts related to purchases - designated as hedges—
 213
 —
 213
 Foreign currency contracts related to purchases - not designated as hedges—
 1,077
 —
 1,077
 Deferred compensation plans—
 2,542
 —
 2,542
 $133,878
 $12,913
 $—
 $146,791
        
Liabilities:       
 Foreign currency contracts related to sales - designated as hedges$—
 $1,024
 $—
 $1,024
 Foreign currency contracts related to sales - not designated as hedges—
 1,693
 —
 1,693
 Foreign currency contracts related to purchases - designated as hedges—
 896
 —
 896
 Foreign currency contracts related to purchases - not designated as hedges—
 1,062
 —
 1,062
 Deferred compensation plans—
 2,542
 —
 2,542
 Liability for contingent payments—
 —
 6,517
 6,517
 $—
 $7,217
 $6,517
 $13,734

There were no significant transfers between level 1 and level 2in or out of Level One, Two or Three during 2010 or 2009.the year ended December 31, 2013.

Cash Equivalents
 
The Company’s cash equivalents consist of investments in interest-bearing deposit accounts and money market mutual funds which are valued based on quoted market prices. The fair value of these investments approximate cost due to their short-term maturities and the high credit quality of the issuers of the underlying securities.  Interest rate swaps are valued based on forward curves observable in the market.  Foreign currency contracts are measured using broker quotations or observable market transactions in either listed or over-the-counter markets. There were no changes during the periods presented in the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis.

80
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Derivatives
 
The Company periodically enters into foreign currency, interest rate swap, and commodity derivative contracts. The Company uses interest rate swaps to manage exposure to interest rate fluctuations. Foreign currency contracts are used to manage exchange rate fluctuations and generally hedge transactions between the Euro and the U.S. dollar.fluctuations. Commodity futures contracts are used to manage costs of raw materials used in the Company’s production processes.

The Company enters into such contracts with financial institutions of good standing, andThere were no changes during the total credit exposure related to non-performance by those institutions is not material to the operations of the Company. The Company does not enter into contracts for trading purposes.

We designate a portion of our derivative instruments as cash flow hedges for accounting purposes. For all derivatives designated as hedges, we formally document the relationship between the hedging instrument and the hedged item, as well as the risk management objective and the strategy for using the hedging instrument.  We assess whether the hedging relationship between the derivative and the hedged item is highly effective at offsetting changesperiods presented in the cash flows both at inception of the hedging relationshipCompany’s valuation techniques used to measure asset and on an ongoing basis. Any change in theliability fair value of the derivative that is not effective at offsetting changes in the cash flows or fair values of the hedged item is recognized currently in earnings.

73

Interest rate swaps and other derivative contracts are recognized on the balance sheet as assets and liabilities, measured at fair value on a recurring basis using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. For transactions in which we are hedging the variability of cash flows, changes in the fair value of the derivative are reported in accumulated other comprehensive income (loss) (AOCI), to the extent they are effective at offsetting changes in the hedged item, until earnings are affected by the hedged item. Changes in the fair value of derivatives not designated as hedges are recognized currently in earnings.basis.

On June 24, 2008, the Company entered into anInterest Rate Swap. The Company’s interest rate swap was valued based on forward curves observable in the market. On January 11, 2012, the Company terminated its interest rate swap in conjunction with an aggregate notional value of $75 million whereby it exchanged its LIBOR-based variable rate interest for a fixed rate of 4.1375%.  The notional value decreased to $50 million on June 30, 2010 and will decrease to $25 million on June 30, 2011, and expires on June 29, 2012. The fair valuesthe repayment of the swap agreement, based on third-party quotes, were liabilitiesBank of $1.8 millionAmerica Credit Agreement and $3.0 million at December 31, 2010 and 2009, respectively, and are recorded in “Other long term liabilities” on the consolidated balance sheet.  The swap agreement has been designated as a cash flow hedge, and therefore changes in its fair value are recorded as an adjustment to other comprehensive income. The effective portion of net losses recognized in AOCI during the years ended December 31, 2010, 2009, and 2008 were $1.2 million, $0.9 million and $5.8 million, respectively.  There has been no significant ineffectiveness related to this arrangement since its inception. During the years ended December 31, 2010, 2009 and 2008, $2.4 million, $2.9 million and $0.8 million, respectively, of losses on the swap were reclassified from AOCI to interest expense.  At December 31, 2010, the Company expects to reclassify $1.4$0.5 million of net losses on the interest rate swap from accumulatedAccumulated other comprehensive incomeloss to earnings during the next twelve months.

As of December 31, 2010 and 2009, the Company had no open commodity futures contracts, but in previous periods had copper and nickel futures contracts.  The Company did not elect hedge accounting for these contracts, and therefore changes in their fair value were recognized in earnings.  For the years ended December 31, 2009 and 2008, the consolidated statements of operations include $2.0 million and $(1.7) million, respectively, of unrealized gains (losses) as a result of changesInterest expense in the fair valueConsolidated Statement of these contracts.  Realized (losses) on these contracts of $(1.0) million and $(0.4) million were recognized in the years ended December 31, 2009 and 2008, respectively.Operations.
 
Foreign Currency Contracts. Foreign currency contracts are measured using broker quotations or observable market transactions in either listed or over-the-counter markets. The Company primarily uses foreign currency contracts to mitigate the risk associated with customer forward sale agreements denominated in currencies other than the applicable local currency, and to match costs and expected revenues where production facilities have a different currency than the selling currency.
As of December 31, 20102013 and 2009,2012, the Company had foreign currency contracts with the following notional values of $13.1 million and $10.5 million, respectively. The fair values of the contracts were liabilities of $0.3 million and $0.1 million at December 31, 2010 and 2009, respectively and are recorded in “Other accrued liabilities” and “Other liabilities” on the consolidated balance sheets. values:
 December 31,
 2013 2012
 (In thousands)
Foreign currency contracts sold - not designated as hedges$244,755
 $301,185
Foreign currency contracts sold - designated as hedges206,220
 238,537
Foreign currency contracts purchased - not designated as hedges273,714
 121,741
Foreign currency contracts purchased - designated as hedges46,728
 37,065
Total foreign currency derivatives$771,417
 $698,528


81
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The Company has not elected hedge accountingrecognized the following in its Consolidated Financial Statements related to its derivative instruments:
 Year Ended December 31,
 2013 2012 2011
 (In thousands)
Contracts Designated as Hedges:   
Interest Rate Swap:   
  Unrealized loss$—
 $—
 $(161)
  Realized loss—
 (471) (1,479)
Foreign Currency Contracts - related to customer sales contracts:     
  Unrealized gain3,801
 2,120
 —
  Realized gain654
 2,297
 —
Foreign Currency Contracts - related to supplier purchase contracts:     
  Unrealized gain (loss)397
 (374) —
  Realized loss(298) (475) —
  Unrealized loss on net investment hedges(14,261) (7,783) —
Contracts Not Designated in a Hedge Relationship:     
 Foreign Currency Contracts - acquisition-related:     
  Unrealized loss—
 —
 (21,013)
  Realized loss—
 (7,177) —
Foreign Currency Contracts - related to customer sales contracts:     
  Unrealized (loss) gain(762) 778
 (204)
  Realized gain1,112
 712
 152
Foreign Currency Contracts - related to supplier purchases contracts:     
  Unrealized gain (loss)1,687
 (560) 81
  Realized gain (loss)1,359
 868
 (20)

Liability for these contracts; therefore, changes in the fair value are recognized as a component of selling, general and administrative expense.  For the years ended December 31, 2010, 2009 and 2008, the consolidated statements of operations include $(0.2) million, $(0.7) million and $0.3 million, respectively, of unrealized gains (losses) as a result of changes inContingent Payments

The Company’s liability for contingent payments represents the fair value of these contracts.  Realized gains (losses) on these contractsestimated additional cash payments related to its acquisitions of $(1.4) million, $0.9 millionCOT-Puritech in December of 2011 and $(0.3) million wereClarus in July 2013, which are subject to the achievement of certain performance goals, and are included in Other liabilities in the Consolidated Balance Sheets. The fair value of the liability for contingent payments represents the present value of probability weighted expected cash flows based upon the Company’s internal model and projections and is included in Level Three of the fair value hierarchy. Accretion is recognized in the years ended December 31, 2010, 2009, and 2008, respectively.
15. Concentration of Credit Risk

In addition to interest rate swaps, financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable.

The Company performs credit evaluations of its customers prior to delivery or commencement of services and normally does not require collateral. Letters of credit are occasionally required for international customers when the Company deems necessary. The Company maintains an allowance for potential credit losses and losses have historically been within management’s expectations.

The Company may be exposed to credit-related lossesInterest expense in the eventConsolidated Statements of non-performance by counterparties to financial instruments. Counterparties to the Company’s financial instruments represent,Operations and realized or unrealized gains or losses are recognized in general, international financial institutions or well-established financial institutions.

No one customer accounted for 10% or more of the Company’s sales in 2010, 2009 or 2008 or accounts receivable at December 31, 2010 or 2009.
16. Related Party Transactions

During 2008, the Company paid a management fee of $0.5 million to Colfax Towers, a party related by common ownership, recorded in selling,Selling, general and administrative expenses. This arrangement was discontinued followingexpense in the Consolidated Statements of Operations.

A summary of activity in the Company’s IPO in May 2008.liability for contingent payments is as follows:

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17. Operations by Geographical Area
  (In thousands)
Balance, January 1, 2011$—
Additions4,300
Interest accretion59
Balance, December 31, 20114,359
Interest accretion712
Unrealized loss(1,446)
Balance, December 31, 20126,517
Additions for Clarus acquisition2,494
Interest accretion665
Cash payment(3,500)
Balance, December 31, 2013$6,176

The Company’s operations have been aggregated into a single reportable operating segment for the design, production

82
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


15. Commitments and distribution of fluid handling products. The operations of the Company on a geographic basis are as follows:Contingencies

  Year ended December 31, 
  2010  2009  2008 
Net sales by origin:         
United States $183,803  $177,373  $189,924 
Foreign locations:            
Germany  196,399   180,917   239,723 
Other  161,785   166,734   175,207 
Total foreign locations  358,184   347,651   414,930 
             
Total net sales $541,987  $525,024  $604,854 
             
Net sales by product:            
Pumps, including aftermarket parts and service $444,907  $443,073  $529,300 
Systems, including installation service  78,598   69,339   58,231 
Valves  14,568   10,081   10,094 
Other  3,914   2,531   7,229 
             
Total net sales $541,987  $525,024  $604,854 
Asbestos and Other Product Liability Contingencies

  December 31,  
  2010  2009  
Long-lived assets:       
United States $27,757  $24,785  
Foreign locations:         
Germany  42,619   48,232  
Other  18,870   19,073  
Total foreign locations  61,489   67,305  
          
Total long-lived assets $89,246  $92,090  

18. Commitments and Contingencies
Asbestos Liabilities and Insurance Assets
Two of ourCertain subsidiaries are each one of many defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured with components that are alleged to have contained asbestos. Such components were acquired from third-party suppliers, and were not manufactured by any of ourthe Company’s subsidiaries nor were the subsidiaries producers or direct suppliers of asbestos. The manufactured products that are alleged to have contained asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the U.S. Navy.
 
The subsidiaries settle asbestos claims for amounts managementthe Company considers reasonable given the facts and circumstances of each claim. The annual average settlement payment per asbestos claimant has fluctuated during the past several years. ManagementThe Company expects such fluctuations to continue in the future based upon, among other things, the number and type of claims settled in a particular period and the jurisdictions in which such claims arise. To date, the majority of settled claims have been dismissed for no payment.

Of the 24,764 pending claims, approximately 3,500 of such claims have been brought in various federal and state courts in Mississippi; approximately 3,300of such claims have been brought in the Supreme Court of New York County, New York; approximately 200 of such claims have been brought in the Superior Court, Middlesex County, New Jersey; and approximately 900 claims have been filed in state courts in Michigan and the U.S. District Court, Eastern and Western Districts of Michigan. The remaining pending claims have been filed in state and federal courts in Alabama, California, Kentucky, Louisiana, Pennsylvania, Rhode Island, Texas, Virginia, the U.S. Virgin Islands and Washington.

75

Claims activity since December 31 related to asbestos claims is as follows(1):
  Year ended December 31, 
  2010  2009  2008 
          
Claims unresolved at the beginning of the period  25,295   35,357   37,554 
Claims filed (2)
  3,692   3,323   4,729 
Claims resolved (3)
  (4,223)  (13,385)  (6,926)
             
Claims unresolved at the end of the period  24,764   25,295   35,357 
             
Average cost of resolved claims (4)
 $12,037  $11,106  $5,378 
 Year Ended December 31,
 2013 2012 2011
 (Number of claims)
Claims unresolved, beginning of period23,523
 25,269
 26,442
Claims filed(2)
6,299
 4,347
 5,317
Claims resolved(3)
(7,429) (6,093) (6,490)
Claims unresolved, end of period22,393
 23,523
 25,269
 (In dollars)
Average cost of resolved claims(4)
$5,979
 $6,585
 $13,119

(1)Excludes claims filed by one legal firm that have been “administratively dismissed.”
Excludes claims filed by one legal firm that have been “administratively dismissed.”
(2)Claims filed include all asbestos claims for which notification has been received or a file has been opened.
(2) Claims filed include all asbestos claims for which notification has been received or a file has been opened.
(3)Claims resolved include asbestos claims that have been settled or dismissed or that are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants.
(3) Claims resolved include all asbestos claims that have been settled, dismissed or that are in the process of being settled or dismissed based
(4)Average cost of settlement to resolve claims in whole dollars. These amounts exclude claims settled in Mississippi for which the majority of claims have historically been resolved for no payment.  These amounts exclude insurance recoveries.  The increase in average cost of resolved claims from 2008 to 2009 is driven primarily by a shift in the mix of settled claims from dismissals with no dollar value to mesothelioma settlements.
upon agreements or understandings in place with counsel for the claimants.
(4) Excludes claims settled in Mississippi for which the majority of claims have historically been resolved for no payment and insurance recoveries.

The Company has projected each subsidiary’s future asbestos-related liability costs with regard to pending and future unasserted claims based upon the Nicholson methodology. The Nicholson methodology is a standard approach used by experts and has been accepted by numerous courts. It is the Company’s policy to record a liability for asbestos-related liability costs for the longest period of time that it can reasonably estimate. 
 
The Company believes that it can reasonably estimate the asbestos-related liability for pending and future claims that will be resolved in the next 15 years and has recorded that liability as its best estimate. While it is reasonably possible that the subsidiaries will incur costs after this period, the Company does not believe the reasonably possible loss or range of reasonably possible loss is estimable at the current time. Accordingly, no accrual has been recorded for any costs which may be paid after the next 15 years. Defense costs associated with asbestos-related liabilities as well as costs incurred related to litigation against the subsidiaries’ insurers are expensed as incurred.
During the third quarter of 2009, an analysis of claims data including filing and dismissal rates, alleged disease mix, filing jurisdiction, as well as settlement values resulted in the determination that the Company should revise its rolling 15-year estimate of asbestos-related liability for pending and future claims.  The analysis reflected that a statistically significant increase in mesothelioma filings had occurred and was expected to continue for both subsidiaries.  As a result, the Company recorded an $11.6 million pretax charge in the third quarter of 2009, which was comprised of an increase to its asbestos-related liabilities of $111.3 million offset by expected insurance recoveries of $99.7 million.

Each subsidiary has separate insurance coverage acquired prior to Company ownership of each independent entity. In its evaluation of the insurance asset, the Company used differing insurance allocation methodologies for each subsidiary based upon the applicable law pertaining to the affected subsidiary.
 
In November 2008,For one of the subsidiaries, entered into a settlement agreement with the primary and umbrella carrier governing all aspects of the carrier’s past and future handling of the asbestos related bodily injury claims against the subsidiary. As a result of this agreement, during the third quarter of 2008, the Company increased its insurance asset by $7.0 million attributable to resolution of a dispute concerning certain pre-1966 insurance policies and recorded a corresponding pretax gain. The Company reimbursed the primary insurer for $7.6 million in deductibles and retrospective premiums in the fourth quarter of 2008 and has no further liability to the insurer under these provisions of the primary policies.

76

For this subsidiary, the Delaware Court of Chancery ruled on October 14, 2009 that asbestos-related costs should be allocated among excess insurers using an “all sums” allocation (which allows an insured to collect all sums paid in connection with a claim from any insurer whose policy is triggered, up to the policy’s applicable limits) and that the subsidiary has rights to excess insurance policies purchased by a former owner of the business. Based upon this ruling mandating an “all sums” allocation, as well as more recent rulings by the language ofDelaware Superior Court concerning the underlying insurance policies and the assertion and belief that defense costs are outside policy limits,subsidiary’s coverage rights, the Company as of October 2, 2009, increased itscurrently estimates that the subsidiary’s future expected recovery percentage from 67% tois 90% of asbestos-related costs followingwith the exhaustion of its primary and umbrella layers of insurance and recorded a pretax gain of $17.3 million. The subsidiary expectsexpected to be responsible for approximately 10% of its future asbestos-related costs. Certain coverage issues still remain to be decided,

83
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Duringand one or more parties to the third quartercoverage action ultimately may appeal the Delaware Chancery Court’s and Superior Court’s rulings. Depending on the outcome of 2010, an insolvent carrier that had written approximately $1.4 million in limits for which this subsidiary had assumed nothe remaining issues, as well as any appeal, the expected insurance recovery made a cash settlement offer of approximately $0.7 million.  As such, the subsidiary recorded a gain for this amount and a receivable from the insurer.percentage could change.

The subsidiary was notified during the third quarter ofin 2010 by the primary and umbrella carrier who had been fully defending and indemnifying the subsidiary for twenty20 years that the limits of liability of its primary and umbrella layer policies had been exhausted. Since then, the subsidiary has sought coverage from certain excess layer insurers whose terms and conditions follow form to the umbrella carrier. Certain first-layer excess insurers have defended and/or indemnified the subsidiary, and/or agreed to defend and/or indemnify the subsidiary, subject to their reservations of rights and their applicable policy limits. Litigation between this subsidiary and itsA trial concerning the payment obligations of the Company’s excess insurers is continuingconcluded during fourth quarter of 2012, but certain legal rulings and it is anticipated that the trial phase will be completed in 2011.entry of a final judgment are still pending. The subsidiary continues to work with its excess insurers to obtain defense and indemnity payments while the litigation is proceeding. Given the uncertainties of litigation, there areis a variety of possible outcomes, including but not limited to the subsidiary being required to fund all or a portion of the subsidiary’s defense and indemnity payments until such time a final ruling orders payment by the insurers. While not impacting the results of operations, the funding requirement could range up to $10 million per quarter until final resolution. In addition, because a statistically significant increase in mesothelioma claims had occurred and was expected to continue to occur in certain regions, this subsidiary recorded a $1.8 million pre-tax charge, which was comprised of an increase in its asbestos-related liabilities of $18.1 million partially offset by an increase in expected insurance recoveries of $16.3 million, during the fourth quarter of the year ended December 31, 2011. Due to a statistically significant increase in mesothelioma and lung cancer claims and higher settlement values per claim that have occurred and are expected to continue to occur in certain jurisdictions, partially offset by lower claims and lower settlement values per claim in other jurisdictions, the Company recorded a $0.6 million pre-tax charge during year ended December 31, 2013, which was included in Selling, general and administrative expense in the Consolidated Statements of Operations. The pre-tax charge was comprised of an increase in asbestos-related liabilities of $10.8 million partially offset by an increase in expected insurance recoveries of $10.2 million.
 
In 2003, the otheranother subsidiary filed a lawsuit against a large number of its insurers and its former parent to resolve a variety of disputes concerning insurance for asbestos-related bodily injury claims asserted against it. Although none of these insurance companies contested coverage, they disputed the timing, reasonableness and allocation of payments.
 
For this subsidiary, it was determined by court ruling in the fourth quarter of 2007 that the allocation methodology mandated by the New Jersey courts will apply. Further court rulings in December of 2009 clarified the allocation calculation related to amounts currently due from insurers as well as amounts the Company expects to be reimbursed for asbestos-related costs incurred in future periods.  As a result, in the fourth quarter of 2009, the Company increased its receivable for past costs by $11.9 million and decreased its insurance asset for future costs by $9.8 million and recorded a pretax gain of $2.1 million.
 
In connection with this litigation, the court engaged a special master to review the appropriate information and recommend an allocation formula in accordance with applicable law and the facts of the case. During the fourth quarter of 2010, the court-appointed special allocation master made its recommendation which has not yet beenrecommendation. In May 2011, the court accepted by the court.   Based upon the recommendation with modifications. A final judgment at the Company reducedtrial court level in this litigation was rendered during the current asbestos receivable by $2.3 million, increasedyear ended December 31, 2011, but appeals have been entered. Because of the long-term asbestos asset by $0.4 million andhigher settlement values per mesothelioma claim in 2011 in a specific region, this subsidiary recorded a net$0.7 million pre-tax charge, which was comprised of an increase to asbestos liability and defense costsits asbestos-related liabilities of $1.9$4.7 million partially offset by an increase in the third quarterexpected insurance recoveries of 2010. As a result of the current status of this litigation, we decreased the amount currently due from insurers by $0.5$4.0 million, and decreased the insurance asset for future periods by $1.6 million and recorded a pretax loss of $2.1 million induring the fourth quarter of 2010.   We currently anticipate that the trial phase in this litigation will be complete inyear ended December 31, 2011.  We cannot predict the outcome of this litigation with certainty, or whether the outcome will be more or less favorable than our best estimate included in the consolidated financial statements.  Given the uncertainty inherent in litigation, we would estimate the range of possible results from positive $30 million to negative $30 million relative to our reported insurance assets on our consolidated balance sheets.  The timing of any cash inflows or outflows related to these matters cannot be estimated. The subsidiary expects to be responsible for approximately 15%18% of all future asbestos-related costs.


84
77COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The Company has established reserves of $429.7 million and $443.8 million as of December 31, 2010 and December 31, 2009, respectively,Company’s Consolidated Balance Sheets included the following amounts related to asbestos-related litigation:
 December 31, 2013 December 31, 2012
 (In thousands)
Current asbestos insurance asset(1)
$32,872
 $35,566
Current asbestos insurance receivable(1)
41,943
 36,778
Long-term asbestos insurance asset(2)
299,057
 315,363
Long-term asbestos insurance receivable(2)
21,411
 7,063
Accrued asbestos liability(3)
51,142
 58,501
Long-term asbestos liability(4)
358,288
 375,493
(1) Included in Other current assets in the Consolidated Balance Sheets.
(2) Included in Other assets in the Consolidated Balance Sheets.
(3) Represents current accruals for the probable and reasonably estimable asbestos-related liability cost itthat the Company believes the subsidiaries
will pay through the next 15 years.  It has also established recoverables of $374.4 million and $389.4 million as of December 31, 2010 and December 31, 2009, respectively, for the insurance recoveries that are deemed probable during the same time period. Net of these recoverables, the expected cash outlay on a non-discounted basis for asbestos-related bodily injury claims over the next 15 years, was $55.3 million and $54.3 million as of December 31, 2010 and December 31, 2009, respectively. In addition, the Company has recorded a receivable for liability and defense costs previously paid in the amount of $51.8 million and $52.8 million as of December 31, 2010 and December 31, 2009, respectively, for which insurance recovery is deemed probable.  The Company has recorded the reserves for the asbestos liabilities as “Accrued asbestos liability” and “Long-term asbestos liability” and the related insurance recoveries as “Asbestos insurance asset” and “Long-term asbestos insurance asset”.  The receivable for previously paid liability and defense costs is recorded in “Asbestos insurance receivable” and “Long-term asbestos insurance receivable”.  The Company also has reflected in other accrued liabilities $23.3 million and $15.8 million as of December 31, 2010 and December 31, 2009, respectively, for overpayments by certain insurers and unpaid legal costs related to defending itselfthemselves against
asbestos-related liability claims and legal action against the Company’s insurers.insurers, which is included in Accrued liabilities in the Consolidated
Balance Sheets.
The expense (income) related to these(4) Included in Other liabilities and legal defense was $7.9 million, net of estimated insurance recoveries, forin the year ended December 31, 2010 compared to ($2.2) million and ($4.8) million for the years ended December 31, 2009 and 2008, respectively.  Legal costs related to the subsidiaries’ action against their asbestos insurers were $13.2 million for the year ended December 31, 2010 compared to $11.7 million and $17.2 million for the years ended December 31, 2009 and 2008, respectively.Consolidated Balance Sheets.

Management’s analyses are based on currently known facts and a number of assumptions. However, projecting future events, such as new claims to be filed each year, the average cost of resolving each claim, coverage issues among layers of insurers, the method in which losses will be allocated to the various insurance policies, interpretation of the effect on coverage of various policy terms and limits and their interrelationships, the continuing solvency of various insurance companies, the amount of remaining insurance available, as well as the numerous uncertainties inherent in asbestos litigation could cause the actual liabilities and insurance recoveries to be higher or lower than those projected or recorded which could materially affect ourthe Company’s financial condition, results of operations or cash flow.

General Litigation
On June 3, 1997, one of our subsidiaries was served with a complaint in a case brought by Litton Industries, Inc. (“Litton”) in the Superior Court of New Jersey which alleges damages in excess of $10.0 million incurred as a result of losses under a government contract bid transferred in connection with the sale of its former Electro-Optical Systems business. In the third quarter of 2004, this case was tried and the jury rendered a verdict of $2.1 million for the plaintiffs. After appeals by both parties, the Supreme Court of New Jersey upheld the plaintiffs’ right to a refund of their attorney’s fees and costs of trial, but remanded the issue to the trial court to reconsider the amount of fees using a proportionality analysis of the relationship between the fee requested and the damages recovered.  The date for the new trial on additional claims allowed by the Appellate Division of the New Jersey Superior Court and the recalculation of attorney’s fees has not been set.  The subsidiary intends to continue to defend this matter vigorously. At December 31, 2010, the Company’s consolidated balance sheet includes a liability, reflected in “Other liabilities”, related to this matter of $9.5 million.

The Company is also involved in various other pending legal proceedings arising out of the ordinary course of the Company’s business. None of these legal proceedings are expected to have a material adverse effect on the financial condition, results of operations or cash flow of the Company. With respect to these proceedings and the litigation and claims described in the preceding paragraphs, management of the Company believes that it will either prevail, has adequate insurance coverage or has established appropriate reservesaccruals to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adverselyadverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company.

Guarantees

At December 31, 2010, there were $14.1 million of letters of credit outstanding.  Additionally, at December 31, 2010, we had issued $16.4 million of bank guarantees securing primarily customer prepayments, performance, and product warranties in our European and Asian operations.

78

Minimum Lease Obligations

The Company has the followingCompany’s minimum rental obligations under non-cancelable operating leases for certain property, plant and equipment. The remaining lease terms range from 1 to 5 years.are as follows: 
 December 31, 2013
 (In thousands)
2014$36,465
201523,508
201616,642
201712,742
201811,829
Thereafter55,945
Total$157,131


Year ended December 31,   
    
2011 $3,845 
2012  2,997 
2013  2,126 
2014  1,613 
2015  1,498 
Thereafter  646 
     
Total $12,725 
85
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Net

The Company’s operating leases extend for varying periods and, in some cases, contain renewal options that would extend the existing terms. During the years ended December 31, 2013, 2012 and 2011, the Company’s net rental expense underrelated to operating leases was approximately $4.6$35.4 million, $4.8$39.5 million and $5.1$4.9 million, in 2010, 2009 and 2008, respectively.
19. Quarterly Results for 2010 and 2009 (Unaudited)
  First  Second  Third  Fourth 
  Quarter  Quarter  Quarter  Quarter 
(millions, except per share amounts)            
             
2010            
Net sales $119,971  $122,968  $132,397  $166,651 
Gross profit  41,756   42,981   47,097   59,574 
Net (loss) income  (374)  2,088   5,851   8,650 
                 
Net (loss) income per share - basic and diluted $(0.01) $0.05  $0.13  $0.20 
                 
2009                
Net sales $136,323  $129,185  $128,545  $130,971 
Gross profit  48,015   44,555   46,206   47,011 
Net income  7,065   4,476   5,530   6,726 
                 
Net income per share - basic $0.16  $0.10  $0.13  $0.16 
Net income per share - diluted $0.16  $0.10  $0.13  $0.15 

79

Off-Balance Sheet Arrangements

As of December 31, 2013, the Company had $433.4 million of unconditional purchase obligations with suppliers, primarily all of which is expected to be paid by December 31, 2014.

16. Segment Information

The Company conducts its operations through three operating segments: gas handling, fluid handling and fabrication technology. The gas-handling and fluid-handling operating segments are aggregated into a single reportable segment. A description of the Company’s reportable segments is as follows:

▪
Gas & Fluid Handling - a global supplier of a broad range of gas- and fluid-handling products, including pumps, fluid-handling systems and controls, specialty valves, heavy-duty centrifugal and axial fans, rotary heat exchangers and gas compressors, which serves customers in the power generation, oil, gas and petrochemical, mining, marine (including defense) and general industrial and other end markets; and

▪
Fabrication Technology -a global supplier of welding equipment and consumables, cutting equipment and consumables and automated welding and cutting systems.
Certain amounts not allocated to the two reportable segments and intersegment eliminations are reported under the heading “Corporate and other.” The Company’s management evaluates the operating results of each of its reportable segments based upon Net sales and segment operating income, which represents Operating income before Restructuring and other related charges.

86
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



The Company’s segment results were as follows:
 Year Ended December 31,
 2013 2012 2011
 (In thousands)
Net sales:   
     Gas and fluid handling$2,104,048
 $1,901,132
 $693,392
     Fabrication technology2,103,161
 2,012,724
 —
Total Net sales$4,207,209
 $3,913,856
 $693,392
      
Segment operating income (loss)(1):
     
     Gas and fluid handling$270,708
 $141,524
 $86,664
     Fabrication technology219,634
 140,184
 —
     Corporate and other(48,448) (81,639) (51,078)
Total segment operating income$441,894
 $200,069
 $35,586
      
Depreciation and Amortization: 
     Gas and fluid handling$62,792
 $112,389
 $22,375
     Fabrication technology55,339
 69,708
 —
     Corporate and other1,127
 1,306
 223
Total depreciation and amortization$119,258
 $183,403
 $22,598
      
Capital Expenditures:     
     Gas and fluid handling$37,995
 $42,343
 $14,420
     Fabrication technology33,437
 41,146
 —
     Corporate and other50
 97
 366
Total capital expenditures$71,482
 $83,586
 $14,786
      
_________
(1) The following is a reconciliation of Income before income taxes to segment operating income:
 Year Ended December 31,
 2013 2012 2011
      
Income before income taxes$302,795
 $48,439
 $19,987
Interest expense103,597
 91,570
 5,919
Restructuring and other related charges35,502
 60,060
 9,680
Segment operating income$441,894
 $200,069
 $35,586


87
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


 Year Ended December 31,
 2013 2012
 (In thousands)
Investments in Equity Method Investees:   
     Gas and fluid handling$7,097
 $11,451
     Fabrication technology43,698
 44,106

$50,795
 $55,557
    
Total Assets:   
     Gas and fluid handling$4,007,806
 $3,333,817
     Fabrication technology2,526,245
 2,580,273
     Corporate and other48,802
 234,197
Total Assets$6,582,853
 $6,148,287
    

The detail of the Company’s operations by product type and geography is as follows:
 Year Ended December 31,
 2013 2012 2011
 (In thousands)
Net Sales by Major Product:     
Gas handling$1,440,731
 $1,242,371
 $—
Fluid handling663,317
 658,761
 693,392
Welding and cutting2,103,161
 2,012,724
 —
Total Net sales$4,207,209
 $3,913,856
 $693,392
Net Sales by Origin(1):
     
United States$836,636
 $789,259
 $207,459
Foreign locations3,370,573
 3,124,597
 485,933
Total Net sales$4,207,209
 $3,913,856
 $693,392
_________
(1) The Company attributes revenues from external customers to individual countries based upon the country in which the sale was originated.

 Year Ended December 31,
 2013 2012
 (In thousands)
Property, Plant and Equipment, Net(1):
   
United States$145,972
 $127,719
China82,771
 74,855
Czech Republic92,796
 53,201
Other Foreign Locations435,601
 432,795
Property, plant and equipment, net$757,140
 $688,570
_________
(1) As the Company does not allocate all long-lived assets, specifically intangible assets, to each individual country, evaluation of long-lived
assets in total is impracticable.

88
COLFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


17. Selected Quarterly Data—(unaudited)

Provided below is selected unaudited quarterly financial data for the years ended December 31, 2013 and 2012.

  Quarter Ended
  
March 29,
2013
 
June 28,
2013
 
September 27,
2013
 
December 31,
2013(2)
  (In thousands, except per share data)
Net sales $947,143
 $1,074,118
 $1,014,570
 $1,171,378
Gross profit 290,725
 337,822
 320,294
 357,381
Net income 32,275
 67,200
 65,475
 44,193
Net income attributable to Colfax Corporation common shareholders 22,553
 53,306
 50,389
 31,984
Net income per share – basic $0.21
 $0.53
 $0.49
 $0.31
Net income per share – diluted $0.21
 $0.52
 $0.48
 $0.31

  Quarter Ended
  
March 30,
2012(1)
 
June 29,
2012(1)
 September 28,
2012		 December 31,
2012
  (In thousands, except per share data)
Net sales $886,366
 $1,045,653
 $954,440
 $1,027,397
Gross profit 241,706
 314,862
 287,987
 307,570
Net (loss) income (100,461) 18,632
 14,499
 25,066
Net (loss) income attributable to Colfax Corporation common shareholders (109,332) 7,293
 4,022
 14,664
Net (loss) income per share – basic $(1.33) $0.07
 $0.04
 $0.14
Net (loss) income per share – diluted $(1.33) $0.07
 $0.04
 $0.13
__________
(1)
Net (loss) income and Net (loss) income per share for the three months ended March 30, 2012 and June 29, 2012, include $42.9 million and $0.8 million of pre-tax Charter acquisition-related expense. See Note 4, “Acquisitions” for additional information regarding the Company’s acquisition of Charter.
(2)
Net income and Net income per share for the three months ended December 31, 2013 includes a $13.8 million gain to remeasure the Company’s equity investment in Sicelub to fair value upon increasing the Company’s ownership to 100%, which was included in Selling, general and administrative expense. See Note 4, “Acquisitions” for additional information regarding the Company’s acquisition of Sicelub. Additionally, during the three months ended December 31, 2013, the Company incurred $26.8 million to write-off certain deferred financing fees and original issue discount associated with the Third Amendment to the Deutsche Bank Credit Agreement. See Note 10, “Debt” for additional information regarding the Third Amendment to the Deutsche Bank Credit Agreement.

89

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
None
ITEM 9A.CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report on Form 10-K.December 31, 2013. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that ourthe Company’s disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed in this report on Form 10-K has been recorded, processed, summarized and reported as of the end of the period covered by this report on Form 10-K.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Overover Financial Reporting

Other than the matters described in this Item 9A under “Remediation of Material Weakness in Internal Control Over Financial Reporting”, during the fourth quarter ended December 31, 2010, there have beenThere was no changeschange in our internal control over financial reporting (as defined in Rule 13a-15(f)) identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the fourthmost recently completed fiscal quarter of 2010 that havehas materially affected, or that areis reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

The management of Colfax Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes policies and procedures that:

(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company’s assets;

(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP,accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with the authorization of management and directors of the company; and

(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, 20102013 based on the criteria established in Internal Control –- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (1992 framework). Based on this assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2010.2013.



90
80

Our independent registered public accounting firm is engaged to express an opinion on our internal control over financial reporting, as stated in theirits report which is included in Part II, Item 8 of this Form 10-K under the caption “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Firm—Internal Control Over Financial Reporting.”

Remediation of Material Weakness in Internal Control Over Financial Reporting

Our 2009 Annual Report on Form 10-K/A identified a material weakness in our internal control over financial reporting, which continued to exist in each subsequent financial reporting period through October 2010.
Management concluded that the previous actuarial valuations for the plans of a U.S subsidiary contained errors in participant data.  The errors largely originated in census data compiled by the subsidiary’s former actuaries prior to our acquisition of the subsidiary in 1997.  The result of these errors affected the valuation of pension liabilities at the date of the acquisition and goodwill was overstated.  Remediation of the material weakness occurred during the fourth quarter ended December 31, 2010.

ITEM 9B.OTHER INFORMATION
Item 9B. Other Information
None.
None
PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance

Information relating to our Executive Officers is set forth in Part I of this Form 10-K under the caption “Executive Officers of the Registrant.” Additional information regarding our directors, audit committeeDirectors, Audit Committee and compliance with Section 16(a) of the Exchange Act is incorporated by reference to such information included in our proxy statement for our 20112014 annual meeting to be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K (the “2011“2014 Proxy Statement”) under the captions “Election of Directors”, “Board of Directors and its Committees –- Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance”.

As part of our system of corporate governance, our boardBoard of directorsDirectors has adopted a code of ethics that applies to all employees, including our principal executive officer, and our principal financial and accounting officer and principal accounting officer.or other persons performing similar functions. A copy of the code of ethics is available on the Corporate Governance page of the Investor Relations section of our website at www.colfaxcorp.com. We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of our code of ethics by posting such information on our website at the address above.

ITEM 11.EXECUTIVE COMPENSATION
Item 11. Executive Compensation

Information responsive to this item is incorporated by reference to such information included in our 20112014 Proxy Statement under the captions “Executive Compensation”, “Director Compensation”, “Compensation Discussion and Analysis”, “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation”Participation.”

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information responsive to this item is incorporated by reference to such information included in our 20112014 Proxy Statement under the captions “Beneficial Ownership of Our Common Stock” and “Equity Compensation Plan Information”.

Information.”
81

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Item 13. Certain Relationships and Related Transactions, and Director Independence

Information responsive to this item is incorporated by reference to such information included in our 20112014 Proxy Statement under the captions “Certain Relationships and Related Person Transactions” and “Director Independence”.Independence.”

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 14. Principal Accountant Fees and Services

Information responsive to this item is incorporated by reference to such information included in our 20112014 Proxy Statement under the captions “Independent Registered Public Accountant Fees and Services” and “Audit Committee’s Pre-Approval Policies and Procedures”.



91

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules

(a)(A)    The following documents are filed as part of this report.

(1)(1) Financial Statements. The financial statements are set forth under “Item 8. Financial Statements and Supplementary Data” of this report on Form 10-K.

(2)Schedules. An index of Exhibits and Schedules is on page 84(2) Schedules. An index of Exhibits and Schedules is on page 95 of this report. Schedules other than those listed below have been omitted from this Annual Report because they are not required, are not applicable or the required information is included in the financial statements or the notes thereto.

(b)
(B)Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report.

(C)    Not applicable.

(c)Not applicable.

92
82
SIGNATURES


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 25, 2011.12, 2014.
COLFAX CORPORATION
COLFAX CORPORATION
By: /s/ CLAY H. KIEFABER
Clay H. Kiefaber
By: /s/ STEVEN E. SIMMS
Steven E. Simms
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Date:     February 12, 2014
Date: February 25, 2011
/s/ CLAY H. KIEFABERSTEVEN E. SIMMS
Clay H. KiefaberSteven E. Simms
President and Chief Executive Officer and Director
(Principal Executive Officer)
 
/s/ C. SCOTT BRANNAN
C. Scott Brannan
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
 
/s/ MITCHELL P. RALES
Mitchell P. Rales
Chairman of the Board
 
/s/ PATRICK W. ALLENDER
Patrick W. Allender
Director
/s/ JOSEPH O. BUNTING III
Joseph O. Bunting III
Director
 
/s/ THOMAS S. GAYNER
Thomas S. Gayner
Director
 
/s/ RHONDA L. JORDAN
Rhonda L. Jordan
Director
 
/s/ CLAYTON A. PERFALLCLAY H. KIEFABER
Clay H. Kiefaber
Director
 
Clayton A. Perfall/s/ SAN W. ORR, III
San W. Orr, III
Director
 
Director/s/ A. CLAYTON PERFALL
A. Clayton Perfall
Director
 
/s/ RAJIV VINNAKOTA
Rajiv Vinnakota
Director

93
83

COLFAX CORPORATION
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULES


Page Number in
Form 10-K
Schedules:Page Number in Form 10-K
  
Valuation and Qualifying Accounts88
100


94
84

EXHIBIT INDEX

Exhibit
NumberNo.
 
Description
 
Location*
Location*
3.1 Amended and Restated Certificate of Incorporation of Colfax Corporation Incorporated by reference to Exhibit 3.13.01 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on May 13, 2008January 30, 2012.
   
3.2 Colfax Corporation Amended and Restated Bylaws Incorporated by reference to Exhibit 3.2 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on May 13, 2008
   
3.3Amended and Restated Certificate of Designations of Series A Perpetual Convertible Preferred Stock of Colfax CorporationIncorporated by reference to Exhibit 3.03 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the Commission on April 25, 2013
4.1 Specimen Common Stock Certificate  
   
10.1 Colfax Corporation 2008 Omnibus Incentive Plan**  
   
10.1a10.2Colfax Corporation 2008 Omnibus Incentive Plan, as amended and restated April 2, 2012**Incorporated by reference to Exhibit 10.07 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the SEC on August 7, 2012
10.3 Form of Non-Qualified Stock Option Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan****  
   
10.1b10.4 Form of Performance Stock Unit Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan**
10.1cForm of Outside Director Restricted Stock Unit Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan*Agreement**  
     
10.1d10.5Form of Outside Director Restricted Stock Unit Agreement (Three Year Vesting)**
10.6 Form of Outside Director Deferred Stock Unit Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan*Agreement**  
   
10.1e10.7 Form of Outside Director Deferred Stock Unit Agreement for deferral of grants of restricted stock made pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan*(Three Year Vesting)**  
   
10.1f10.8 Form of Outside Director Deferred Stock Unit Agreement for deferral of director fees**  
   
10.210.9 Service Contract for Board Member, dated November 14, 2006, between the Company and Dr. Michael Matros*
Form of Outside Director Non-Qualified Stock Option Agreement**
 Incorporated by reference to Exhibit 10.08 to Colfax Corporation’s Form 10-Q (File No. 001-34045) filed with the SEC on August 7, 2012
   
10.310.10 Form of IndemnificationOutside Director Restricted Stock Unit Agreement entered into between the Company and each of its directors and officers*(One Year Vesting)** Incorporated by reference to Exhibit 10.09 to Colfax Corporation’s Form 10-Q (File No. 001-34045) filed with the SEC on August 7, 2012
   
10.410.11
Form of Outside Director Deferred Stock Unit Agreement for deferral of grants of restricted stock units (One Year Vesting)**
Incorporated by reference to Exhibit 10.10 to Colfax Corporation’s Form 10-Q (File No. 001-34045) filed with the SEC on August 7, 2012

95


Exhibit
No.
Description
Location*
10.12
Form of Outside Director Deferred Stock Unit Agreement for deferral of grants of restricted stock units
10.13 Colfax Corporation Amended and Restated Excess Benefit Plan*Plan, effective as of January 1, 2013** Incorporated by reference to Exhibit 10.13 to Colfax Corporation’s Form 10-K (File No. 001-34045) as filed with the Commission on February 19, 2013
   
10.510.14 Retirement Plan for salaried U.S. Employees of Imo Industries, Inc.Employment Agreement between Colfax Corporation and Affiliates*Steven E. Simms** Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the SEC on April 23, 2012
   
10.6Colfax Corporation Excess Benefit Plan**  
10.7Allweiler AG Company Pension Plan**
10.8Colfax Corporation Director Deferred Compensation Plan**
10.910.15 Employment Agreement between Colfax Corporation and Clay H. Kiefaber** Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on January 11, 2010March 28, 2011

85

10.10
10.16Amendment No. 1 to the Employment Agreement between Colfax Corporation and Clay H. Kiefaber**Incorporated by reference to Exhibit 10.2 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on April 23, 2012
10.17 Employment Agreement between Colfax Corporation and C. Scott Brannan** Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on September 22, 2010
   
10.1110.18 Employment Agreement between Colfax Corporation and JohnDaniel A. Young*Pryor** Incorporated by reference to Exhibit 10.04 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the SEC on August 7, 2012
   
10.1210.19 Employment Agreement between Colfax Corporation and Thomas M. O’Brien**
10.13Employment Agreement between Colfax Corporation and William E. Roller*A. Lynne Puckett** Incorporated by reference to Exhibit 10.110.05 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the SEC on August 7, 2012
10.20Service Agreement between Howden Group Ltd. and Ian Brander dated December 3, 2010**Incorporated by reference to Exhibit 10.01 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the Commission on May 8, 2009July 25, 2013
   
10.1410.21 EmploymentConsulting Agreement between Colfax Corporation and G. Scott Faison**
10.15Amendment to the Employment Agreement between Colfax Corporation and John A. Young*Joseph O. Bunting III** Incorporated by reference to Exhibit 10.13 to Colfax Corporation’s Form 10-K (File No. 001-034045) as filed with the Commission on March 6, 2009
10.16Amendment to the Employment Agreement between Colfax Corporation and Thomas B. O’Brien**Incorporated by reference to Exhibit 10.14 to Colfax Corporation’s Form 10-K (File No. 001-034045) as filed with the Commission on March 6, 2009
10.17Amendment to the Employment Agreement between Colfax Corporation and William E. Roller**Incorporated by reference to Exhibit 10.2 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the Commission on May 8, 2009
10.18Amendment to the Employment Agreement between Colfax Corporation and G. Scott Faison**Incorporated by reference to Exhibit 10.16 to Colfax Corporation’s Form 10-K (File No. 001-034045) as filed with the Commission on March 6, 2009
10.19Separation Agreement between Colfax Corporation and John A. Young**Incorporated by reference to Exhibit 10.210.3 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on January 11, 2010April 23, 2012
  
10.20Termination Agreement between Colfax Corporation and  Dr. Matros**Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-034045) as filed with the Commission on April 16, 2010
10.21Financial Advisory Services Agreement between Colfax Corporation and G. Scott Faison**Incorporated by reference to Exhibit 10.2 to Colfax Corporation’s Form 10-Q (File No. 001-034045) as filed with the Commission on December 13, 2010
   
10.22 Legal Advisory Services Agreement between Colfax Corporation Annual Incentive Plan, as amended and Thomas M. O’Brien*restated April 2, 2012** Incorporated by reference to Exhibit 10.310.24 to Colfax Corporation’s Form 10-Q10-K (File No. 001-034045)001-34045) as filed with the Commission on December 13, 2010February 19, 2013
   
10.23 Colfax Corporation Annual Incentive Plan**Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the Commission on August 4, 2009

86

10.24Credit Agreement, dated May 13, 2008,September 12, 2011, by and among the Colfax Corporation, certain subsidiaries of Colfax Corporation identified therein, Deutsche Bank AG New York Branch and the lenders identified thereinIncorporated by reference to Exhibit 99.6 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on September 15, 2011


96

Exhibit
No.
Description
Location*
10.24Amendment No. 1 to the Credit Agreement, dated January 13, 2012, by and among the Colfax Corporation, certain subsidiaries of Colfax Corporation identified therein, Deutsche Bank AG New York Branch and the lenders identified therein Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on May 13, 2008January 17, 2012
10.25Second Amendment to the Credit Agreement, dated February 22, 2013, by and among the Colfax Corporation, certain subsidiaries of Colfax Corporation identified therein, Deutsche Bank AG New York Branch and the lenders identified thereinIncorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on February 25, 2013
10.26Third Amendment to the Credit Agreement, dated November 7, 2013 by and among the Colfax Corporation, certain subsidiaries of Colfax Corporation identified therein, Deutsche Bank AG New York Branch and the lenders identified thereinIncorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on November 14, 2013
10.27Share Purchase Agreement, by and among Inversiones Breca S.A. and Colfax Corporation, dated as of May 26, 2012Incorporated by reference to Exhibit 2.1 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on May 31, 2012
10.28Amendment No. 1 to the Share Purchase Agreement by and among Inversiones Breca S.A. and Colfax Corporation, dated October 25, 2012Incorporated by reference to Exhibit 10.28 to Colfax Corporation’s Form 10-K (File No. 001-34045) as filed with the Commission on February 19, 2013
10.29Registration Rights Agreement, dated May 30, 2003, by and among Colfax Corporation, Colfax Capital Corporation, Janalia Corporation, Equity Group Holdings, L.L.C., and Mitchell P. Rales and Steven M. Rales
10.30Amendment No. 1 to the Registration Rights Agreement, by and among Colfax Corporation and Mitchell P. Rales and Steven M. Rales, dated February 18, 2013Incorporated by reference to Exhibit 10.30 to Colfax Corporation’s Form 10-K (File No. 001-34045) as filed with the Commission on February 19, 2013
10.31Securities Purchase Agreement, dated September 12, 2011, between BDT CF Acquisition Vehicle, LLC and Colfax CorporationIncorporated by reference to Exhibit 99.2 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on September 15, 2011
10.32Securities Purchase Agreement, dated September 12, 2011, between Mitchell P. Rales and Colfax CorporationIncorporated by reference to Exhibit 99.3 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on September 15, 2011
10.33Securities Purchase Agreement, dated September 12, 2011, between Steven M. Rales and Colfax CorporationIncorporated by reference to Exhibit 99.4 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on September 15, 2011


97

Exhibit
No.
Description
Location*
10.34Securities Purchase Agreement, dated September 12, 2011, between Markel Corporation and Colfax CorporationIncorporated by reference to Exhibit 99.5 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on September 15, 2011
10.35Registration Rights Agreement, dated as of January 24, 2012, between Colfax Corporation and BDT CF Acquisition Vehicle, LLCIncorporated by reference to Exhibit 10.01 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on January 30, 2012
10.36Registration Rights Agreement, dated as of January 24, 2012, between Colfax Corporation and Mitchell P. RalesIncorporated by reference to Exhibit 10.02 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on January 30, 2012
10.37Registration Rights Agreement, dated as of January 24, 2012, between Colfax Corporation and Steven M. RalesIncorporated by reference to Exhibit 10.03 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on January 30, 2012
10.38Registration Rights Agreement, dated as of January 24, 2012, between Colfax Corporation and Markel CorporationIncorporated by reference to Exhibit 10.04 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on January 30, 2012
12.1Computation of Ratio of Earnings to Fixed ChargesFiled herewith
   
21.1 Subsidiaries of the registrant Filed herewith
   
23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm Filed herewith
   
31.1 Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith
   
31.2 Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith
   
32.1 Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith
   
32.2 Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith
101.INSXBRL Instance DocumentFiled herewith




98

*
Unless otherwise noted, all exhibits are incorporated by reference to the Company’s Registration Statement on Form S-1 (File
Exhibit
No. 001-34045).
Description
Location*
101.SCHXBRL Taxonomy Extension Schema DocumentFiled herewith
101.CALXBRL Extension Calculation Linkbase DocumentFiled herewith
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
**Indicates management contract or compensatory plan, contract or arrangement.
* Unless otherwise noted, all exhibits are incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 001-34045).
** Indicates management contract or compensatory plan, contract or arrangement.


99
87

COLFAX CORPORATION AND SUBSIDIARIES
SCHEDULE II—II–VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)


 
Balance at
Beginning
of Period
  
Charged to
Cost and
Expenses (a)
  
Charged to
Other
Accounts (b)
  
Write-offs,
Write-downs
& Deductions
  
Foreign
Currency
Translation
  
Balance at
End of Period
 
Year Ended December 31, 2010                  
Balance at
Beginning
of Period		 
Charged to Cost and
Expense (1)
 
Charged to Other
Accounts (2)
 Write-Offs Write-Downs and
Deductions		 
Acquisitions and Other(3)
 Foreign
Currency
Translation		 Balance at
End of
Period
(In thousands)
Year Ended December 31, 2013:             
Allowance for doubtful accounts $2,837   218   -   (405)  (88) $2,562 $16,464
 $12,707
 $—
 $—
 $2,753
 $(642) $31,282
Allowance for excess, slow-moving and obsolete inventory $8,025   1,942   -   (1,849)  (341) $7,777 
Allowance for excess slow-moving and obsolete inventory9,221
 21,629
 —
 (2,026) 4,207
 (258) 32,773
Valuation allowance for deferred tax assets $45,053   4,407   3,666   (180)  (55) $52,891 357,638
 30,554
 (27,233) (3,373) 2,401
 (1,601) 358,386
                        
Year Ended December 31, 2009                        
Year Ended December 31, 2012:             
Allowance for doubtful accounts $2,486   405   -   (178)  124  $2,837 $2,578
 $13,917
 $—
 $(192) $—
 $161
 $16,464
Allowance for excess, slow-moving and obsolete inventory $6,923   1,368   -   (413)  147  $8,025 
Allowance for excess slow-moving and obsolete inventory6,735
 3,341
 —
 (1,001) —
 146
 9,221
Valuation allowance for deferred tax assets $45,206   (82)  -   -   (71) $45,053 79,855
 103,785
 20,676
 —
 153,322
 —
 357,638
                        
Year Ended December 31, 2008                        
Year Ended December 31, 2011:             
Allowance for doubtful accounts $1,812   828   -   (33)  (121) $2,486 $2,562
 $112
 $—
 $(70) $—
 $(26) $2,578
Allowance for excess, slow-moving and obsolete inventory $7,589   (334)  -   (74)  (258) $6,923 
Allowance for excess slow-moving and obsolete inventory7,777
 181
 —
 (1,258) —
 35
 6,735
Valuation allowance for deferred tax assets $17,776   2,999   24,431   -   -  $45,206 52,891
 16,621
 10,346
 —
 —
 (3) 79,855
____________
(1) Amounts charged to expense are net of recoveries for the respective period.
(2) Represents amount charge to Accumulated other comprehensive loss.
(3) Includes reclassifications related to the Charter Acquisition. The valuation allowance for deferred tax assets during the year ended December 31, 2012 reflects the impact of retrospective adjustments recorded during the year ended December 31, 2013. See Note 4, "Acquisitions" for further discussion.

(a)Net of recoveries.
(b)Amounts charged to other comprehensive income.

100
88