UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A
Amendment No. 1 
(Mark One)

_________________________

Form 10-K

xRANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR
¨
For the fiscal year ended December 31, 2012
OR
£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to_______
For the transition period from             to           

Commission File Number:No. 001-34045

Colfax Corporation
 (Exact

_________________________

COLFAX CORPORATION

(Exact name of registrant as specified in its charter)

DelawareDELAWARE54-1887631
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)(I.R.S. Employer Identification No.)Number)
  
8730 Stony Point Parkway, Suite 150
Richmond, Virginia
8170 MAPLE LAWN BOULEVARD, SUITE 180		2323520759
FULTON, MARYLAND(Zip Code)
(Address of principal executive offices) (Zip Code)
Registrant's

301-323-9000

(Registrant’s telephone number, including area code: 804-560-4070

Securities Registered Pursuant to Sectioncode)

_________________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:

OF THE ACT:

Title of Each ClassTITLE OF EACH CLASS Name of Each Exchange On Which Registered

NAME OF EACH EXCHANGE

ON WHICH REGISTERED

Common Stock, $.001 par value $0.001 per share The New York Stock Exchange
Securities registered pursuant to Section

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:

NONE
(Title of Class)

OF THE ACT:

None

_________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes¨R Nox£

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¨£NoxR


Indicate by check mark whether the Registrantregistrant (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. YesxR No£


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¨R 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.¨R

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¨

Accelerated filer   x
Non-accelerated filer   ¨
Smaller reporting company   ¨
(Do not check if a smaller reporting company)
R Accelerated filer£ Non-accelerated filer£ (Do not check if a smaller reporting company) 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¨£ NoxR

The aggregate market value of common shares held by non-affiliates of the Registrant on July 3, 2009June 29, 2012 was $178,598,119$1.550 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, 2010,February 4, 2013, the number of shares of registrant’sthe Registrant’s common stock outstanding was 43,243,554.

94,079,104.

EXHIBIT INDEX APPEARS ON PAGE 88

94

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant’sRegistrant’s definitive proxy statement for its 20102013 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 20102013 proxy statement specifically incorporated herein by reference, the 20102013 proxy statement is not deemed to be filed as part of this Form 10-K/A.


10-K.


EXPLANATORY NOTE
Overview

Colfax Corporation (the “Company”) is filing this Amendment No. 1 on Form 10-K/A to our annual report on Form 10-K for the year ended December 31, 2009, originally filed on February 25, 2010 (the “Original Form 10-K”), to restate our financial statements and corresponding financial information for the year ended December 31, 2009 for the effect of an overstatement of our pension liability.  The amendment also restates the quarterly financial information included in Note 20 to the consolidated financial statements with respect to each fiscal quarter in the years ended December 31, 2008 and 2009.  The Company does not intend to amend its Quarterly Reports on Form 10-Q for these fiscal quarters.

Restatement

While preparing the 2010 census data for our defined benefit pension plan actuarial valuations, the Company determined that 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.  Because these errors affected the valuation of pension liabilities at the date of the acquisition, goodwill was also overstated.

As a result of the errors, the pension liability was overstated by $21.7 million as of December 31, 2009 and $20.0 million as of December 31, 2008.  Additionally, goodwill was overstated by $3.8 million as of December 31, 2009 and 2008 and shareholder’s equity was understated by $18.0 million as of December 31, 2009 and $14.4 million as of December 31, 2008.  Net income was understated by $2.1 million for the year ended December 31, 2009, $1.1 million for the year ended December 31, 2008, and $0.8 million for the year ended December 31, 2007.  There is no cash flow impact from these errors.  The errors increased other comprehensive income by $1.5 million for the year ended December 31, 2009, had a less than $0.1 million impact on the year ended December 31, 2008, and decreased other comprehensive income by $0.5 million for the year ended December 31, 2007.

This amendment also contains balance sheet reclassifications at December 31, 2009 to reclassify a portion of the asbestos insurance asset from long term to current and to reflect certain property previously recorded in other assets as property, plant and equipment.

The Company is filing amended Quarterly Reports on Form 10-Q/A for the quarter ended April 2, 2010 and the quarter ended July 2, 2010, to correct the errors described above.  Please refer to those amended reports for further discussion of the restatement of those respective periods.

All of the information in this Form 10-K/A is as of February 25, 2010, the date the Company filed the Original Form 10-K with the Securities and Exchange Commission.  This Form 10-K/A continues to speak as of the date of the Original Form 10-K and does not reflect any subsequent information or events other than the restatement discussed in Note 2 to the Consolidated Financial Statements appearing in this Form 10-K/A. Accordingly, this Form 10-K/A should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the Original Form 10-K, including any amendments to those filings.  Among other things, forward-looking statements made in the Original Form 10-K have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Form 10-K, other than the restatement.

For the convenience of the reader, this Form 10-K/A sets forth the Original Form 10-K in its entirety.  No attempt has been made in this Form 10-K/A to modify or update the disclosures in the Original Form 10-K except as required to reflect the effects of the restatement discussed in Note 2 to the Consolidated Financial Statements. However, changes have been made to the following items solely as a result of, and to reflect, the restatement, and no other information in the Form 10-K/A is amended hereby as a result of the restatement:

 

TABLE OF CONTENTS

Item Description Page
     
  Special Note Regarding Forward-Looking Statements 2
     
  PART I  
     
1 Business 4
1A Risk Factors 9
1B Unresolved Staff Comments 21
2 Properties 21
3 Legal Proceedings 21
4 Mine Safety Disclosures 21
  Executive Officers of the Registrant 21
     
  PART II  
     
5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23
6 Selected Financial Data 25
7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
7A Quantitative and Qualitative Disclosures About Market Risk 41
8 Financial Statements and Supplementary Data��43
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 89
9A Controls and Procedures 89
9B Other Information 90
     
  PART III  
     
10 Directors, Executive Officers and Corporate Governance 90
11 Executive Compensation 91
12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 91
13 Certain Relationships and Related Transactions, and Director Independence 91
14 Principal Accounting Fees and Services 91
     
  PART IV  
     
15 Exhibits and Financial Statement Schedules 91
     
  Signatures 92
  Exhibit Index 94

·Part I, Item 1A - Risk Factors

 ·Part II, Item 6 - Selected Financial Data

·Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

·Part II, Item 8 - Financial Statements and Supplementary Data

·Part II, Item 9A - Controls and Procedures


·Part IV, Item 15 - Exhibits and Financial Statement Schedules

In the Original Form 10-K, the Company reported under Item 9A “Controls and Procedures,” that its disclosure controls and procedures were effective.  Management, in consultation with the Audit Committee, has concluded that the errors set forth herein constituted a material weakness in the Company’s internal controls over financial reporting as of the date of the Original Form 10-K.  The revised assessment is included under Part II, Item 9A in this document.

The Company is including currently dated Sarbanes-Oxley Act Section 302 and Section 906 certifications of the Chief Executive Officer and Chief Financial Officer that are attached to this Form 10-K/A as Exhibits 31.1, 31.2, 32.1 and 32.2.


TABLE OF CONTENTS
PAGE
PART I 
Item 1.Business2
Item 1A.Risk Factors10
Item 1B.Unresolved Staff Comments19
Item 2.Properties19
Item 3.Legal Proceedings19
Item 4.Submission of Matters to a Vote of Security Holders19
Executive Officers of the Registrant19
PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities20
Item 6.Selected Financial Data22
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations23
Item 7A.Quantitative and Qualitative Disclosures About Market Risk41
Item 8.Financial Statements and Supplementary Data42
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure83
Item 9A.Controls and Procedures83
Item 9B.Other Information84
PART III
Item 10.Directors, Executive Officers and Corporate Governance84
Item 11.Executive Compensation84
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters84
Item 13.Certain Relationships and Related Transactions, and Director Independence85
Item 14.Principal Accountant Fees and Services85
PART IV
Item 15.Exhibits and Financial Statement Schedules85


Unless otherwise indicated, references in this Annual Report on Form 10-K/A10-K (this “Form 10-K”) to “Colfax”, “the 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, including the current global economic downturn, 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 ability to successfully integrate Charter International plc (“Charter”);

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;

the amount of and our ability to estimate our asbestos-related liabilities;

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 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;

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;

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;

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 abilitytax rates or exposure to identify, finance, acquire and successfully integrate attractive acquisition targets;
the amount of and our ability to estimate our asbestos-relatedadditional income tax liabilities;
material disruption at any of our significant manufacturing facilities;
the solvency of our insurers and the likelihood of their payment for asbestos-related claims;

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

our financial performance;

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our ability to identify, address and remediate any material weaknesses 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/A.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 the Originalthis Form 10-K wasis 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/A10-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, 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. Over the subsequent seven years, we made six strategic acquisitions in this sector: Lubrication Systems Company (“LSC”), Fairmount Automation, Inc. (“Fairmount”), 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 by Colfax (the “Charter Acquisition”), which transformed Colfax from a fluid-handling business into a multi-platform enterprise with a strong global footprint. We expect that this acquisition will:

enhance our business profile by providing a meaningful recurring revenue stream and considerable exposure to emerging markets;


enable Colfax to benefit from strong secular growth drivers, with a balance of short- and long-cycle businesses; and

provide an additional growth platform in the fragmented fabrication technology industry, while broadening the scope of our fluid-handling platform to include air- and gas-handling products.

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

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 September 2012, we acquired Co-Vent Group Inc. (“Co-Vent”), a leading supplier of industrial fans based in Quebec, Canada.

In October 2012, we acquired approximately 91% of Soldex S.A. (“Soldex”), a leading South American supplier of welding products.

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, is our business management system. It is a repeatable, teachable process that we use to create superior value for our customers, shareholders and associates. Rooted in our core values, it is our culture. CBS focusesprovides the tools and techniques to ensure that we are continuously improving our ability to meet or exceed customer requirements on conducting root-cause analysis, developing process improvementsa consistent basis.

Each year, Colfax associates in every business are asked to develop aggressive strategic plans which are based on theVoice of the Customer. In these plans, we are very clear about our market realities, our threats, our risks, our opportunities and implementingmost importantly, our vision forward. Execution and measurement of our plans is important to the process. Our belief is that when we use the tools 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 customers and Colfax grow and succeed on a sustainable systems. Our approach addressesbasis.

Reportable Segments

Upon the entire business, not just manufacturing operations.


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 currently serve markets that have a need for highly engineered, criticalnow report our operations through the gas- and fluid handling solutionsand fabrication technology segments. For certain financial information, including Net sales and long-lived assets by geographic area, see Note 17, “Segment Information” in the accompanying Notes to Consolidated Financial Statements in this Form 10-K.

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 globalmanufactured and engineered in scope.facilities located in Asia, Europe, North and South America, Australia and Africa. Our strategic markets include:


Strategic Markets
Applications
Commercial MarineFuel oil transfer; oil transport; 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 NavyFuel 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 servefluid-handling products are marketed principally under the Colfax Fluid Handling brand name, as well as a global customer base across multiple markets through a combinationportfolio 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, General Electric Company, Northrup Grumman Corporation, Siemens AG, Rolls-Royce Group plc, 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 2009, no single customer represented more than 4% of sales.

Our business began with an initial investment by our founders in 1995 with the intention 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 and improvements in operating margins.

2

Since our platform acquisitions ofincluding Allweiler, 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 June 2004, we acquired the net assets of Zenith, a leading manufacturer of precision metering pumps for the general industrial market.

·In August 2004, we acquired the net assets of Portland Valve, a manufacturer of specialty valves used primarily for naval applications.

·In August 2005, we acquired Tushaco, a leading manufacturer of rotary positive displacement pumps in India.
·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 addition to our acquisitions, in 2005 we opened a greenfield production facility in Wuxi, China toTotal Lubrication Management. We manufacture and assemble completeour fluid-handling products at locations in Europe, North America and Asia.

Our gas- and fluid-handling products and systems for our customers in Chinaservices are generally sold directly, though independent representatives and other Asian markets and 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 $139 billion in 2008. Within this market, we primarily compete in the estimated $3 billion global rotary positive displacement pump market, a sub-section of the estimated $12 billion positive displacement pump market. Wedistributors 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 over 5m, and with a competitorvariety 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 the estimated $19 billion centrifugal pump market and the estimated $68 billion valve market.


We believe that there are over 10,000 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 capabilitiessize from fans for packaged cooling systems to meet customer specifications, offer products with reputationsfans up to 25m diameter 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 believe 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 that 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.
Extensive Global Sales, Distribution and Manufacturing Network.   We sell our products through more than 300 direct sales and marketing associates and approximately 250 authorized distributors in more than 100 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 ability to optimize material sourcing, transportation and production costs and reduce foreign currency risk.

3
We Use CBS to Continuously Improve Our Business.   CBS is our business system designed to encourage a culture of continuous improvement in all aspectscooling towers. Each of our operationscooling fan designs has its own unique characteristics in terms of efficiency, noise levels and strategic planning. Modeled onapplication. We have developed our cooling fans over the Danaher Business System, CBS focuses on conducting root-cause analysis, developing process improvementslast 50 years, 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, 2009, 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 76% of our sales in 2009 were delivered to customers outside of the U.S. In addition, no single customer represented more than 4% of our sales during this period.
Management Team with Extensive Industry Experience and Focus on Strategic Development.   We are led by a senior management team with an average of over 20 years of experience in industrial manufacturing. Since 1995, we have acquired 13 companies and divested businesses that do not fit within our long-term growth strategy. 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:
Ÿ
Apply CBS to Drive Profitable Sales Growth and Increase Shareholder Value.    The core element of our management philosophy is CBS, which we implement in each of our businesses. 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 our activities to continuously improve customer service, product quality, delivery and cost. The Voice of the Customer is instrumental in the development of new products, services and solutions by utilizing a formal interview process with the end users of our products 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, we see 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 methodology of CBS to our existing businesses as well as to future acquisitions, we believe that we will be able to continue to introduce innovative new 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 navy 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 extend LSC’s presence within the refinery market through increased market coverage and intend to broaden LSC’s core lubrication offerings for new applications. 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 thispetroleum, petrochemical, refrigeration and other markets where performance and reliability are crucial. Our product line includes screw, piston (reciprocating) and diaphragm process gas compressors as well as highly efficient turbo blowers and compressors capable of the most demanding end market we intendconditions. Howden designed and supplied the first diaphragm compressor and was the first company to continue our growth ascommercialize screw compressor technology.

Rotary Heat Exchangers

Rotary regenerative heat exchangers provide a provider of turnkey systems by utilizing our expertisecompact, cost effective and reliable solution for heat recovery in power generationplant and flue gas desulphurization systems. With over 80 years experience, Howden supplies highly efficient and reliable air preheaters for power boiler 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 Navy— For over 90 years we have supplied our specialty centrifugalrotary regenerative heat exchangers 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 have 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 solutionsreplacement element baskets 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.

Ÿ
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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To further enhance our focus on serving our customers, we have developed and are in the process of implementing the Colfax Sales Office (“CSO”), a web-based selection, configuration, quotation, order entry and aftermarket tool to streamline the quote-to-order process. We believe that CSO, when fully installed, will significantly increase the speed of supplying quotes to our customers and will reduce our selling costs and increase our manufacturing efficiency. This is expected to be accomplished by eliminating many manual front-end processes and establishing an integrated, automated platform across brands to capture sales that otherwise would be lost due to increased response times.

Ÿ
Develop New 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.

To further align our product innovation efforts across our operations, we have established a global engineering center of excellence located at our office in Mumbai, India, which collaborates with our global operations to design new products, modify existing solutions, identify opportunities to reduce manufacturing costs and increase the efficiency of our existing product lines. We believe that we will be able to reallocate select engineering functions to our engineering centers, thereby freeing resources to spend time on higher value work.

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 and 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.
We believe that we can identify attractive acquisition candidates in the future and that strategic acquisition growth will give us the opportunity to gain a competitive advantage relative to smaller operators through greater purchasing power, a larger international sales and distribution network, and a broader portfolio of products and services.

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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, global navy and commercial construction
Fluid Handling SystemsAllweiler, Fairmount, Houttuin, Imo, LSC and WarrenCommercial marine, oil and gas, power generation and global navy
Specialty ValvesPortland ValveGlobal navy

rotary regenerative heat exchangers.

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.

Fluid Handling

Fluid-Handling Systems


We manufacture complete fluid handlingfluid-handling systems used primarily in the oil and gas, power generation, commercial marine and global navydefense markets. We offer turnkey systems and support, including design, manufacture, installation, commission and service. Our systems include:

Ÿoil mist lubrication 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;

Ÿcomplete packages for commercial marine engine rooms; and

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,Chula Vista, California.


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Manufacturing

Total 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, petrochemical, natural gas and power generation. 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.

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, 2012, welding consumables represented approximately 39% 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 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 units to large custom systems. Products are sold into a wide range of end markets, including 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 ofIndustry and Competition,International Operations,Research and Development,Intellectual Property,Raw Materials andBacklog,Seasonality,Working Capital,Associates,Government Contracts andCompany 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. We believe that this flexibility enables us to minimize the impact of a manufacturing disruption if one of our facilities was to be damaged as a result of a natural disaster or otherwise. 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
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.

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. We believe that the commercial marine market, we compete primarilyCharter Acquisition has increased our presence in developing countries and expect that our revenues in future years will be almost equally balanced between developed countries and emerging markets.

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 navy 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:

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.

Expendituresproducts.

Research and development expense was $19.4 million, $5.7 million and $6.2 million in 2012, 2011 and 2010, respectively. We expect to continue making significant expenditures for research and development for the years ended December 31, 2009, 2008in order to maintain and 2007 were $5.9 million, $5.9 million and $4.2 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.


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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 18 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 both the United States and other countries, and weglobally based. We believe that our sources of raw materials are adequate for our needs for the foreseeable future. We believe thatfuture and the loss of any one supplier would not have a material adverse effect on our business or results of operations.


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 based on the actual requested delivery dates.years. Backlog of gas- and fluid-handling orders as of December 31, 20092012 was $290.9 million,$1.4 billion, compared with $349.0 million$1.3 billion of proforma order backlog as of December 31, 2008. We expect to ship approximately 70% of2011.

Seasonality

As our December 31, 2009 backlog during 2010; however, orders are subject to postponement or cancellation.


Seasonality

Our fluid handling business is seasonal. As ourgas- 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; however, the global economic downturn has disrupted this pattern.quarter. Also, all of our European operations typically experience a slowdown during the July and August holiday season.
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:

  December 31, 
  2009  2008  2007 
United States  598   739   701 
Europe  1,189   1,276   1,219 
Asia  254   299   262 
Total  2,041   2,314   2,182 

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There

  December 31, 
  2012  2011  2010 
    
North America  2,805   728   638 
Europe  6,107   1,232   1,260 
Asia and Middle East  4,397   251   262 
Central and South America  2,424   —   — 
Other  553   —   — 
Total associates  16,286   2,211   2,160 

Approximately 2% of associates are 42 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 48%45% 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 4%1% of our revenue in 2009.2012. 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 8730 Stony Point Parkway,8170 Maple Lawn Boulevard, Suite 150, Richmond, Virginia 23235,180, Fulton, MD 20759, and our main telephone number at that address is (804) 560-4070.(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, 8730 Stony Point Parkway,8170 Maple Lawn Boulevard, Suite 150, Richmond, VA 23235,180, Fulton, MD 20759, telephone (804) 560-4070.(301) 323-9000. Information contained on our website is not incorporated by reference in this report.


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/A10-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 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 including the current global economic downturn, 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.


Our

Colfax'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 impact these markets. Any sustained weakness in demand for our products and services resulting from a downturn of or uncertainty in the global economy could continue to 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.  The current global economic downturn may continue to materially affect demand for our products and we may not be able to predict the effect on our results. 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.


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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. If the current conditions impactingour customers lack liquidity or are unable to access the credit markets, and general economy continue,it may impact customer demand for our products and services and we may continue tonot be negatively affected and orders may be canceled or delayed, which could materially impact our financial position, results of operations and cash flow.  Further, lack of liquidity by our customers could impact our abilityable to collect amounts owed to usus.

Further, our products are sold in many industries, some of which are cyclical and lackmay 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.

The occurrence 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, 2009, we derived approximately 66% of our sales from operations outsideany of the U.S. and have manufacturing facilities in seven 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;

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.
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, 2009, approximately 66% 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, depreciation 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.

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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 would 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:

identify suitable acquisition candidates;
negotiate appropriate acquisition terms;

obtain 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.
Ÿidentify suitable acquisition candidates;
Ÿnegotiate appropriate acquisition terms;
Ÿobtain debt or equity financing that we may need to complete proposed acquisitions;
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, acquisitions

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

Acquisitions, including the Charter Acquisition, 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’businesses' 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.


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Once integrated, 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.

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 not achieve levelsbe adversely affected.

Acquisitions may result in significant integration costs, and unanticipated integration expense may harm our business, financial condition and results of revenue, profitability or productivity comparableoperations.

Integration efforts associated with those that our existing operations achieve, oracquisitions may otherwise not perform asrequire significant capital and operating expense. Such expenses may include transaction, consulting and third-party service fees. For example, during the year ended December 31, 2012, we expected.


incurred a total of $43.6 million of professional service fees and other expenses related to the Charter Acquisition. 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 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 a combination of cash, capital stock, notes, and assumption of indebtedness.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 equity markets and in our stock price may make it difficult for us to access the equity markets for additional capital at attractive prices, if at all. If we are unable to obtain sufficient additional capital in the future, it willmay limit our ability to implement fully our business strategy. Continued issues resulting from the current global economic downturn involving liquidity and capital adequacy affecting lenders could affect our ability to fully access our existing credit facilities. In addition, evenEven 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, itissuances of our equity securities may dilute the equity interests of our existing stockholders.


In addition, our credit facility agreement includes restrictive covenants which could limit our financial flexibility. IfSee “—The Deutsche Bank Credit Agreement contains restrictions that may limit our flexibility in operating our business.”below.

Our restructuring activities may subject us to additional uncertainty in our operating results.

We have implemented, and plan to continue to implement, restructuring programs designed to facilitate key strategic initiatives and maintain long-term sustainable growth. As such, we do not maintain compliance with these covenants, our creditors could declare a default. Our abilityhave incurred and expect to comply with the provisions of our indebtedness may be affected by changes in economic or business conditions beyond our control.

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

If operations at our manufacturing facilities wereincur increased expense relating to be disruptedrestructuring activities both as a result of significant equipment failures, natural disasters, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other reasons,the Charter Acquisition and within 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 require us to make substantial capital expenditures to remedy the situation, which could negatively affect our profitability and financial condition.operations generally. 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.

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

We may be adversely affected ifanticipated savings we lose members of our senior management. We are highly dependent on our senior management team as a result of their extensive experience. The loss of key management or the inability to attract, retain and motivate sufficient numbers of qualified management personnel could have a material adverse effect on us and our business.
expect from restructuring activities.

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.

Two of ouroperations.

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 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 our manufacturing facilities were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, terrorism, cyber-based attacks, 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 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.

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 in 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.

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 policies 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.

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Our foreign subsidiaries

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.


From

Certain 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 in 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 berecently have 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. 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.


In addition, one

One 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, 2010. As a result of these sales, we may be subject to fines or other sanctions.

Further, during the 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. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Disclosure under Section 13(r)(1)(D)(iii) of the Exchange Act.”

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 States 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 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.

Approximately 48% The occurrence of any of the foregoing could have a material and adverse effect on our business, financial condition and results of operations.

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, 2012, we derived approximately 80% of our sales from operations outside of the U.S. and we have principal manufacturing facilities in 20 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 or may not 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, 2009,2012, approximately 47% of our employees were represented by a number of different trade unions and works councils. Further, as of that date, we had 1,365approximately 13,500 employees, representing 83% 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.

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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, as

As 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 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.

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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; generation, storage, transportation and disposal of regulated wastes; and 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 to 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.

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 developmentoccurrence of new technologies by competitors that may compete with our technologies could reduce demand for our products and affect our financial performance.


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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 interestsany of the other holdersforegoing could have a material and adverse effect on our business, financial condition and results of our common stock with respect to our operations or strategy.operations.

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The market priceloss of our common stock may experiencekey leadership could have 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, 2009, 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, 2009, we had 43,229,104 shares of common stock outstanding. The average daily trading volume in our common stock during the period from January 1, 2009 to December 31, 2009 was approximately 210,000 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.

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 tomaterial adverse 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 utilizerun our net operating loss carryforwards and other U.S. deferred tax assets in future periods.
If the recent global economic decline persists for a prolonged period of time, 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 $54.4 million as of December 31, 2009. 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 allowancesbusiness.

We may be recorded which would negatively affectadversely affected if we lose members of our results of operations.



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In addition, we believe we experienced an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended,senior leadership. We are highly dependent on our senior leadership team as a result of their expertise in our May 2008 IPO. Ourindustry and our 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 our business, financial condition and results of operations.

The Deutsche Bank Credit Agreement contains restrictions that may limit our flexibility in operating our business.

The Deutsche Bank Credit Agreement contains various covenants that will limit our ability to useengage in specified types of transactions. These covenants would limit our NOLs existing at the timeability to, among other things:

incur additional indebtedness;

pay dividends on, repurchase or make distributions in respect of, the ownership changecapital stock of Colfax and its wholly-owned subsidiaries;

make certain investments;

create liens on certain assets to offset any taxable income generated in taxable periods aftersecure 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 ownership change is subjectDeutsche Bank Credit Agreement, we are required to satisfy and maintain compliance with a total leverage ratio and an annual limitation.interest coverage ratio. The amount of NOLs that we may utilize on an annual basis under Section 382 would generally be equal to the product of the value of our outstanding stock immediately prior to the ownership change (less certain capital contributions during the preceding two years)Deutsche Bank Credit Agreement's various covenants and the “long term tax exempt rate”additional leverage taken on by us could increase our vulnerability to general economic slowdowns which was 4.71% for May 2008. The amount of NOLs existing as of the time of the ownership change is estimated to be $65.3 millioncould have a materially adverse effect on our business, financial condition and will begin to expire in 2021.


Our results of operations could vary as a result of the methods, estimates and judgments we use in applying our accounting policies.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Policies 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 businesses acquired declines, 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.


Ourresults of operations.

We 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 cash flow.

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, 2012, 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 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.

We have identifiedgenerally 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 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 and results of operations. In addition, delays in delivery of components or raw materials by suppliers could cause delays in our delivery of products to our customers.

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, we may be subject to cyber-based attacks and security breaches, which could result in unauthorized disclosure of confidential information or damage to our information technology networks and systems if our efforts to mitigate or otherwise contain any attacks or breaches are unsuccessful. 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.

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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 weaknessadverse effect on our business, financial condition and results of operations.

Changes in our internal control over financial reporting. If our internal controls are not effective, investorstax rates or exposure to additional income tax liabilities could lose confidence inadversely affect our financial reporting.

results.

Our management had previously concluded that our internal control over financial reporting wasfuture 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 equivalents as of December 31, 2009. 2012 includes $396.5 million held in jurisdictions outside the U.S., which may be subject to tax penalties and other restrictions if repatriated into 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 restatementCharter Acquisition, we issued a total of 20,182,293 shares of Colfax Common stock to correctBDT 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 2003 registration rights agreement, as amended. 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. 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, we sold 9,000,000 shares 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.

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;

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.

The 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 the Amended and Restated Certificate of Incorporation which sets forth the authorized number of members of our Board and the BDT Investor's nomination rights in respect of members of our Board. The above factors could limit our financial statementsand 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 owned by the BDT Investor represent approximately 22% of the voting rights in respect of the Company's issued share capital. The 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 effects of an overstatementvote of our pension liability, discussedstockholders. 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 Note 2the 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 consolidated financial statements includedAudit 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 sets forth the authorized number of members of our Board and the BDT Investor’s nomination rights in Part IIrespect 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 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 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. Although the BDT Investor holds more than 20% of our outstanding voting stock, this report, management determinedprovision of Delaware law does not apply to it.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

Our corporate headquarters are located in Fulton, Maryland in a material weakness in internal control over financial reporting existed asfacility that we lease. As of December 31, 2009. Accordingly, management has now concluded that2012, our internal control over financial reporting was not effective as of December 31, 2009. Also, as described in “Part II—Item 9A. Controlsgas- and Procedures” of this report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2009.

Subsequent to the period covered by this report, management has implemented measures to remediate the material weakness set forth above. Specifically, we have implemented procedures to enhance review of participant data for benefit plans. As part of the Company’s 2010 assessment of internal control over financial reporting, management will conduct sufficient testing and evaluation of the implemented controls to ascertain whether they are designed and operating effectively. We believe the implemented controls will remediate the above identified material weakness.
Although we believe we have taken appropriate actions to remediate the material weakness discussed above, we cannot assure you that we will not discover other material weaknesses in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in implementation, could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. In addition, substantial costs and resources may be required to rectify any internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our common stock could decline significantly, and our business and financial condition could be harmed.

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ITEM 1B.UNRESOLVED STAFF COMMENTS
None
ITEM 2.PROPERTIES

We have 14fluid-handling reportable segment had 7 principal production facilities in seven countries. The following table liststhe U.S. representing approximately 760,000 and 36,000 square feet of owned and leased space, respectively, and 29 principal production facilities in 13 different countries in Asia, Europe, Central and South America, Australia, and South Africa. Additionally, our primaryfabrication technology operating segment has a total of 4 production facilities at December 31, 2009, indicatingin the location,U.S., representing a total of 1.3 million square footage, whetherfeet of owned space and 27 outside the U.S., representing a total of 8.1 million and 1.2 million square feet of owned and leased facilities, are owned or leased,respectively, in over 13 countries in Central and principal use.
LocationSq. FootageOwned/LeasedPrincipal Use
Richmond, Virginia10,200LeasedCorporate headquarters
Hamilton, New Jersey2,200LeasedSubsidiary headquarters
Columbia, Kentucky75,000OwnedProduction
Warren, Massachusetts147,000OwnedProduction
Monroe, North Carolina170,000OwnedProduction
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
Vapi, India16,000LeasedProduction
Wuxi, China60,000LeasedProduction
ITEM 3.LEGAL PROCEEDINGS
Eastern Europe, Central and South America and Asia.

Item 3.Legal Proceedings

Discussion of legal matters is incorporated by reference to Part II, Item 8, Note 19,16, “Commitments and Contingencies,” in the Notes to the Consolidated Financial Statements.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2009.

Item 4.Mine Safety Disclosures

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 5457 President and Chief Executive Officer and Director, Colfax Corporation
Mario E. DiDomenicoC. Scott Brannan 58Senior Vice President, General Manager—Engineered Solutions
G. Scott Faison4854 Senior Vice President, Finance, and Chief Financial Officer and Treasurer
Dr. Michael MatrosClay H. Kiefaber57Executive Vice President, Chief Executive Officer, ESAB Global and Director, Colfax Corporation
Ian Brander51Chief Executive Officer, Howden
William E. Roller50Executive Vice President, Colfax Fluid Handling
Lynn Clark55Senior Vice President, Global Human Resources
Daniel A. Pryor 44 Senior Vice President, General Manager—AllweilerStrategy and Business Development
Joseph B. NiemannA. Lynne Puckett 48Senior Vice President, Marketing and Strategic Planning
Thomas M. O’Brien5950 Senior Vice President, General Counsel and Secretary
William E. RollerStephen J. Wittig 4750 Senior Vice President, General Manager—Americas
Steven W. Weidenmuller46Senior Vice President, Human ResourcesColfax Business System and Supply Chain Strategy
Clay H. Kiefaber became the

Steven E. Simms has been President and Chief Executive Officer since April 2012. He has served as a Director of Colfax since July 2011. Mr. Simms also served as Chairman of the Board of Directors of Apex Tools and is a former Executive Vice President of Danaher Corporation.  Mr. Simms held a variety of leadership roles during his 11-year career at Danaher. He became Executive Vice President in January2000 and served in that role through his retirement in 2007, during which time he was instrumental in Danaher’s international growth and success. He previously served as Vice President–Group Executive from 1998 to 2000 and as 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 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 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. Kiefaberis 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 2008.2008 and was previously the President and Chief Executive Officer of Colfax from January 2010 through April 2012. Before joining Colfax in January 2010,Colfax‚ he spent nearly 20 years in increasingly senior executive positions at Masco Corporation (“Masco”).Corporation. Most recently,recently‚ he was a Group President from 2006 to 2007,President‚ where he was responsible for a $2.8 billion group of building construction components.architectural coatings‚ windows‚ and spa business units. Prior to becoming a Group President at Masco,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.


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Mario Mr. Kiefaber holds an M.B.A. degree from the University of Colorado and a B.A. degree from Miami University.

Ian Branderhas 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.

William E. DiDomenicoRoller has served as our Executive Vice President, Colfax Fluid Handling since November 2010. He most recently served as Executive Vice President‚ Colfax Americas and was responsible for Colfax’s business in the Americas as well as the global oil & gas and defense solutions organizations. He joined our companyColfax in 1998 with1999 as General Manager‚ Imo Pump. In addition to Imo Pump‚ he managed Zenith Pump‚ LSC and Baric Group upon the acquisition of Imo. Since that timethose businesses. He joined Colfax from Precision Auto Care‚ Inc. where he has served aswas 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 ManagerVirginia Polytechnic Institute and State University‚ with a B.S. in Chemical Engineering and an M.B.A. from the University of Operations for Warren Pump, Vice President—2 Screw Pumps and subsequentlyVirginia Darden School.

Lynn Clarkjoined Colfax Corporation in 2013 as Senior Vice President, General Manager—Engineered Solutions, which also includes Portland Valve, Fairmount and Tushaco following the acquisitions of those businesses.

G. Scott Faison has been the Senior Vice President, Finance and Chief Financial Officer since January 2005.
Dr. Michael Matros joined Allweiler in 1996 as a project manager in Research and Development. From 1996 until 2006, Dr. Matros has held several positions at Allweiler with increasing responsibilities, including Director of Research and Development and the Plant Manager of our Allweiler facility in Radolfzell, Germany. In April 2006, Dr. Matros was appointed to his current position as Senior Vice President, General Manager—Allweiler. In November 2006, Dr. Matros was appointed as a member of the management board at our German subsidiary, Allweiler AG.
Joseph B. Niemann joined us in 2006 as Senior Vice President of Marketing and Strategic Planning.Global Human Resources. 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.

Daniel A. Pryor has served as our Senior Vice President‚ Strategy and Business Development since January 2011. 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 Mr. Niemann wasand 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 The Carlyle Group‚ he spent 11 years at Danaher Corporation in roles of increasing responsibility‚ most recently as Vice President Marketing & eBusiness of Emerson Climate Technologies, a subsidiary of Emerson Electric Company, where he was employed– Strategic Development. Mr. Pryor earned his M.B.A. from 1990 to 2005.

Thomas M. O’BrienHarvard Business School and his B.A. in Economics from Williams College.

A. Lynne Puckett has served as our Senior Vice President, General Counsel and Secretary since January 1998.September 2010. Prior to joining Colfax‚ she was a Partner with the law firm of Hogan Lovells 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.

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William E. Roller

Stephen J. Wittig has served as ourbeen the Senior Vice President, General Manager—AmericasColfax Business System and Supply Chain Strategy since June 1999.August 2011. Prior to joining Colfax, Americas includes Imo as well as Zenith and LSC followinghe was the acquisitions of those businesses.

Steven W. Weidenmuller has served as Senior Vice President Human Resources since 2002.
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).

PART II

ITEMItem 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarket 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, 2010,February 4, 2013, there were approximately 7,30018,916 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:


  2009  2008 
  High  Low  High  Low 
First Quarter $13.22  $5.33   N/A   N/A 
Second Quarter $9.48  $6.05  $25.76  $20.01 
Third Quarter $12.66  $7.21  $28.35  $14.73 
Fourth Quarter $13.91  $10.22  $18.16  $5.58 

  Year Ended December 31, 
  2012  2011 
  High  Low  High  Low 
First Quarter $37.64  $27.61  $23.50  $17.79 
Second Quarter $35.56  $26.01  $25.34  $20.46 
Third Quarter $36.79  $24.43  $28.75  $20.10 
Fourth Quarter $40.52  $33.14  $32.69  $17.90 

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.


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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 since the date of our initial public offering on May 8, 2008. The graph assumes that $100 was invested on May 8, 2008 in each of our Common stock, the Russell 2000 Index and the S&P Industrial Machinery Index, and that all dividends were reinvested.

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 2009.


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2012, 2011 or 2010.

Item 6.Selected Financial Data

  Year Ended and As of December 31, 
  2012(1)  2011(2)  2010(3)  2009(4)  2008(5) 
  (In thousands, except per share data) 
Statement of Operations Data:                    
Net sales $3,913,856  $693,392  $541,987  $525,024  $604,854 
Cost of sales  2,761,731   453,293   350,579   339,237   387,667 
Gross profit  1,152,125   240,099   191,408   185,787   217,187 
Selling, general and administrative expense  895,452   162,761   133,507   116,240   125,190 
Initial public offering-related cost  —   —   —   —   57,017 
Charter acquisition-related expense  43,617   31,052   —   —   — 
Restructuring and other related charges  60,060   9,680   10,323   18,175   — 
Asbestos coverage litigation expense  12,987   10,700   13,206   11,742   17,162 
Operating income  140,009   25,906   34,372   39,630   17,818 
Interest expense  91,570   5,919   6,684   7,212   11,822 
Provision for income taxes  90,703   15,432   11,473   8,621   5,465 
Net (loss) income  (42,264)  4,555   16,215   23,797   531 
Less: income attributable to noncontrolling interest, net of taxes  22,138   —   —   —   — 
Dividends on preferred stock  18,951   —   —   —   3,492 
Net (loss) income available to Colfax Corporation common shareholders $(83,353) $4,555  $16,215  $23,797  $(2,961)
Net (loss) income per share—basic and diluted $(0.92) $0.10  $0.37  $0.55  $(0.08)
                     
Balance Sheet Data:                    
Cash and cash equivalents $482,449  $75,108  $60,542  $49,963  $28,762 
Goodwill and Intangible assets, net  2,853,279   245,873   200,636   175,370   175,210 
Total assets  6,129,727   1,088,543   1,022,077   1,006,301   907,550 
Total debt, including current portion  1,728,311   111,518   82,500   91,485   97,121 

__________

ITEM 6.SELECTED FINANCIAL DATA
(in thousands, except per share information)
  Year ended December 31, 
  
2009
Restated
  
2008
Restated
  
2007
Restated
  
2006
Restated
  
2005
Restated
 
Statement of Operations Data:               
Net sales $525,024  $604,854  $506,305  $393,604  $345,478 
Cost of sales  339,237   387,667   330,714   256,806   222,353 
Gross profit  185,787   217,187   175,591   136,798   123,125 
Initial public offering-related costs  -   57,017   -   -   - 
Selling, general and administrative expenses  112,503   124,105   97,426   78,964   73,542 
Research and development expenses  5,930   5,856   4,162   3,336   2,855 
Restructuring and other related charges  18,175   -   -   -   - 
Asbestos liability and defense (income) costs  (2,193)  (4,771)  (63,978)  21,783   14,272 
Asbestos coverage litigation expenses  11,742   17,162   13,632   12,033   3,840 
Operating income  39,630   17,818   124,349   20,682   28,616 
Interest expense  7,212   11,822   19,246   14,186   9,026 
Provision for income taxes  8,621   5,465   39,457   4,298   6,666 
Income from continuing operations  23,797   531   65,646   2,198   12,924 
Net income (1)
 $23,797  $531  $65,646  $801  $13,540 
                     
Net income (loss) per share from continuing operations — basic and diluted $0.55  $(0.08) $1.82  $0.10  $(0.03)

  December 31, 
  
2009
Restated
  
2008
Restated
  
2007
Restated
  
2006
Restated
  
2005
Restated
 
Balance Sheet Data:               
Cash and cash equivalents $49,963  $28,762  $48,093  $7,608  $7,821 
Goodwill and intangibles, net  175,370   175,210   181,517   150,395   145,957 
Asbestos insurance asset, including current portion  389,449   304,015   305,228   297,106   261,941 
Total assets  999,401   907,550   899,522   792,018   696,738 
Asbestos liability, including current portion  443,769   357,258   376,233   388,920   338,535 
Total debt, including current portion (2)
  91,485   97,121   206,493   188,720   158,454 

(1)Includes net (loss) incomeDuring 2012, we completed the acquisitions of Charter, Soldex and Co-Vent and increased our ownership of ESAB India Limited (“ESAB India”) and CJSC Sibes. The Charter Acquisition transformed Colfax from discontinued operations of $(1.4) million and $0.6 million in the years ended December 31, 2006 and 2005, respectively.
(2)See Note 13a fluid-handling business into a multi-platform enterprise with a strong global footprint, which makes financial comparison to our Consolidated Financial Statements for information regarding the refinancing of the Company’s debtprevious 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.

We

(2)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.

(3)In August 2010, we acquired Baric. 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 2009, we acquired PD Technik for $1.3 million, net of cash acquired. See Part I, Item 1. “Business” in this Form 10-K for additional information.

(5)In May 2008, we refinanced our Debt in conjunction with our initial public offering.

Item 7.Management’s Discussion and Analysis of PD-Technik in 2009, FairmountFinancial Condition and LSC in 2007 and Tushaco in 2005. See Item 1. Business and Note 5 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
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
§Results of Operations
Liquidity and Capital Resources
§Liquidity and Capital Resources
Critical Accounting Policies
§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,” 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/A.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.”


The

Overview

Please see Part I, Item 1. “Business” for a discussion of Colfax’s objectives and methodologies for delivering shareholder value. 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 following discussion gives effectreportable segments:

·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 restatement oftwo reportable segments and intersegment eliminations are reported under the Company's consolidated financial statements as discussed in Note 2 to the Company's consolidated financial statements in Part II, Item 8.


Overview
heading “Corporate and other.”

Colfax Corporation ishas a global supplier 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 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 principally under the Allweiler, 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 markets in which we participate, with Allweiler dating back to 1860. We have 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; oil transport; 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 NavyFuel 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.

23

Our

We 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 and improvements in operating margins.


consistent basis.

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. The current global economic downturn had a significant impact on our sales and operating profit in 2009 when compared to 2008.base. Our order rates declined significantly in 2009 and if current economic conditions continue, our business results will continuemix is expected to be negatively affected. In addition, we have had project delivery push-outs as well as order cancellations that may continuebalanced between long- and short-cycle businesses, sales in 2010. We will continueemerging markets and developed nations and fore- and aftermarket products and services. Given this balance, management no longer uses indices other than general economic trends to predict the overall outlook for the Company. Instead, the individual businesses monitor general global economic conditionskey competitors and expectcustomers, including to 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 decline in orders in 2009 and our current backlog, we expectextent possible their sales, to decline in 2010 from 2009 levels. We are also likely to have additional order cancellations as well as delivery date extensions ingauge relative performance and outlook for 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, a reduction in capital investment by our customers due to recent weak economic conditions and volatile oil prices has been negatively impacting sales and orders. Projects that were delayed in 2009 are being restarted and we expect sales to be at levels in 2010, while we expect growth in orders.
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. In 2010, we expect both sales and orders to be at similar levels versus 2009.
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 2010 and expect orders to decline asfuture.

As a result of the significant growth in orders in 2009Charter Acquisition, we face a number of challenges and opportunities, including 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 2009 declined compared to 2008 in all submarketssuccessful integration, application and most significantly in the chemical, distribution, machinery support and building products markets and in portions of the general industrial market, primarily in Europe and North America. We expect growth in both orders and sales in 2010.
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 plan to continue to invest in sales and marketing resources to increase our overall coverage.
We will also continue to target aftermarket opportunities in our strategic markets as we generally are able to generate higher margins on aftermarket parts and service than on foremarket opportunities. For the year ended December 31, 2009, aftermarket sales and services represented approximately 24%expansion of our revenues.
24
CBS tools to improve margins and working capital management, rationalization of assets and back office functions, and consolidation of manufacturing facilities.

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

Based on declining orders and our culture of continuous improvement, we initiated a series of restructuring actions during 2009 to better position the Company’s cost structure for future periods. We continue to monitor order rates and will adjust our manufacturing capacity and cost structure as demand warrants.

Results of Operations

Key Performance Measures

The following discussion of our resultsResults of operations that follows focuses on someOperationsaddresses 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 (loss) before Restructuring and Orders.”

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.
other related charges.

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 and liabilities,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, 2009,During 2012, approximately 76%83% 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, 2009, are2012 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 and the Swedish Krona.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 into our discussion of our operations.

25
discussion.

Economic Conditions in Strategic Markets

Our organic growth and profitability strategy focuses on five strategic markets: commercial marine, oil and gas, power generation, global navy 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, we believe the diversity of these markets may limitCharter Acquisition has diversified our operations and limits 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 holiday season. General economic conditions may, however, impact future seasonal variations.

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. During 2012, our mix of consumables and is a significant componentaftermarket products and services was significantly impacted by the Charter Acquisition.

The mix of our profitability.

sales was as follows for the periods presented:

  Year Ended December 31, 
  2012  2011  2010 
    
Foremarket and equipment  45%  78%  76%
Aftermarket and consumables  55%  22%  24%

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 discussion of Net sales, orders and order backlog for 2012 in comparison to continue2011 is a proforma comparison that includes the operations acquired in the Charter Acquisition for the comparable period of the prior year, which excludes the first 12 days of each annual period presented. The change in Net sales due to pursue acquisitions of complementary businesses that will broaden our product portfolio, expand our geographic footprint or enhance our position within our strategic markets.

represents the change in sales due to the following acquisitions by both Colfax and Charter:

On JanuaryOctober 31, 2007, we2012, the Company completed the acquisition of Lubrication Systems Companyapproximately 91% of Texas (“LSC”), a manufacturerthe outstanding common and investment shares of fluid handling systems, including oil mist lubricationSoldex for approximately $186.1 million (the “Soldex Acquisition”). Soldex is organized under the laws of Peru and oil purification systems. LSC strengthenscomplements our presenceexisting fabrication technology segment by supplying welding products from its plants in Colombia and Peru.

On September 13, 2012, Colfax completed the acquisition of the Co-Vent for $34.6 million. Co-Vent specializes in the oilcustom design, manufacture, and gas endtesting of industrial fans, with its primary operations based in Quebec, Canada. As a result of this acquisition, Colfax has expanded its product offerings in the industrial fan market.

In May 2012, Colfax acquired the remaining 83.7% of Sibes not already owned by its ESAB business for approximately $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 downstream refinery segment, broadens our overall lubrication portfolio,energy and presents the opportunity to expand its product application to othernatural resources end markets.

On November 29, 2007, we 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. In addition to strengthening our existing position with the U.S. Navy, we intend to leverage Fairmount’s experienced engineering talent and technology expertise to develop a portfolio of fluid handling solutions with diagnostic and prognostic capabilities for industrial applications.

On August 31, 2009, weDecember 6, 2011, Colfax completed the acquisition of PD-Technik Ingenieurbüro GmbHCOT-Puritech, Inc. 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. The additional contingent cash payments will be paid over two years subject to the achievement of certain performance goals. COT-Puritech, Inc. 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.

On July 1, 2011, ESAB acquired 60% of Condor Equipamentos Industriais Ltda (“PD-Technik”Condor”), a providerleading Brazilian manufacturer of marine aftermarket related products and services locatedgas apparatus used in Hamburg, Germany. Thewelding applications, for cash consideration of R$25.2 million.

On March 28, 2011, Howden completed the acquisition of PD-Technik supportsThomassen Compression Systems BV (“Thomassen”), a leading supplier of high-powered engineered compressors to the oil, gas and petrochemical end market, for approximately €100 million.

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 February 14, 2011, Colfax completed the acquisition of 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.

On August 19, 2010, Colfax 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.

Sales, Orders and Backlog

For 2012, our marine aftermarket growth initiatives, broadeningconsolidated 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 served marketproforma 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)%  (33.8)  (2.6)%
   74.8   1.9%  71.4   3.7%  93.1   7.2%
As of and for the year ended December 31, 2012 $3,913.9      $1,996.0      $1,381.4     

__________

(1)Represents contracts for products or services, net of cancellations for the period.

(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 well as service capabilities.
Restructuring and Other Related Charges
We initiated a series of restructuring actions during 2009 to better position the Company’s cost structure for future periods. 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.

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.

The following tables present components of our Net sales order and backlog growth for 2011:

  Net Sales  Orders(1)  Backlog at Period End 
  $  %  $  %  $  % 
  (In millions) 
As of and for the year ended December 31, 2010 $542.0      $532.8      $313.5     
Components of Change:                        
Existing businesses(2)  48.8   9.0%  65.0   12.2%  (1.1)  (0.4)%
Acquisitions(3)  81.3   15.0%  64.0   12.0%  40.2   12.8%
Foreign currency translation(4)  21.3   3.9%  21.0   4.0%  (5.4)  (1.7)%
   151.4   27.9%  150.0   28.2%  33.7   10.7%
As of and for the year ended December 31, 2011 $693.4      $682.8      $347.2     

__________

(1)Represents contracts for products or services, net of cancellations for the period.

(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.

Net sales from existing businesses increased by $48.8 million, or 9.0%, during 2011 compared to 2010 due to an increase in demand in all end markets, except defense. The timing of sales and orders to customers in our defense end market, which we began including with marine end market sales and orders in 2012, vary from period to period due to the timing of specific ship programs. Net sales were positively impacted by the changes in foreign exchange rates during 2011 in comparison to 2010.

Orders, net of cancellations, from existing businesses increased during 2011 in comparison to 2010 due to increased demand in all end markets, except defense. Additionally, we experienced a decline in commercial marine order cancellations from $16.4 million during 2010 to $6.1 million in 2011 primarily due to the impact of improved economic conditions.

Segments

As discussed further above, the Company recorded pre-tax restructuringnow reports results in two reportable segments: gas and fluid handling and fabrication technology. The following tables summarize Net sales by reportable segment for each of the following periods:

  Year Ended December 31, 
     Proforma 
  2012  2011 
  (In millions) 
Gas and Fluid Handling $1,901.2  $1,757.1 
Fabrication Technology  2,012.7   2,082.0 
Total Net sales $3,913.9  $3,839.1 

The 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). Sales comparisons for 2011 in comparison to 2010 represent the Net sales reported by Colfax for those periods as a proforma comparison is not considered meaningful for those periods. 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 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 related coststypes of $18.2 millionpower 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, Baric, Fairmount Automation, Houttuin, Imo, LSC, COT-Puritech, Portland Valve, Tushaco, Warren and Zenith. 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 the selected financial data for our gas- and fluid-handling segment:

  Year Ended December 31, 
  2012  2011  2010 
  (Dollars in millions) 
Net sales $1,901.2  $693.4  $542.0 
Gross profit  567.1   240.1   191.4 
Gross profit margin  29.8%  34.6%  35.3%
Restructuring and other related charges $8.7  $8.6  $5.8 
Selling, general and administrative expense  412.6   142.7   112.8 
Selling, general and administrative expense as a percentage of Net sales  21.7%  20.6%  20.8%
Asbestos coverage litigation expense $13.0  $10.7  $13.2 
Segment operating income  141.5   86.7   65.4 
Segment operating income margin  7.4%  12.5%  12.1%

Year over year fluctuations for 2012 in comparison to 2011 for selected financial data are primarily due to the year ended December 31, 2009. As of December 31, 2009, we have reduced our company-wide workforce by 328 associates from December 31, 2008. Additionally, during 2009, approximately 630 associates participated in a German government-sponsored furlough program in which the government pays the wage-related costs for the portionaddition of the work week the associate is not working. Our agreement with the German works council allowing participationHowden operations. The $161.5 million sales growth due to existing businesses, as discussed and defined under “Sales, Orders and Backlog” above, during 2012 in the furlough program endscomparison to 2011 was primarily due to growth in February 2011. During 2009, we closed a repair facility in Aberdeen, NC and a production facility in Sanford, NC and moved the operations to two of our other facilities. We realized savings of approximately $17 million in 2009 from our restructuring activities implemented in 2009 and expect annualized savings of approximately $29 million in 2010. We continue to monitor our order rates and will adjust our manufacturing capacity and cost structure as demand warrants.


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IPO-related Costs
Results for the year ended December 31, 2008 include $57.0all end markets, except marine. Additionally, $56.6 million of nonrecurring costs associated with our IPO during the second quarter. This amount includes $10.0acquisition-related amortization expense and $15.1 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 includes $11.8 millionincreased recurring intangible amortization expense in comparison 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
2011 is reflected in Selling, general and administrative expensesexpense for 2012.

As further discussed above, Net sales increased by $151.4 million, or 27.9%, during 2011 compared to 2010 due to an increase in demand in all end markets, except defense. Gross profit margin for 2011 decreased compared to 2010 primarily due to lower gross margin associated with 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 saleforemarket sales of Rosscor 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 settledBaric during the third quarterperiod, partially offset by positive leverage of 2008.

Asbestos Liabilityfixed costs given substantially higher sales volume in 2011. The acquisitions of Rosscor and Defense Income
Our financial results have been,Baric contributed $15.8 million to the increase in Selling, general 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 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 ofadministrative expense during 2011. Additionally, asbestos liability and defense costs paid in prior periods,increased by $4.4 million during 2011 compared to 2010.

Fabrication Technology

We formulate, develop, manufacture and actual defense costs expensedsupply consumable products and equipment for use in the period.

cutting and joining of steels, aluminum and other metals and metal alloys. Our fabrication technology products are 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 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 units to large custom systems. Products are sold into a wide range of end markets, including wind power, shipbuilding, pipelines, mobile/off-highway equipment and mining.

The following table below presentssummarizes the selected financial data for our fabrication technology segment:

  

Year Ended December 31.

2012

 
  (Dollars in millions) 
Net sales $2,012.7 
Gross profit  585.1 
Gross profit margin  29.1%
Restructuring and other related charges $45.2 
Selling, general and administrative expense  444.9 
Selling, general and administrative expense as a percentage of Net sales  22.1%
Segment operating income $140.2 
Segment operating income margin  7.0%

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 and gross profit margin for 2012 were negatively impacted by acquisition-related inventory step-up expense of $18.7 million.

Gross Profit- Total Company

  Year Ended December 31, 
  2012  2011  2010 
  (In millions) 
Gross profit $1,152.1  $240.1  $191.4 
Gross profit margin  29.4%  34.6%  35.3%

The $912.0 million increase in Gross profit during 2012 in comparison to 2011 was attributable to increases of $585.1 million in our fabrication technology segment and $326.9 million in our gas- and fluid-handling segment, which were primarily due to the Charter Acquisition.

The $48.7 million increase in Gross profit during 2011 in comparison to 2010 was attributable to increases of $20.0 million from existing businesses and $20.8 million due to the acquisitions of Rosscor and Baric. Additionally, changes in foreign exchange rates had a $7.9 million positive impact on Gross profit for 2011 in comparison to 2010. Gross profit margin for 2011 decreased compared to 2010 primarily due to the lower gross profit margin associated with the foremarket sales of Rosscor and Baric during the period, partially offset by positive leverage of fixed costs given substantially higher sales volume in 2011.

Operating Expenses - Total Company

  Year Ended December 31, 
  2012  2011  2010 
  (In millions) 
Selling, general and administrative expense $895.5  $162.8  $133.5 
Selling, general and administrative expense as a percentage of Net sales  22.9%  23.5%  24.6%
Charter acquisition-related expense $43.6  $31.1  $— 
Restructuring and other related charges  60.1   9.7   10.3 
Asbestos coverage litigation expense  13.0   10.7   13.2 

Selling, general and administrative expense increased $732.7 million during 2012 in comparison to 2011 primarily due to the Charter Acquisition. The decrease in Selling, general and administrative expense as a percentage of Net sales during 2012 in comparison to 2011 resulted primarily from the benefit of higher sales volumes and 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.

Restructuring and other related charges increased significantly during 2012 in comparison to the comparable period of 2011, primarily as a result of the substantial cost reduction programs under way in the fabrication technology segment.

Selling, general and administrative expense increased $29.3 million during 2011 in comparison to 2010, $15.8 million of which resulted from the acquisitions of Rosscor, Baric and COT-Puritech. Selling, general and administrative expense from existing businesses increased primarily due to higher selling and commission costs and higher corporate overhead including the operation of two offices during the transition of our corporate headquarters to Maryland. Additionally, asbestos liability and defense income for the periods indicated:


  Year ended December 31, 
(Amounts in millions) 2009  2008  2007 
          
Asbestos liability and defense (income) $(2.2) $(4.8) $(63.9)

Asbestos liability and defense income was $2.2costs increased by $4.3 million for the year ended December 31, 2009during 2011 compared to $4.82010 primarily due to a $2.1 million for the year ended December 31, 2008. The decrease in asbestos liability and defense income relates primarilyprovision related 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 as a result of favorable court rulings in October and December 2009 concerning allocation methodology offset by an $11.6 million charge to increase the Company’s asbestos-related liabilities as a result of an analysis of claims data.
Asbestos liability and defense income was $4.8 million for the year ended December 31, 2008 compared to $63.9 million for the year ended December 31, 2007. The decrease in asbestos liability and defense income relates primarily to income recognized in the year ended December 31, 2007 based upon a reevaluation of our insurance asset from an expected recovery percentage of 75% to 87.5%judgment received for one of our subsidiaries and from recording a receivable from insurers for past costs paid by us. We were able to reevaluate the insurance asset in 2007 because of a series of favorable court rulings which determined the proper insurance allocation methodology, interpreted policy provisions related to deductibles and number of occurrences, and that New Jersey state law applied.

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Asbestos Coverage Litigation Expense

Asbestos coveragesubsidiaries’ 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) 2009  2008  2007 
          
Asbestos coverage litigation expenses $11.7  $17.2  $13.6 
Legal costs related to the subsidiaries’ action against their asbestos insurers were $11.7 million for the year ended December 31, 2009 compared to $17.2 million for the year ended December 31, 2008. Legal costs for the year ended December 31, 2008 were higher than 2009 and 2007 primarily due to trial preparation in the fourth quarter of 2008 by one of our subsidiaries against a number of its insurers and former parent.  The trialparent, a $1.8 million pre-tax charge because of a statistically significant increase in mesothelioma claims had beenoccurred and was 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 seekcontinue to fully utilize capital spending budgets before the end of the year, historically our shipments have peaked during the fourth quarter; however, the global economic downturn has disrupted this pattern. 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 limitedoccur related 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 the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth (decline) due to factors such as price, mix and volume.
Orders and order backlog are highly indicativeone of our future revenuesubsidiaries and thus 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 unfilled orders at the end of a period. The components of order and backlog growth (decline) are presented on the same basis as sales growth (decline).

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The following tables present components of our sales and order growth (decline), as well as, sales by fluid handling product for the periods indicated:
              Backlog at 
(Amounts in millions) Sales  
Orders (1)
  
Period End (1)
 
 $  %  $  %  $  % 
                   
Year ended December 31, 2007 $506.3     $589.0     $302.8    
                      
Components of Change:                     
Existing Businesses  70.2   13.9%  46.8   7.9%  57.9   19.1%
Acquisitions  5.5   1.1%  11.7   2.0%  15.2   5.0%
Foreign Currency Translation  22.9   4.5%  34.6   5.9%  (26.9)  (8.9)%
Total  98.6   19.5%  93.1   15.8%  46.2   15.3%
                         
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     

(1)At December 31, 2009, the Company standardized its definition of an order among its businesses, as well as, the methodology for calculating the currency impact on backlog. Orders and backlog are presented in accordance with the revised methodology for all periods presented. As a result, orders for the years ended December 31, 2008 and 2007 increased by $12.9 million, or 1.9% and $7.5 million, or 1.3%, respectively. Backlog for the years ended December 31, 2008 and 2007 increased by $11.6 million, or 3.4% and $10.0 million, or 3.4%, respectively. Applying the revised methodology, orders and backlog for 2009 increased by $7.7 million, or 1.7% and $21.7 million, or 8.1%, respectively, compared to the previous methodology.
  Year ended December 31, 
(Amounts in millions) 2009  2008  2007 
          
Net Sales by Product:         
Pumps, including aftermarket parts and service $443.1  $529.3  $441.7 
Systems, including installation service  69.3   58.2   48.4 
Valves  10.1   10.1   9.5 
Other  2.5   7.3   6.7 
Total net sales $525.0  $604.9  $506.3 

As detailed above, 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$0.7 million pre-tax charge resulting from the global economic downturn, partially offset byhigher settlement values per mesothelioma claim in a sales volume increase in the global navy end market. Foreign currency translation negatively impacted sales and orders for the year ended December 31, 2009, primarily duespecific region related to the strengthening of the U.S. dollar against the Euro.
Orders, net of cancellations, from existing businesses for the year ended December 31, 2009 were down 29.0% from the prior year, primarily due to a significant decline in demand in the commercial marine, oil and gas, general industrial and power generation end markets. We experienced commercial marine order cancellations of approximately $22 million during the year ended December 31, 2009, as a result of the economic downturn. Backlog as of December 31, 2009, of $290.9 million decreased $58.1 million, or 16.6%, reflecting the decline in orders during the year.

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Sales growth from existing business increased 13.9% for the year ended December 31, 2008 over the year ended December 31, 2007.  This increase was primarily attributable to increased volume and demand in the power generation, commercial marine, and general industrial end markets. Acquisition growth of 1.1% for the year was due to the acquisitions of LSC on January 31, 2007 and Fairmount on November 29, 2007. Foreign currency translation increased sales and orders by 4.5% and 5.9%, respectively. These increases were primarily due to the weakening of the U.S. dollar against the Euro throughout most of 2008.  During the fourth quarter of 2008, the U.S. dollar appreciated sharply against both the Euro and the Swedish Krona, which had a negative effect on our sales and order growth.
Order growth from existing businesses was strong in most of our strategic end markets (most notably in the oil and gas and global navy end markets), up 7.9% in 2008.  Commercial marine orders increased approximately 1%, net of cancellations of approximately $19 million. Our backlog of orders at December 31, 2008 was $349.0 million compared to $302.8 million at December 31, 2007.  During 2008, backlog from existing businesses increased $57.9 million or 19.1%, on a currency-adjusted basis.
Gross Profit
another subsidiary. The following table presents our gross profit and gross profit margin figures for the periods indicated:
  Year ended December 31, 
(Amounts in millions) 2009  2008  2007 
          
Gross profit $185.8  $217.2  $175.6 
Gross profit margin  35.4%  35.9%  34.7%
Gross profit decreased $31.4 million for the year ended December 31, 2009.  Gross profit from existing businesses decreased $19.8 million, with an additional $11.7 million negative impact of foreign exchange rates.  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.
Gross profit of $217.2 million for the year ended December 31, 2008 increased $41.6 million, or 23.7%, from $175.6 million in 2007. Of the $41.6 million increase, $31.6 million was attributable to growth from existing businesses, $2.4 million was due to the acquisitions of LSC on January 31, 2007 and Fairmount on November 29, 2007 and $7.6 million was due to the positive impact of foreign exchange rates. Gross profit margin increased to 35.9% for the year ended December 31, 2008 from 34.7% for the year ended December 31, 2007. The margin improvement for the year ended December 31, 2008 was primarily driven by favorable pricing and cost control in the commercial marine and oil and gas markets.
Selling, General and Administrative Expenses
The following table presents our selling, general and administrative (SG&A) expenses for the periods indicated:
  Year ended December 31, 
(Amounts in millions) 
2009
Restated
  
2008
Restated
  
2007
Restated
 
          
SG&A expenses $112.5  $124.1  $97.4 
SG&A expenses as a percentage of sales  21.4%  20.5%  19.2%

Selling, general and administrative expenses decreased $11.6expense as a percentage of Net sales during 2011 in comparison to 2010 resulted primarily from higher sales volumes.

Interest Expense - Total Company

  Year Ended December 31, 
  2012  2011  2010 
  (In millions) 
Interest expense $91.6  $5.9  $6.7 

The increase in Interest expense during 2012 in comparison to 2011 was attributable to interest on the financing related to the Charter Acquisition. See “—Liquidity and Capital Resources—Borrowing Arrangements” below for additional discussion.

Provision for Income Taxes

During 2012, Income before income taxes was $48.4 million to $112.5 millionand the Provision for income taxes was $90.7 million. The provision was impacted by two significant items. Upon completion of the year ended December 31, 2009. ExcludingCharter Acquisition, certain deferred tax assets existing at that date were reassessed in light of the $6.1 million favorable impact of foreign exchange rates, SG&A declined $5.5 million from 2008, primarily duethe acquired businesses on expected future income or loss by country and future tax planning, including the impact of the post-acquisition capital structure. This assessment resulted in an increase in our valuation allowance to reductionsprovide full valuation allowances against U.S. deferred tax assets. The increased valuation allowances resulted in selling and commission expensesa non-cash increase in the Provision for income taxes for 2012 of $2.2 million and restructuring savings of $2.5$50.3 million. An additional $2.0In addition, $43.6 million of professional feesCharter acquisition-related expense and other costs associated with becoming a public companyincreased corporate overhead and $2.6 millionInterest expense reflected in the Consolidated Statement of pension and other postretirement benefit costsOperations are either non-deductible or were incurred in 2009, but were offset by lower legacy legal expenses and favorable changes injurisdictions where no tax benefit can be recognized. These two items are the fair valueprincipal cause of commodity and foreign currency derivatives.

Selling, general and administrative expenses increased $26.7 million to $124.1 millionthe Provision for income taxes being significantly higher than the year ended December 31, 2008 from $97.4 million for the year ended December 31, 2007. The increase was primarily related to $3.8 million negative impact of foreign exchange rates, $4.1 million reserve increase for a legacy legal matter, $4.2 million for audit and professional fees and other costs associated with becoming a public company, and $2.1 milliontax provision which would result from the acquisitions of Fairmount and LSC.  The remaining increase was primarily due to higher selling expenses, insurance proceeds recognized in 2007 of $2.2 million related to a product liability matter, and a gain recognized in 2007 of $1.1 million from the sale of investment securities.
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Operating Income
The table below presents operating income data for the periods indicated:
  Year ended December 31, 
(Amounts in millions) 
2009 Restated
  
2008 Restated
  
2007 Restated
 
          
Operating income $39.6  $17.8  $124.3 
Operating margin  7.5%  2.9%  24.6%
Operating income for the year ended December 31, 2009 increased $21.8 million from the prior year.  The increase was primarily due to the absence of $57.0 million of initial public offering-related costs incurred in 2008, partially offset by $18.2 million of restructuring costs incurred in 2009 as well as a $5.5 million negative impact of foreign exchange rates.  Excluding these impacts, operating income was $11.5 million lower than the prior year, primarily due to lower sales volume from existing businesses, partially offset by lower asbestos-related expenses and selling, general and administrative expenses.
Operating income for the year ended December 31, 2008 decreased $106.5 million from the year ended December 31, 2007. This decrease was primarily due to a $62.7 million decrease in asbestos-related income, IPO-related costs of $57.0 million, $4.2 million of professional and other costs associated with becoming a public company, $4.1 million related to a reserve increase for a legacy legal matter, and the absence of $2.2 million of income recognized in the prior year period related to a product liability matter, partially offset by $23.4 million of increased operational performance in our existing business units primarily caused by increased sales volume and a $3.3 million favorable impact from foreign exchange rates.
Interest Expense
For a description of our outstanding indebtedness, please refer to “—Liquidity and Capital Resources” below.
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 portionapplication 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 million to the reduction in interest expense.
Interest expense of $11.8 million for the year ended December 31, 2008 declined $7.4 million from the prior year, primarily due to lower debt levels resulting from the debt repayments of $105.4 million with a portion of the IPO proceeds on May 13, 2008.  A decrease in the weighted-average interest rate on our variable rate borrowings from 7.4% in 2007 to 6.3% in 2008 contributed approximately $1.5 million to the reduction in interest expense.
Provision for Income Taxes
U.S. federal statutory rate.

The effective income tax rate for the year ended December 31, 20092011 was 26.6%77.2% as compared to an effective tax rate of 91.1%41.4% for the year ended December 31, 2008.2010. 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 % that is applied to our Swedish operations and a net decrease to our valuation allowance and unrecognized tax benefit liability.

The effective income tax rate for the year ended December 31, 2008 was 91.1% as compared to an effective tax rate of 37.5% for the year ended December 31, 2007. Our effective tax rate for the year ended December 31, 20082011 was higher than the U.S. federal statutory rate 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 $3.0 million net increase in our valuation allowance that was partially offset in part by an expected lower overall rate on normal operations due to reductions in German corporate tax rates in 2008, otherforeign earnings where international tax rates that are lower than the U.S. tax rate changesand a net decrease in overall profitability and stateour liability for unrecognized tax benefits.
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The 77.2% effective tax rate for 2011 was higher than the 41.4% effective tax rate for 2010 primarily due to a $16.7 million net increase in our valuation allowance in 2011 compared to a net increase of $4.2 million in 2010 impacting the Provision for income taxes for those periods.

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 (discussed below). Additionally, during the first quarter of 2012, we were successful in our efforts to raise additional funds in the form of debt and equity, as further discussed below. 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.

Borrowings

Equity Capital

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 a securities purchase agreement (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. 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 discussed above, 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 existingBank of America Credit Agreement (defined and further discussed below) as well as Charter’s outstanding indebtedness. The Deutsche Bank Credit Agreement has four tranches of term loans: (i) a $200 million term A-1 facility, (ii) a $500 million term A-2 facility, (iii) a €157.6 million term A-3 facility and (iv) a $900 million term B facility. In addition, the Deutsche Bank Credit Agreement has two revolving credit facility. Theresub-facilities which total $300 million in commitments (the “Revolver”). The Revolver includes a $200 million letter of credit sub-facility and a $50 million swingline loan sub-facility. The term A-1, term A-2, term A-3 and the Revolver variable-rate borrowings are subject to interest payments of LIBOR or EURIBOR plus a margin ranging from 2.50% to 3.25%, determined by our leverage ratio. Borrowings under the term B facility are also variable rate and are subject to interest payments of LIBOR plus a margin of 3.5%. The Revolver is subject to a commitment fee ranging from 37.5 to 50 basis points, determined by our leverage ratio. Additionally, as of December 31, 2012, there was an original issue discount of $55.4 million and deferred financing fees of $8.5 million, which will be accreted to Interest expense primarily using the effective interest method. As of December 31, 2012, the weighted-average interest rate on outstanding borrowings under the Deutsche Bank Credit Agreement was 3.93% and there was $291.9 million available under the Revolver, including $191.9 million available under the letter of credit sub-facility.

As of December 31, 2011, we were no material early termination penalties incurred asparty to a result of the termination. Deferred loan costs of $4.6 million were written off in connection with this termination.  On the same day, we entered into a new credit agreement (the “Credit Agreement”).  The Credit Agreement, led by Banc“Bank of America Securities LLCCredit Agreement”), led and administered by Bank of America, iswhich included a senior secured structure with a $150.0 million revolverrevolving credit facility and a Term A Noteterm credit facility. Upon the early termination of $100.0 million.

The Term A Note bears interest at LIBOR plusthe Bank of America Credit Agreement, we incurred a margin rangingtotal pre-tax charge of $1.5 million in 2012, which includes the write-off of $1.0 million of deferred financing fees and $0.5 million of losses reclassified from 2.25% to 2.75% determined byAccumulated other comprehensive loss for the total leverage ratio calculated at quarter end.  At December 31, 2009, therelated interest rate was 2.48% inclusiveswap.

In connection with the Deutsche Bank Credit Agreement, we have pledged substantially all of a 2.25% margin. The Term A Note, as entered into on May 13, 2008, has $1.25 million due on a quarterly basis on the last day of each March, June, September and December beginning June 30, 2008 and ending March 31, 2010, $2.5 million due on a quarterly basis on the last day of each March, June, September and December beginning June 30, 2010 and ending March 31, 2013, and one installment of $60.0 million payable on May 13, 2013.  On December 31, 2009, there was $91.3 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, 2009, the annual commitment fee on the revolver was 0.4% and there was $14.4 million outstanding on the letter of credit sub-facility, leaving approximately $136 million available under our revolver loan.
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 decreases to $50.0 million and then $25.0 million on June 30, 2010 and June 30, 2011, respectively and expires on June 29, 2012. The fair value of the swap agreement, based on third-party quotes, was a liability of $3.0 million at December 31, 2009.  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.
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 our U.S. companies. In addition, subsidiaries in certain foreign jurisdictions have guaranteed our obligations on borrowings of one of our European subsidiaries, as well as pledged substantially all of their assets for such borrowings of 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’sour 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 Companyus 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 1.502.0 to 1.0, measured at the end of each quarter. Ifquarter, through 2012. The minimum interest coverage ratio increases by 25 basis points each year beginning in 2013 until it reaches 3.0 to 1.0 for 2016. The maximum total leverage ratio decreases to 4.75 to 1.0 for 2014 and decreases by 25 basis points for the Company does nottwo subsequent fiscal years until it reaches 4.25 to 1.0 for 2016. 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 Revolver and foreclose on the collateral. The Company believes it is in compliance with all such covenants as of December 31, 2009 and expects2012. 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.
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Cash Flows

As of December 31, 2009,2012, we had approximately $136$482.4 million available on our $150of Cash and cash equivalents, an increase of $407.3 million revolving credit line. Present drawings underfrom $75.1 million as of December 31, 2011. The following table summarizes 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 show below (in millions):


  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 bankruptcy of Lehman Brothers resultedchange in their default under the terms of the revolver and it is doubtful that we would be able to draw on Lehman Brothers’ commitment of $6.0 million.

Comparative Cash Flows
The table below presents selectedand cash flow data forequivalents during the periods indicated:

  Year ended December 31, 
(Amounts in millions) 2009  2008  2007 
          
Net cash provided by (used in) operating activities $38.3  $(33.0) $74.5 
Purchases of fixed assets  (11.0)  (18.6)  (13.7)
Net cash paid for acquisitions  (1.3)  (0.4)  (33.0)
Other sources, net  0.3   (0.1)  0.2 
             
Net cash used in investing activities $(12.0) $(19.1) $(46.5)
Proceeds and repayments of borrowings, net  (5.0)  (110.3)  14.7 
Net proceeds from IPO  -   193.0   - 
Dividends paid to preferred shareholders  -   (38.5)  - 
Repurchases of common stock  -   (5.7)  - 
Payments made for loan costs  -   (3.3)  (1.4)
Payment of deferred stock issuance costs  -   -   (1.2)
Other uses, net  (0.4)  (0.4)  (0.4)
             
Net cash (used in) provided by financing activities $(5.4) $34.8  $11.7 

  Year Ended December 31, 
  2012  2011  2010 
  (In millions) 
Net cash provided by operating activities $164.3  $57.2  $62.0 
             
Purchases of fixed assets, net  (83.2)  (13.7)  (12.4)
Acquisitions, net of cash received  (1,859.6)  (56.3)  (28.0)
Other sources, net  1.8   —   — 
Net cash used in investing activities  (1,941.0)  (70.0)  (40.4)
             
Proceeds from (repayments of) borrowings, net  1,159.8   29.0   (8.8)
Proceeds from issuance of common stock, net  756.8   3.7   0.9 
Proceeds from issuance of preferred stock, net  333.0   —   — 
ESAB India repurchase of additional noncontrolling interest  (29.3)  —   — 
Other sources (uses), net  (27.4)  —   (0.1)
Net cash provided by (used in) financing activities  2,192.9   32.7   (8.0)
             
Effect of exchange rates on Cash and cash equivalents  (8.9)  (5.3)  (3.0)
             
Increase in Cash and cash equivalents $407.3  $14.6  $10.6 

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 other items impact reported cash flows.

Net cash provided by (used in) operating activities was $38.3 million, $(33.0) million and $74.5 million for the years ended December 31, 2009, 2008 and 2007, respectively.  The two mostasbestos-related costs. Changes in significant items causing the variability in these reported amounts were asbestos-related cash flows (including the disposition of claims, defense costs, insurer reimbursements and settlements and legal expenses related to litigation against our insurers) and IPO-related costs in 2008. For the years ended December 31, 2009, 2008 and 2007, net cash paid (received) for asbestos liabilities, net of insurance settlements received, was $19.7 million, $21.8 million and  $(22.5) 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 $57.9 million, $42.9 million and $52.0 million for the years ended December 31, 2009, 2008 and 2007, respectively.
33
Other changes in operating cash flow items are discussed below.

ŸNet cash received or paid for asbestos-related costs, net of insurance proceeds, including the disposition of claims, defense costs and legal expenses related to litigation against our insurers, creates variability in our operating cash flows. We had net cash outflows of $24.7 million, $7.9 million and $11.4 million for asbestos-related costs paid, net of insurance settlements received during 2012, 2011 and 2010, respectively.

ŸFunding requirements of our defined benefit plans, including both pensionspension plans and other post-employment benefits,post-retirement benefit plans, can vary significantly among periodsfrom period to period due to changes in the fair value of plan assets and actuarial assumptions. For the years ended December 31, 2009, 20082012, 2011 and 2007,2010, cash contributions for defined benefit and other post-employment benefit plans were $8.3$61.2 million, $6.4$9.3 million and $8.7$12.1 million, respectively. Contributions for 2012 include $18.9 million of supplemental contributions to pension plans in the United Kingdom as a result of the financing of the Charter Acquisition.

ŸIn 2009, $7.9During 2012, 2011 and 2010, cash payments of $45.1 million, of cash payments$6.8 million and $16.3 million, respectively were made related to the Company’sour restructuring initiatives. Additionally, during 2012 and 2011 cash payments of approximately $46.1 million and $1.6 million, respectively, were made for advisory, legal, valuation and other professional service fees related to the Charter Acquisition.

ŸChanges in net working capital also affected the operating cash flows for the yearsperiods presented. We define working capital as tradeTrade receivables, plus inventories less accountsnet and Inventories, net reduced by Accounts payable.
ŸWorking During 2012, net working capital excluding the effects of acquisitions and foreign currency translation, decreased, $10.3 million from December 31, 2008 to December 31, 2009 and increased $30.5 million from December 31, 2007 to December 31, 2008. These changes were primarily due to changesa decrease in inventory and an increase in payable levels, and trade receivableswhich 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 variationsan increase in sales volume.receivables, which reduced our cash flows from operating activities. A decrease in net working capital, primarily as a result of a decrease in Inventories, net, positively impacted cash flows from operating activities during 2010.
Investing

There were significant cash outflows from investing activities consistassociated with the Charter Acquisition in 2012. The cash cost of the Charter Acquisition, net of cash acquired, was approximately $1.7 billion. During 2011, the acquisitions of Rosscor and COT-Puritech resulted in net cash outflows of $56.3 million. During 2010, we had cash outflows of $28.0 million related to the acquisition of Baric. Capital expenditures for 2012 of $83.6 million were significantly higher than $14.8 million and $12.5 million used in 2011 and 2010, respectively, due to the much larger scale of our operations in 2012.

Cash flows from financing activities in 2012 were also 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 in January 2012, and $293.4 million in a primary offering settled in March 2012. Also, as further discussed above under “—Borrowing Arrangements,” we borrowed approximately $1.7 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 purchasesborrowings under our Bank of fixed assetsAmerica Credit Agreement, in conjunction with the financing of the Charter Acquisition. We also made cash payments for preferred stock dividends of $17.4 million.

Our cash flows from financing activities during 2012 were also impacted by 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.

See “—Borrowing Arrangements” above for additional information regarding our outstanding indebtedness as of December 31, 2012.

Our Cash 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.
ŸIn August 2009, we acquired PD-Technik for $1.3 million, net of cash acquired in the transaction.
ŸIn November 2007, we acquired Fairmount for a purchase price of $3.3 million, net of cash acquired. Purchase price adjustments of $0.4 million each in 2009 and 2008 increased the purchase price to $4.1 million, net of cash acquired.
ŸIn January 2007, we acquired LSC for a purchase price of $29.7 million, net of cash acquired.
Financing cash flows consist primarilyequivalents as of borrowingsDecember 31, 2012 includes $396.5 million held in jurisdictions outside the U.S., which may be subject to tax penalties and repayments of indebtedness, payment of dividends to shareholders and redemptions of stock.
Ÿ
During 2009, we repaid $5.0 million of long-term borrowings.
Ÿ
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.
Ÿ
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.
Ÿ
We paid approximately $3.3 million in deferred loan costs related to our new credit facility entered into May 13, 2008.
Ÿ
In November 2007, $10.0 million cash received from settlements with our asbestos insurers was used to pay down the revolver. In addition, the Term C was paid down by €7.0 million.
Ÿ
During 2007, we paid deferred stock issuance costs of $1.2 million for costs incurred related to our IPO in May 2008.
34
Ÿ
On January 3, 2007, we amended the credit facility to increase borrowings under the Term B loan by $55.0 million. Approximately $28.5 million of the proceeds were subsequently used to fund the acquisition of LSC, $24.5 million of the proceeds were used to pay down our revolver debt, and the remaining proceeds were used for other general corporate purposes.
other restrictions if repatriated into the U.S.

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, 2009 (in millions):


  Total  
Less than
One Year
  
1-3 Years
  
3-5 Years
  
More Than
5 Years
 
                
Debt & Leases:
               
Term Loan A $91.3  $8.8  $20.0  $62.5   - 
Interest Payments on Long-Term Debt (1)
  10.9   4.7   5.6   0.6   - 
Capital Leases & Other Debt  0.2   0.2   -   -   - 
Operating Leases  9.8   3.9   4.1   1.6   0.2 
Purchase Obligations (2)
  25.3   24.6   0.6   -   0.1 
Total $137.5  $42.2  $30.3  $64.7  $0.3 
2012.

  

Less Than

One Year

  1-3 Years  3-5 Years  

More Than

5 Years

  Total 
  (In millions) 
Debt $34.8  $204.9  $673.3  $870.7  $1,783.7 
Interest payments on debt(1)  69.8   131.7   153.3   50.8   405.6 
Operating leases  30.2   37.5   17.1   40.9   125.7 
Capital leases  31.6   2.3   —   —   33.9 
Purchase obligations(2)  359.8   20.1   0.3   0.4   380.6 
Total $526.2  $396.5  $844.0  $962.8  $2,729.5 

__________

(1)Includes estimated interest rate swap payments. (1)Variable interest payments are estimated using a static rate of 3.7%3.93%.

(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, 2012, which are estimated to be approximately $6.9$51.8 million for the year endingended December 31, 2010.2013. 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.

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 other than outstanding letters of credit of $14.4$338.1 million and $59.7 million of bank guarantees at December 31, 20092012 and $125.7 million of future operating lease payments of $9.8 million.

On November 29, 2007, we acquired 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 future revenue and earnings targets over the period ending December 31, 2010. Remaining contingent payments, if any, of up to $1.3 million could result if targets are achieved.
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.

Disclosure under Section 13(r)(1)(D)(iii) of the Exchange Act

During the 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. These foreign subsidiaries entered into the original sales agreements in the years before we acquired them. The shipments were made as part of our foreign subsidiaries’ voluntary withdrawal from the Iranian market, which was implemented as part of the foreign subsidiaries’ integration into our comprehensive international trade compliance program, which prohibits sales to Iran.

The transactions were conducted in accordance with economic sanctions statutes and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Controls, other U.S. statutes restricting trade with Iran, and with applicable local laws in Europe. As part of our effort to ensure our compliance with U.S. sanctions, the Company consulted with U.S. government personnel who administer certain Iranian sanctions prior to some of the shipments. The transactions did not involve U.S.-origin content and U.S. persons did not control, approve, facilitate or otherwise participate in the transactions. In addition, our foreign subsidiaries requested and obtained the required authorizations under local export control laws in Europe to complete the transactions. The gross revenue for each shipment was $653,718, $1,499,400, $2,527,797, and $5,524,525, with profit margins of 23.6% and 20.4% on the first two shipments and losses on the remaining two shipments. Colfax is committed to continuing to comply fully with all U.S. economic sanctions. As part of that commitment, all of the Company’s foreign subsidiaries have voluntarily withdrawn from selling into the Iranian market. As a result, neither Colfax nor any of its foreign subsidiaries intend to conduct any future shipments to Iran.

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.

35
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 32, “Summary of Significant Accounting Policies” in the accompanying Notes to the Consolidated Financial Statements.

Statements in this Form 10-K.

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, 
  2009  2008  2007 
          
Claims unresolved at the beginning of the period  35,357   37,554   50,020 
Claims filed (2)
  3,323   4,729   6,861 
Claims resolved (3)
  (13,385)  (6,926)  (19,327)
             
Claims unresolved at the end of the period  25,295   35,357   37,554 
             
Average cost of resolved claims (4)
 $11,106  $5,378  $5,232 

(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 in Mississippi for which the majority of claims have historically been without merit and have been resolved for no payment. These amounts exclude any potential insurance recoveries.

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 thea standard approach used by most 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.

36
 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 factors over time and periodically assesses 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 hashave 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.

We assessed the subsidiaries’ existing insurance arrangements and agreements, determinedestimated 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 reserves,retentions, policy exclusions, pending litigation, liability caps and gaps in coverage, allocation agreements, indemnity arrangements with third-parties, 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.  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 resulting from the independent corporate historyacquired prior to our ownership of each independent entity. In our evaluation of the insurance asset, we useduse differing insurance allocation methodologies for each subsidiary based upon the stateapplicable law that will or is likely to apply for that subsidiary.

For one of the subsidiaries, 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, uppertaining 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 determination 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 in the future 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 all future asbestos-related costs.
In November 2008, the subsidiary 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 theaffected 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 additional insurance will be allocated by the carrier to cover any gaps in coverage up to $7.0 million resulting from exhaustion of umbrella policies and/or the failure of any excess carrier to pay amounts incurred in connection with asbestos claims. 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.
This subsidiary’s primary and umbrella insurance coverage was exhausted in the first quarter of 2010.  No cost sharing or allocation agreement is currently in place with the Company’s excess insurers; however, certain excess insurers have stated that they will abide by the Delaware Chancery Court's recent coverage rulings, including its ruling that the subsidiary may seek insurance coverage from the Company's excess insurers on and “all sums” basis and that they will defend and/or indemnify the subsidiary against asbestos claims, subject to their reservation of rights.
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In 2003, the other subsidiary brought legal action 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.  The subsidiary expects to responsible for approximately 14% of all future asbestos-related costs.
The Company has established reserves of $443.8 million and $357.3 million as of December 31, 2009 and December 31, 2008, 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 $389.4 million and $304.0 million as of December 31, 2009 and December 31, 2008, 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 $54.3 million and $53.3 million as of December 31, 2009 and December 31, 2008, respectively. In addition, the Company has recorded a receivable for liability and defense costs previously paid in the amount of $45.9 million and $36.4 million as of December 31, 2009 and December 31, 2008, 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” in the accompanying consolidated balance sheets.
The income related to these liabilities and legal defense was $2.2 million, net of estimated insurance recoveries, for the year ended December 31, 2009 compared to $4.8 million and $63.9 million for the years ended December 31, 2008 and 2007, respectively.  Legal costs related to the subsidiaries’ action against their asbestos insurers were $11.7 million for the year ended December 31, 2009 compared to $17.2 million and $13.6 million for the years ended December 31, 2008 and 2007, 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.

As of December 31, 2012, we had total asbestos liabilities, including current portion, of $434.0 million and total asbestos insurance assets, including current portion, of $394.8 million. See Note 16, “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 13, “Defined Benefit Plans” in the accompanying Notes to 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 on December 31 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.

38

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 likely 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 likely 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.


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.


The analysisanalyses performed for eachas of the years ended December 31, 2009, 2008September 29, 2012, October 1, 2011 and 2007October 2, 2010 indicated no impairment to be present. However, actual results could differ from our estimates and projections, which would affect the assessment of impairment. As of December 31, 2009,2012, we have goodwillGoodwill of $163.4 million$2.1 billion that is subject to at least annual review of impairment.

See Note 7, “Goodwill and Intangible Assets” in the accompanying Notes to 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.

During the year ending December 31, 2009,2012, the valuation allowance decreasedincreased from $45.2$79.9 million to $45.1 million with$372.0 million. The acquired Charter businesses operate in certain territories which have not historically been profitable or profitability is not expected in the decrease recognizednear term. As such, valuation allowances were established in income tax expense. The $0.1 million net decrease in 2009 was primarily attributable to a corresponding reduction inthe initial accounts where realization of deferred tax assets due towas not more likely than not. For Colfax, certain deferred tax assets existing at the pension restatement, offsetdate were reassessed in partlight of the impact of the acquired businesses on expected future income or loss by an increase attributable to certain separate company losses we believe may not be realized. Consideration was given to U.S.country and future tax planning, strategies and future U.S. taxable income as to how muchincluding the impact of the totalpost-acquisition capital structure. This assessment resulted in a $50.3 million increase in the Company’s valuation allowance to provide full valuation allowance against U.S. deferred tax asset could be realized on aassets.

In 2012, additional losses were recorded in territories, including the U.S., where full valuation allowances were established at the time of the Charter Acquisition. The more likely than not basis.  If economic conditions adversely affectrealization standard was applied to these additional deferred tax assets and a full valuation allowance was provided.

Accounting Standards Codification 740, “Income Taxes” prescribes a recognition threshold and measurement attribute for a position taken in a tax return. Under this standard, we must presume the income tax position will be examined by a relevant tax authority and determine whether it is more likely than not 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 abilityestimates, 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 generate future U.S. taxable income, additional valuation allowances may be needed.

The determinationpay amounts in excess of our provisionliabilities 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 requires significant judgment,benefits, including accrued interest and penalties were $84.2 million as of December 31, 2012 and are included in Other liabilities in 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.
accompanying Consolidated Balance Sheet.

Revenue Recognition

We recognize revenuesrevenue and costs from product sales under the completed contract method when 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.

39
For long-term contracts, revenue is generally recognized based on the percentage-of-completion method calculated on the units of delivery basis or the cost-to-cost basis. The percentage of completion method requires estimates of total expected contract revenue and costs.

We follow this method when we can make reasonably dependable estimates of therecognize revenue and cost applicableof 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, 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.

We have contracts in various stages of completion. Such contracts require estimates to determine the contract. Revisionsappropriate cost and revenue recognition. Significant management judgments and estimates, including estimated costs to complete projects, must be made and used in profitconnection with revenue recognized during each period. Current estimates may be revised as additional information becomes available. The revisions are reflectedrecorded in income in the period in which they are determined using the facts that gave rise to the revision become known and have historically been insignificant. Percentagecumulative catch-up method of completion revenue was approximately 2.2%, 0.9%, and 2.9% of consolidated revenues for the years ended December 31, 2009, 2008 and 2007, respectively. Service revenues are recognized as services are performed.

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 $2.8$16.5 million and $2.5$2.6 million as of December 31, 20092012 and 2008,2011, 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, 2009 and 2008 were a stock price volatility of 32.5% and 32.4%, 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 1.9% to 2.5% in 2009 and 2.5 % to 3.1% in 2008 and a 0% expected dividend yield.

Stock-based compensation expense recognized for the years ended December 31, 2009 and 2008 was $2.6 million and $11.3 million, respectively. No stock-based compensation expense was recognized for the year ended December 31, 2007. 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 expectfinancial statements, see Note 3, “Recently Issued Accounting Pronouncements” in the accompanying Notes to make in 2010, stock-based compensation for the year ended December 31, 2010 is projected to be approximately $3.4 million.
Recent Pronouncements
See Note 4 to our Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.
40
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
included in this Form 10-K.

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, 2009 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 atas of December 31, 20092012 are variable ratevariable-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 2009 on our variable rate debt that is not hedged would have increased our interest costInterest expense by approximately $0.2 million.

On June 24, 2008, we entered into an interest rate swap with an aggregate notional value of $75.0$17.8 million whereby we exchanged our LIBOR-based variable rate interest for a fixed rate of 4.1375%.  The notional value decreases to $50.0 million and then $25.0 million on June 30, 2010 and June 30, 2011, respectively and expires on June 29,during 2012. The fair value of the swap agreement, based on third-party quotes, was a liability of $3.0 million at December 31, 2009.  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 2009,2012, 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 more highly weighted toward the Euro and U.S. dollar. We also have significant contractual obligations, as discussed above, in U.S. dollars that are met with approximately 63% 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 €157.6 million term A-3 facility under the Deutsche Bank Credit Agreement (the “Term Loan A-3”), discussed above, provides 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 Term Loan A-3, 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, 2012 (net of the translation effect of our Term Loan A-3) would result in a reduction in Equity of approximately $120 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, 2009 income before income taxes would have increased by $3.1 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, 2009,2012, we had no open commodity futures contracts.

41

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Item 8.Financial Statements and Supplementary Data

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Page

Audited Financial Statements for the Years Ended December 31, 2009, 2008 and 2007:
  
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm on– Internal Control Over Financial Reporting43
44
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm – Consolidated Financial Statements45
Consolidated Statements of Operations46
Consolidated Statements of Comprehensive Loss47
Consolidated Balance Sheets47
48
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)48
49
Consolidated Statements of Cash Flows49
50
Notes to Consolidated Financial Statements51
Note 1. Organization and Nature of Operations5051
Note 2. Summary of Significant Accounting Policies51
Note 3. Recently Issued Accounting Pronouncements56
Note 4. Acquisitions56
Note 5. Net (Loss) Income Per Share59
Note 6. Income Taxes60
Note 7. Goodwill and Intangible Assets63
Note 8. Property, Plant and Equipment, Net64
Note 9. Inventories, Net64
Note 10. Debt64
Note 11. Equity66
Note 12. Accrued Liabilities69
Note 13. Defined Benefit Plans71
Note 14. Financial Instruments and Fair Value Measurements78
Note 15. Concentration of Credit Risk81
Note 16. Commitments and Contingencies82
Note 17. Segment Information85
Note 18. Selected Quarterly Data—(unaudited)87

43
42

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, 2009,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (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.


As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting listed in the Index at Item 9A, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Charter and Soldex, which are included in the 2012 consolidated financial statements of Colfax Corporation and collectively constituted 81% and 86% of total and net assets, respectively, as of December 31, 2012 and 83% of net sales for the year then ended. Our audit of internal control over financial reporting of Colfax Corporation also did not include an evaluation of the internal control over financial reporting of Charter and Soldex.

In our report dated February 25, 2010, we expressed an unqualified opinion, that the CompanyColfax Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2012, based on the COSO criteria. Management has subsequently determined that a deficiency in controls relating to the maintenance and review of pension plan participant data existed as of the previous assessment date, and has further concluded that such deficiency represented a material weakness as of December 31, 2009.  As a result, management has revised its assessment, as presented in the accompanying Management’s Report on Internal Control over Financial Reporting, to conclude that the Company’s internal control over financial reporting was not effective as of December 31, 2009.  Accordingly, our present opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009, as expressed herein, is different from that expressed in our previous report.


A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.  The following material weakness has been identified and included in management’s assessment.  Management has identified a material weakness in its internal controls related to the maintenance and review of pension plan participant data.  This material weakness resulted in the restatement of the Company’s consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009.  

We also have also 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, 20092012 and 20082011, and the related consolidated statements of income, shareholder’soperations and comprehensive loss, equity, (deficit) and cash flows for each of the three years in the period endingended December 31, 2009.  This material weakness was considered in determining the nature, timing,2012 of Colfax Corporation and extent of audit tests applied in our audit of the 2009 financial statements and this report does not affect our report dated February 25, 2010, except for the effects of the matters described in Note 2, as to which the date is December 13, 2010, on those financial statements (as restated).

43
In our18, 2013 expressed an unqualified opinion because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Colfax Corporation has not maintained effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

thereon.

/s/ Ernst & Young LLP


Richmond, Virginia

Baltimore, Maryland

February 25, 2010

except for the effects of the material weakness described in the sixth paragraph above, as to which the date is
December 13, 2010
44
18, 2013

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, 20092012 and 2008,2011, and the related consolidated statements of income, shareholders’operations and comprehensive loss, equity, (deficit), and cash flows for each of the three years in the period ended December 31, 2009.2012. 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’sCompany'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, 20092012 and 2008,2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009,2012, 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.


As more fully discussed in Note 2, the Company has restated the accompanying consolidated financial statements and financial statement schedule for all periods presented to correct an error in accounting for certain of its defined benefit pension plans.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Colfax Corporation’s internal control over financial reporting as of December 31, 2009,2012, based on criteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2010, except for the effects of the material weakness described in the sixth paragraph of that report, as to which the date is December 13, 2010,18, 2013 expressed an adverseunqualified opinion thereon.


/s/ Ernst & Young LLP


Richmond, Virginia

Baltimore, Maryland

February 25, 2010

except for the effects of the matters described in Note 2, as to which the date is
December 13, 2010
45
18, 2013

COLFAX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in

(In thousands, except per share amountsamounts)

  Year Ended December 31, 
  2012  2011  2010 
          
Net sales $3,913,856  $693,392  $541,987 
Cost of sales  2,761,731   453,293   350,579 
Gross profit  1,152,125   240,099   191,408 
Selling, general and administrative expense  895,452   162,761   133,507 
Charter acquisition-related expense  43,617   31,052   — 
Restructuring and other related charges  60,060   9,680   10,323 
Asbestos coverage litigation expense  12,987   10,700   13,206 
Operating income  140,009   25,906   34,372 
Interest expense  91,570   5,919   6,684 
Income before income taxes  48,439   19,987   27,688 
Provision for income taxes  90,703   15,432   11,473 
Net (loss) income  (42,264)  4,555   16,215 
Less: income attributable to noncontrolling interest, net of taxes  22,138   —   — 
Net (loss) income attributable to Colfax Corporation  (64,402)  4,555   16,215 
Dividends on preferred stock  18,951   —   — 
Net (loss) income available to Colfax Corporation common shareholders $(83,353) $4,555  $16,215 
Net (loss) income per share – basic and diluted $(0.92) $0.10  $0.37 

See Notes to Consolidated Financial Statements.

46

  Year ended December 31, 
  2009  2008  2007 
  Restated  Restated  Restated 
          
Net sales $525,024  $604,854  $506,305 
Cost of sales  339,237   387,667   330,714 
             
Gross profit  185,787   217,187   175,591 
Selling, general and administrative expenses  112,503   124,105   97,426 
Restructuring and other related charges  18,175   -   - 
Initial public offering related costs  -   57,017   - 
Research and development expenses  5,930   5,856   4,162 
Asbestos liability and defense income  (2,193)  (4,771)  (63,978)
Asbestos coverage litigation expenses  11,742   17,162   13,632 
Operating income  39,630   17,818   124,349 
Interest expense  7,212   11,822   19,246 
             
Income before income taxes  32,418   5,996   105,103 
Provision for income taxes  8,621   5,465   39,457 
             
Net income  23,797   531   65,646 
             
Dividends on preferred stock  -   (3,492)  (25,816)
             
Net income (loss) available to common shareholders $23,797  $(2,961) $39,830 
             
Net income (loss) per share—basic and diluted $0.55  $(0.08) $1.82 

See accompanying notes to consolidated financial statements.
46

COLFAX CORPORATION

CONSOLIDATED BALANCE SHEETS
  Dollars in thousands, except per share amounts

  December 31, 
  2009  2008 
  Restated  Restated 
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $49,963  $28,762 
Trade receivables, less allowance for doubtful accounts of $2,837 and $2,486  88,493   101,064 
Inventories, net  71,150   80,327 
Deferred income taxes, net  7,114   6,489 
Asbestos insurance asset  31,502   26,473 
Asbestos insurance receivable  28,991   36,371 
Prepaid expenses  11,109   9,632 
Other current assets  2,426   5,901 
         
Total current assets  290,748   295,019 
Deferred income taxes, net  51,838   53,372 
Property, plant and equipment, net  92,090   92,090 
Goodwill  163,418   161,694 
Intangible assets, net  11,952   13,516 
Long-term asbestos insurance asset  357,947   277,542 
Long-term asbestos insurance receivable  16,876   - 
Deferred loan costs, pension and other assets  14,532   14,317 
Total assets $999,401  $907,550 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
CURRENT LIABILITIES:        
Current portion of long-term debt and capital leases $8,969  $5,420 
Accounts payable  36,579   52,138 
Accrued asbestos liability  34,866   28,574 
Accrued payroll  17,756   19,162 
Accrued taxes  2,154   11,457 
Accrued termination benefits  9,473   - 
Other accrued liabilities  34,402   37,535 
         
Total current liabilities  144,199   154,286 
Long-term debt, less current portion  82,516   91,701 
Long-term asbestos liability  408,903   328,684 
Pension and accrued post-retirement benefits  105,230   110,218 
Deferred income tax liability  10,375   7,685 
Other liabilities  31,353   33,601 
Total liabilities  782,576   726,175 
Shareholders’ equity:        
Common stock: $0.001 par value; authorized 200,000,000; issued and outstanding 43,229,104 and 43,211,026  43   43 
Additional paid-in capital  402,852   400,259 
Retained deficit  (76,273)  (100,070)
Accumulated other comprehensive loss  (109,797)  (118,857)
Total shareholders’ equity  216,825   181,375 
Total liabilities and shareholders' equity $999,401  $907,550 

See accompanying notes to consolidated financial statements.
47
COLFAX CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY ANDCOMPREHENSIVE LOSS

(In thousands)

  Year Ended December 31, 
  2012  2011  2010 
Net (loss) income attributable to Colfax Corporation $(64,402) $4,555  $16,215 
Other comprehensive income (loss):            
Foreign currency translation, net of tax of $(304), $(18), and $(1,224)  117,703   (11,465)  (8,260)
Unrealized loss on hedging activities, net of tax of $632, $0, and $0  (4,008)  (161)  (1,201)
Changes in unrecognized pension and other post-retirement benefits cost, net of tax of $(5,835), $(654), and $(1,717)  (91,495)  (34,291)  (18,690)
Amounts reclassified to net (loss) income:            
Realized loss on hedging activities, net of tax of $0, $0, and $0  471   1,479   2,447 
Pension and other post-retirement benefit cost, net of tax of $256, $114, and $89  8,557   4,160   4,986 
Other comprehensive income (loss)  31,228   (40,278)  (20,718)
Less: other comprehensive income attributable to noncontrolling interest, net of tax of $0, $0 and $0  4,385   —   — 
Other comprehensive income (loss) attributable to Colfax Corporation  26,843   (40,278)  (20,718)
Comprehensive loss attributable to Colfax Corporation common shareholders $(37,559) $(35,723) $(4,503)

See Notes to Consolidated Financial Statements.

47
COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 2009, 2008 and 2007
Dollars in thousands
  
Preferred
Stock
  
Common
Stock
  
Additional
Paid-In
Capital
  
Retained
Deficit
(Restated)
  
Accumulated
Other
Comprehensive
Loss (Restated)
  
Total
(Restated)
 
                   
Balance as previously reported at December 31, 2006 $1  $22  $201,660  $(141,561) $(54,223) $5,899 
Cumulative adjustment for restatement (see Note 2)              11,365   1,751   13,116 
Restated Balance at December 31, 2006  1   22   201,660   (130,196)  (52,472)  19,015 
Comprehensive income:                        
Net income  -   -   -   65,646   -   65,646 
Foreign currency translation, net of $265 tax expense  -   -   -   -   8,952   8,952 
Changes in unrecognized pension and postretirement benefit costs, net of $4,158 tax expense  -   -   -   -   3,900   3,900 
Amounts reclassified to net income:                        
Net realized investment gains, net of $409 tax benefit  -   -   -   -   (667)  (667)
Net pension and other postretirement benefit costs, net of $1,590 tax expense  -   -   -   -   2,149   2,149 
Total comprehensive income  -   -   -   65,646   14,334   79,980 
Adoption of new accounting standard (see Note 6)  -   -   -   (6,743)  -   (6,743)
Preferred dividends declared  -   -   -   (25,816)  -   (25,816)
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 compensation  -   -   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:                        
Net income  -   -   -   23,797   -   23,797 
Foreign currency translation, net of $7 tax benefit  -   -   -   -   5,401   5,401 
Unrealized gains 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 compensation  -   -   2,593   -   -   2,593 
Balance at December 31, 2009 $-  $43  $402,852  $(76,273) $(109,797) $216,825 

See accompanying notes to consolidated financial statements.
48

COLFAX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

  December 31, 
  2012  2011 
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents $482,449  $75,108 
Trade receivables, less allowance for doubtful accounts of $16,464 and $2,578  873,382   117,475 
Inventories, net  493,649   56,136 
Other current assets  281,302   102,489 
Total current assets  2,130,782   351,208 
Property, plant and equipment, net  688,570   90,939 
Goodwill  2,074,230   204,844 
Intangible assets, net  779,049   41,029 
Other assets  457,096   400,523 
Total assets $6,129,727  $1,088,543 
         
LIABILITIES AND EQUITY        
CURRENT LIABILITIES:        
Current portion of long-term debt $34,799  $10,000 
Accounts payable  699,626   54,035 
Accrued liabilities  441,033   176,007 
Total current liabilities  1,175,458   240,042 
Long-term debt, less current portion  1,693,512   101,518 
Other liabilities  1,104,471   557,708 
Total liabilities  3,973,441   899,268 
Equity:        
Preferred stock, $0.001 par value; 20,000,000 and 10,000,000 shares authorized; 13,877,552 and none issued and outstanding  14   — 
Common stock, $0.001 par value; 400,000,000 and 200,000,000 shares authorized; 94,067,418 and 43,697,570 issued and outstanding  94   44 
Additional paid-in capital  2,197,694   415,527 
Accumulated deficit  (138,856)  (55,503)
Accumulated other comprehensive loss  (146,594)  (170,793)
Total Colfax Corporation equity  1,912,352   189,275 
Noncontrolling interest  243,934   — 
Total equity  2,156,286   189,275 
Total liabilities and equity $6,129,727  $1,088,543 

See Notes to Consolidated Financial Statements.

48

COLFAX CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share amounts and as noted)

  Common Stock  Preferred Stock  Additional
Paid-In		  Accumulated  Accumulated
Other
Comprehensive		  Noncontrolling    
  Shares  $ Amount  Shares  $ Amount  Capital  Deficit  Loss  Interest  Total 
Balance at January 1, 2010  43,413,553  $43   —  $—  $402,852  $(76,273) $(109,797) $—  $216,825 
Net (loss) income  —   —   —   —   —   16,215   —   —   16,215 
Other comprehensive income (loss)  —   —   —   —   —   —   (20,718)  —   (20,718)
Common stock-based award activity  —   —   —   —   4,049   —   —   —   4,049 
Balance at December 31, 2010  43,413,553  $43   —  $—  $406,901  $(60,058) $(130,515) $—  $216,371 
Net (loss) income  —   —   —   —   —   4,555   —   —   4,555 
Other comprehensive income (loss)  —   —   —   —   —   —   (40,278)  —   (40,278)
Common stock-based award activity  284,017   1   —   —   8,626   —   —   —   8,627 
Balance at December 31, 2011  43,697,570  $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)
ESAB India repurchase of additional 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 million  49,917,786   50   —   —   1,432,921   —   —   —   1,432,971 
Preferred stock issuance, net of costs of $7.0 million  —   —   13,877,552   14   332,958   —   —   —   332,972 
Common stock-based award activity  452,062   —   —   —   15,253   —   —   —   15,253 
Balance at December 31, 2012  94,067,418  $94   13,877,552  $14  $2,197,694  $(138,856) $(146,594) $243,934  $2,156,286 

See Notes to Consolidated Financial Statements.

49

COLFAX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands
  Year ended December 31, 
  2009  2008  2007 
  Restated  Restated  Restated 
Cash flows from operating activities:         
Net income $23,797  $531  $65,646 
Adjustments to reconcile net income to cash provided by (used in) operating activities:            
Depreciation, amortization and fixed asset impairment charges  15,074   14,788   15,239 
Noncash stock-based compensation  2,593   11,330   - 
Write off of deferred loan costs  -   4,614   - 
Amortization of deferred loan costs  677   934   1,644 
Loss (gain) on sale of fixed assets  (64)  60   (35)
Deferred income taxes  2,689   (13,330)  22,496 
Changes in operating assets and liabilities, net of acquisitions:            
Trade receivables  16,280   (20,612)  (3,149)
Inventories  10,763   (15,556)  (2,279)
Accounts payable and accrued liabilities, excluding asbestos related accrued expenses  (20,899)  7,044   8,748 
Other current assets  2,605   (3,285)  (2,304)
Change in asbestos liability and asbestos-related accrued expenses, net of asbestos insurance asset and receivable  (10,166)  (9,457)  (27,807)
Changes in other operating assets and liabilities  (5,063)  (10,042)  (3,716)
             
Net cash provided by (used in) operating activities  38,286   (32,981)  74,483 
             
Cash flows from investing activities:            
Purchases of fixed assets  (11,006)  (18,645)  (13,671)
Acquisitions, net of cash received  (1,260)  (439)  (32,987)
Proceeds from sale of fixed assets  219   23   133 
Net cash used in investing activities  (12,047)  (19,061)  (46,525)
             
Cash flows from financing activities:            
Borrowings under term credit facility  -   100,000   55,000 
Payments under term credit facility  (5,000)  (210,278)  (11,791)
Proceeds from borrowings on revolving credit facilities  -   28,185   58,000 
Repayments of borrowings on revolving credit facilities  -   (28,158)  (86,500)
Payments on capital leases  (417)  (309)  (449)
Payments for loan costs  -   (3,347)  (1,368)
Payment of deferred stock issuance costs  -   -   (1,155)
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  (5,417)  34,836   11,737 
             
Effect of exchange rates on cash  379   (2,125)  790 
             
Increase (decrease) in cash and cash equivalents  21,201   (19,331)  40,485 
Cash and cash equivalents, beginning of year  28,762   48,093   7,608 
Cash and cash equivalents, end of year $49,963  $28,762  $48,093 
             
Cash interest paid $6,615  $9,970  $16,978 
Cash income taxes paid $16,596  $18,534  $12,931 

(In thousands)

  Year Ended December 31, 
  2012  2011  2010 
Cash flows from operating activities:            
Net (loss) income $(42,264) $4,555  $16,215 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:            
Depreciation, amortization and fixed asset impairment charges  200,400   23,333   16,807 
Stock-based compensation expense  9,373   4,908   3,137 
Unrealized loss on acquisition-related foreign currency derivatives  —   21,146   — 
Deferred income tax expense (benefit)  7,222   (1,722)  (296)
Changes in operating assets and liabilities, net of acquisitions:            
Trade receivables, net  (37,338)  (5,972)  (6,060)
Inventories, net  26,694   10,844   11,598 
Accounts payable  88,927   (7,298)  12,615 
Changes in other operating assets and liabilities  (88,715)  7,359   7,949 
Net cash provided by operating activities  164,299   57,153   61,965 
             
Cash flows from investing activities:            
Purchase of fixed assets  (83,586)  (14,786)  (12,527)
Acquisitions, net of cash received  (1,859,645)  (56,346)  (27,960)
Proceeds from sale of stock of entity previously controlled  4,730   —   — 
Cash contribution to unconsolidated entity  (2,873)  —   — 
Proceeds from sale of fixed assets  399   1,162   74 
Net cash used in investing activities  (1,940,975)  (69,970)  (40,413)
             
Cash flows from financing activities:            
Borrowings under term credit facility  1,731,523   —   — 
Payments under term credit facility  (531,415)  (10,000)  (8,750)
Proceeds from borrowings on revolving credit facilities  13,149   141,203   5,500 
Repayments of borrowings on revolving credit facilities  (53,414)  (102,180)  (5,500)
Payments of deferred loan costs  (9,887)  —   — 
Proceeds from the issuance of common stock, net  756,762   3,719   912 
Proceeds from the issuance of preferred stock, net  332,969   —   — 
ESAB India repurchase of additional noncontrolling interest  (29,292)  —   — 
Payments of dividends on preferred stock  (17,446)  —   — 
Payments on capital leases  —   —   (205)
Net cash provided by (used in) financing activities  2,192,949   32,742   (8,043)
             
Effect of foreign exchange rates on Cash and cash equivalents  (8,932)  (5,359)  (2,930)
             
Increase in Cash and cash equivalents  407,341   14,566   10,579 
Cash and cash equivalents, beginning of period  75,108   60,542   49,963 
Cash and cash equivalents, end of period $482,449  $75,108  $60,542 
             
Supplemental Disclosure of Cash Flow Information:            
Interest payments $79,857  $5,209  $6,105 
Income tax payments, net  70,677   16,731   5,819 

See accompanying notesNotes to consolidated financial statements.

49
Consolidated Financial Statements.

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 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, 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, global navy and general industrial. We design and engineer our productsservices 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 ofcustomers around the applications in which our products are used. Our products are marketed principallyworld under the Allweiler, Fairmount, Houttuin, Imo, LSC, Portland Valve, Tushaco, Warren,Howden, ESAB and ZenithColfax Fluid Handling brand names. We believe that our brands are widely known and have a premium position in our industry. Allweiler, Houttuin, Imo and Warren are amongWith the oldest and most recognized brands in the fluid handling industry, with Allweiler dating back to 1860.

2. Restatement
On October 19, 2010, the Audit Committee of the Company’s Board of Directors concluded, based upon the recommendation of the Company’s management, that the Company should restate these financial statements to correct an overstatement of its pension liability. The Company has restated all periods in the accompanying consolidated financial statements.
While preparing the 2010 census data for our defined benefit pension plan actuarial valuations, the Company determined that 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.  Because these errors affected the valuation of pension liabilities at the dateclosing of the acquisition goodwill was also overstated.

This amendment also contains two immaterial balance sheet reclassification corrections atof Charter International plc (“Charter”) by Colfax (the “Charter Acquisition”) during the year ended December 31, 2009 to reclassify2012, Colfax has transformed from a portion offluid-handling business into a multi-platform enterprise with a global footprint. See Note 4, “Acquisitions” for additional information regarding the asbestos insurance asset from long term to current and to reflect certain property previously recorded in other assets as property, plant and equipment.

The following tables set forth the effects of the restatement on affected line items within the Company’s previously reported financial statements. The income tax effects of the restatement include the effects of reductions to the valuation allowance for deferred tax assets as a result of the reduction in grross deferred tax assets (See Note 6, Income Taxes):

CONSOLIDATED STATEMENTS OF OPERATIONS

  Year Ended 
  December 31, 2009 
  As       
  Previously     As 
  Reported  Adjustment  Restated 
Selling, general and administrative expenses $113,674  $(1,171) $112,503 
Operating income  38,459   1,171   39,630 
Income before income taxes  31,247   1,171   32,418 
Provision for income taxes  9,525   (904)  8,621 
Net income  21,722   2,075   23,797 
Net income available to common shareholders  21,722   2,075   23,797 
Net income per share—basic and diluted $0.50  $0.05  $0.55 
50
  Year Ended 
  December 31, 2008 
  As       
  Previously     As 
  Reported  Adjustment  Restated 
Selling, general and administrative expenses $125,234  $(1,129) $124,105 
Operating income  16,689   1,129   17,818 
Income before income taxes  4,867   1,129   5,996 
Provision for income taxes  5,438   27   5,465 
Net (loss) income  (571)  1,102   531 
Net (loss) income available to common shareholders  (4,063)  1,102   (2,961)
Net (loss) income per share—basic and diluted $(0.11) $0.03  $(0.08)
  Year Ended 
  December 31, 2007 
  As       
  Previously     As 
  Reported  Adjustment  Restated 
Selling, general and administrative expenses $98,500  $(1,074) $97,426 
Operating income  123,275   1,074   124,349 
Income before income taxes  104,029   1,074   105,103 
Provision for income taxes  39,147   310   39,457 
Net income  64,882   764   65,646 
Net income available to common shareholders  39,066   764   39,830 
Net income per share—basic and diluted $1.79  $0.03  $1.82 
CONSOLIDATED BALANCE SHEETS

  
December 31, 2009
  
December 31, 2008
 
  As        As       
  Previously  Adjustment and  As  Previously     As 
  
Reported
  
Reclassifications
  
Restated
  
Reported
  
Adjustment
  
Restated
 
Deferred income taxes, net $6,823  $291  $7,114  $6,327  $162  $6,489 
Asbestos insurance asset  30,606   896   31,502   26,473   -   26,473 
Total current assets  289,561   1,187   290,748   294,857   162   295,019 
Deferred income taxes, net  52,023   (185)  51,838   53,428   (56)  53,372 
Property, plant and equipment, net  90,434   1,656   92,090   92,090   -   92,090 
Goodwill  167,254   (3,836)  163,418   165,530   (3,836)  161,694 
Long-term asbestos insurance asset  358,843   (896)  357,947   277,542   -   277,542 
Deferred loan costs, pension and other assets  16,188   (1,656)  14,532   16,113   (1,796)  14,317 
Total assets  1,003,131   (3,730)  999,401   913,076   (5,526)  907,550 
                         
Pension and accrued post-retirement benefits  126,953   (21,723)  105,230   130,188   (19,970)  110,218 
Total liabilities  804,299   (21,723)  782,576   746,145   (19,970)  726,175 
Retained deficit  (91,579)  15,306   (76,273)  (113,301)  13,231   (100,070)
Accumulated other comprehensive loss  (112,484)  2,687   (109,797)  (120,070)  1,213   (118,857)
Total shareholders’ equity  198,832   17,993   216,825   166,931   14,444   181,375 
Total liabilities and shareholders' equity $1,003,131  $(3,730) $999,401  $913,076  $(5,526) $907,550 
The cumulative adjustment to retained deficit as of January 1, 2008 was a decrease of $12.1 million.
51
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended 
  December 31, 2009 
  As       
  Previously     As 
  Reported  Adjustment  Restated 
Cash flows from operating activities:         
Net income $21,722  $2,075  $23,797 
Deferred income taxes  3,593   (904)  2,689 
Accounts payable and accrued liabilities, excluding asbestos  (20,899)  -   (20,899)
Changes in other operating assets and liabilities  (3,892)  (1,171)  (5,063)
Net cash provided by (used in) operating activities  38,386   -   38,386 

  Year Ended 
  December 31, 2008 
  As       
  Previously     As 
  Reported  Adjustment  Restated 
Cash flows from operating activities:         
Net income $(571) $1,102  $531 
Deferred income taxes  (13,357)  27   (13,330)
Accounts payable and accrued liabilities, excluding asbestos  7,020   24   7,044 
Changes in other operating assets and liabilities  (8,889)  (1,153)  (10,042)
Net cash provided by (used in) operating activities  (32,981)  -   (32,981)

  Year Ended 
  December 31, 2007 
  As       
  Previously     As 
  Reported  Adjustment  Restated 
Cash flows from operating activities:         
Net income $64,882  $764  $65,646 
Deferred income taxes  22,186   310   22,496 
Accounts payable and accrued liabilities, excluding asbestos  8,772   (24)  8,748 
Changes in other operating assets and liabilities  (2,666)  (1,050)  (3,716)
Net cash provided by (used in) operating activities  74,483   -   74,483 

CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
  As       
  Previously     As 
  Reported  Adjustment  Restated 
          
Year ended December 31, 2007 $14,829  $(495) $14,334 
             
Year ended December 31, 2008 $(80,676) $(43) $(80,719)
             
Year ended December 31, 2009 $7,586  $1,474  $9,060 
52
3.Charter Acquisition.

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, $6.6 million and $5.4 million are recorded in other assets on the consolidated balance sheets at December 31, 2009 and 2008, respectively. The Company records itsnoncontrolling parties’ ownership share of these investments’ net earnings, based on its economic ownership percentage. Accordingly, $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, 2009, 2008 and 2007, 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 the Charter Acquisition were recognized in the opening balance sheet at fair value. See Note 4, “Acquisitions” for additional information regarding the assets acquired in the Charter Acquisition.

Revenue Recognition

The Company generally recognizes revenues and costs from product sales when all of the following criteria are met: persuasive evidence of an arrangement exists, the price is fixed and 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.

51
In some cases, customer contracts may include multiple deliverables for product shipments

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company recognizes revenue and installation or maintenance labor. The 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, 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.

The 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 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. See Note 17, “Segment Information” for sales by major product group.

Customers may also request that the Company store products on their behalf until the product is generally quoted separately from the service costs, and the services that are provided are available from other vendors. Revenues from product shipments on this type of contract areneeded. Under these arrangements, revenue is recognized when title and risk of loss transferhave passed to the customer, and the service revenue components are recognized as services are performed.

For long-term contracts, revenue is generally recognized based on the percentage-of-completion method calculated on the units of delivery basis or the cost-to-cost basis. Percentage of completion revenue was approximately 2.2%, 0.9%, and 2.9% of consolidated revenues for the years ended December 31, 2009, 2008 and 2007, respectively. For long-term contracts in which reasonable estimates cannot be made, the Company uses the completed contract method.
customer.

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$19.4 million, $0.9$5.7 million and $0.6$6.2 million for the years endingended December 31, 2009, 20082012, 2011 and 2007,2010, respectively, are expensed as incurred and have beenare included in selling,Selling, general and administrative expenses.
53
expense in the Consolidated Statement of Operations.

Advertising Costs

Advertising costs of $15.7 million, $1.2 million, and $0.5 million for the years ended December 31, 2012, 2011 and 2010, 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

Receivables

Accounts 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 or market. Cost is primarily determined using the first-in, first-out method. 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.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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,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.

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 on December 31 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.


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 likely 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 likely 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 likely 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 analysis performedCompany 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 analyses performed as of the years ended December 31, 2009, 2008September 29, 2012, October 1, 2011 and 2007October 2, 2010 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 three to 1520 years.

54

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 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$3.2 million during the year ended December 31, 2012 recorded in 2009Restructuring and other related charges in connection with the closureConsolidated Statement of two facilities.Operations and $0.1 million during the year ended December 31, 2011 as a component of Selling, general and administrative expense in the Consolidated Statement of Operations. No such impairments were recorded in 2008 or 2007.

during the year ended December 31, 2010.

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 of America (“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 €157.6 million term A-3 facility, which has been designated as a net investment hedge 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.

 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 derivatives not designated as hedges are recognized currently in earnings.
Consolidated Balance Sheets.

See Note 14, “Financial Instruments and Fair Value Measurements” for additional information regarding the Company’s derivative instruments.

Self-Insurance

We are

The 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 reserves 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 reserves, included in Other accrued liabilities in the Consolidated Balance Sheets, related to self-insurance are as follows:

  December 31, 
  2012  2011 
  (In thousands) 
Medical insurance $383  $1,086 
Workers’ compensation  260   246 
Total self-insurance reserves $643  $1,332 

54

  December 31, 
  2009  2008 
       
Medical insurance $697  $563 
Workers' compensation  189   173 
         
Total self-insurance reserves $886  $736 

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

55
Warranty

The activity forin the years ended December 31, 2009 and 2008Company’s warranty liability, which is included in Other accrued liabilities in the Company’s Consolidated Financial Statements consisted of the following:

  2009  2008 
       
Warranty liability at beginning of the year $3,108  $2,971 
Accrued warranty expense, net of adjustments  860   801 
Changes in estimates related to pre-existing warranties  (552)  374 
Cost of warranty service work performed  (646)  (869)
Foreign exchange translation effect  82   (169)
         
Warranty liability at end of the year $2,852  $3,108 

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Warranty liability, beginning of period $2,987  $2,963  $2,852 
Accrued warranty expense  10,468   2,491   2,079 
Changes in estimates related to pre-existing warranties  9   (368)  (589)
Cost of warranty service work performed  (23,457)  (2,479)  (1,264)
Acquisitions  51,367   477   — 
Foreign exchange translation effect  (937)  (97)  (115)
Warranty liability, end of period $40,437  $2,987  $2,963 

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 deferredDeferred 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 tax assetDeferred income taxes 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.

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.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 in the consolidated statementsConsolidated Statements of operationsOperations for that period. The net foreign currency transaction (loss) gain (loss) in income was $(1.4)$(1.2) million, $0.3$0.2 million, and $1.0$(0.4) million for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, 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 $11.4 million and $1.1$4.3 million, respectively, were included in Other assets in the Consolidated Balance Sheets as of December 31, 20092012 and $3.32011 net of $2.9 million and $0.4$2.5 million, respectively, as of December 31, 2008.

accumulated amortization. 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.

56

Reclassifications

Certain

Given the impact of the Charter Acquisition on the Consolidated Financial Statements, certain prior period amounts have been reclassified to conform to current year presentations.

4. Recent

3. Recently Issued Accounting Pronouncements

In October 2009,July 2012, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)(“ASU”) No. 2009-13, 2012-02, “IntangiblesMultiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force—Goodwill and Other” (“ASU No. 2012-02”). ASU No. 2009-13 addresses2012-02 was intended to reduce the unitcost and complexity of accountingperforming an impairment test for arrangements involving multiple deliverables and how arrangement consideration should be allocatedindefinite-lived intangible assets by permitting an entity first to assess qualitative factors to determine whether it is more likely than not that the separate unitsfair value of accounting.an indefinite-lived intangible asset is less than its carrying amount. The Company will be required to adopt the provisionsadopted ASU No. 2012-02 in conjunction with its September 29, 2012 impairment analysis. The adoption of ASU No. 2009-13 prospectively beginning2012-02 did not have an impact on the Company’s Consolidated Financial Statements.

4. Acquisitions

Charter International plc

On January 1, 2011.  Earlier retrospective application13, 2012, Colfax completed the Charter Acquisition for a total purchase price of approximately $2.6 billion. Under the terms of the Charter Acquisition, Charter shareholders received 730 pence in cash and 0.1241 newly issued shares of Colfax Common stock in exchange for each share of Charter’s ordinary stock. Charter is permitted.a global industrial manufacturing company focused on welding, cutting and automation and air and gas handling. The acquisition is expected to:

enhance the Company’s business profile by providing a meaningful recurring revenue stream and considerable exposure to emerging markets;

•enable Colfax to benefit from strong secular growth drivers, with a balance of short- and long-cycle businesses; and
provide an additional growth platform in the fragmented fabrication technology industry.

See Note 10, “Debt” and Note 11, “Equity” for a discussion of the respective financing components of the Charter Acquisition.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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. 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 the date of acquisition.

The following table summarizes the Company’s best estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition. These amounts are determined 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. Substantially all of the Goodwill recognized is evaluatingnot expected to be deductible for income tax purposes.

  January 13, 
  2012 
  (In thousands) 
Trade receivables $683,976 
Inventories  449,906 
Property, plant and equipment  562,129 
Goodwill  1,625,635 
Intangible assets  715,643 
Accounts payable  (378,114)
Debt  (399,466)
Other assets and liabilities, net  (466,457)
   2,793,252 
Less: net assets attributable to noncontrolling interest  (241,201)
Net consideration $2,552,051 

The following table summarizes Intangible assets acquired, excluding Goodwill, as of January 13, 2012:

  Intangible  Weighted-Average 
  Asset  Amortization 
  (In thousands)  Period (Years) 
    
Customer relationships $215,310   7.10 
Acquired technology  77,485   10.33 
Backlog  54,805   1.00 
Trademarks  4,415   5.00 
Total amortizable intangible assets $352,015   6.84 
Trade names – indefinite life $363,628   n/a 

Soldex

On October 31, 2012, the effectsCompany completed the acquisition of implementingapproximately 91% of the provisionsoutstanding common and investment shares of this new guidance.

5. Acquisitions
Soldex S.A. (“Soldex”) for approximately $186.1 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. The Soldex 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 the date of acquisition.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the Company’s best estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition. These amounts are determined 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. Substantially all of the Goodwill recognized is not expected to be deductible for income tax purposes.

  October 31, 
  2012 
  (In thousands) 
Trade receivables $22,848 
Inventories  32,985 
Property, plant and equipment  28,921 
Goodwill  115,571 
Intangible assets  65,325 
Accounts payable  (6,682)
Debt  (36,734)
Other assets and liabilities, net  (33,654)
   188,580 
Less: net assets attributable to noncontrolling interest  (18,028)
Net consideration $170,552 

The following table summarizes Intangible assets acquired, excluding Goodwill, as of October 31, 2012:

  Intangible  Weighted-Average 
  Asset  Amortization 
  (In thousands)  Period (Years) 
    
Customer relationships $51,673   20.00 
Acquired technology  3,261   10.00 
Total amortizable intangible assets $54,934   19.41 
Trade names – indefinite life $10,391   n/a 

Other

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

acquisition:

Gas and Fluid Handling

On January 31, 2007,September 13, 2012, the Company purchased allcompleted the acquisition of the outstandingcommon stock of Lubrication Systems CompanyCo-Vent Group Inc. (“Co-Vent”) for $34.6 million. Co-Vent specializes in the custom design, manufacture, and testing of Texas (LSC), a manufacturer of fluid handling systems, including oil mist lubrication systems and lube oil purification systems, for $29.8 million.industrial fans, with its primary operations based in Quebec, Canada. As a result of thethis acquisition, of LSC, intangible assets of $22.6 million were recorded. The purchase of LSC complements the Company’s existing line of fluid handling products.

On November 29, 2007, the Company acquired Fairmount Automation, Inc. (Fairmount), an original equipment manufacturer of mission critical programmable automation controllershas expanded its product offerings in fluid handling applications primarily for the U.S. Navy, for $4.5 million plus contingent payments based on achievement of future revenue and earnings targets over the period endingindustrial fan market.

On 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. Remaining contingent payments, if any, of up to $1.3 million will also be recorded as additional goodwill. In addition to strengthening its existing position with the U.S. Navy,6, 2011, the Company is leveraging Fairmount’s experienced engineering talent and technology expertise to develop a portfolio of fluid handling solutions with diagnostic and prognostic capabilities for use in industrial applications.

On August 31, 2009, we completed the acquisition of PD-Technik Ingenieurbüro GmbHCOT-Puritech, Inc. (“PD-Technik”COT-Puritech”), a providerdomestic supplier of marine aftermarket related productsoil flushing and remediation services locatedto power generation plants, refinery and petrochemical operators and other industrial manufacturing sites, with primary operations based in Hamburg, Germany,Canton, Ohio, for $1.3a 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 acquiredacquired. 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 transaction.

Purchase price allocations are based on fair valueoil and gas end market to include multiphase pump systems that many of its customers already purchase.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On August 19, 2010, the Company completed the acquisition of Baric Group (“Baric”) for $27.0 million, net of cash acquired. Additionally, during the year ended December 31, 2010, a final working capital settlement of $0.2 million was paid pursuant to terms of the Baric purchase agreements. Baric is a supplier of highly engineered fluid-handling systems primarily for lubrication applications, with its primary operations based in Blyth, United Kingdom.

Fabrication Technology

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 assetsa 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.

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%.

Unaudited Pro Forma Financial Information

The following unaudited proforma financial information presents Colfax’s consolidated financial information assuming the acquisitions of Charter and liabilities. This information is obtained mainly through due diligence and other informationSoldex had taken place on January 1, 2011. These amounts are presented in accordance with GAAP, consistent with the Company’s accounting policies.

  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 sellers, as well as tangiblecalculation 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 intangible asset appraisals. The allocations for our significant acquisitions, Fairmount and LSC, are as follows:


  Fairmount  LSC 
       
Cash $1,155  $74 
Accounts receivable  243   5,809 
Inventories  469   4,248 
Prepaid expenses and other current assets  77   301 
Property, plant and equipment  109   428 
Goodwill  3,028   15,065 
Trade name  90   870 
Developed technology  860   2,770 
Backlog of open orders  -   552 
Customer relationships  990   3,330 
Other long-term assets  -   1,381 
Total assets acquired $7,021  $34,828 
Accounts payable and accrued liabilities assumed $1,698  $5,078 
57
Developed technology is being amortized over a term of 6 to 15 years. Backlog of open orders is amortized over a term of approximately one year. Customer relationships are being amortized over periods of 7 to 10 years. The weighted average amortization period for intangibles subject to amortization is approximately six years.
Goodwill deductible for income tax purposes due$50.3 million increase in the valuation allowance related to the FairmountCompany’s deferred tax assets in the U.S., discussed further in Note 6, “Income Taxes.”

5. Net (Loss) Income Per Share

Net (loss) income per share available to Colfax Corporation common shareholders was computed as follows:

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands, except share data) 
Net (loss) income available to Colfax Corporation common shareholders $(83,353) $4,555  $16,215 
Weighted-average shares of Common stock outstanding – basic  91,069,640   43,634,937   43,389,878 
Net effect of potentially dilutive securities(1)  —   633,173   277,347 
Weighted-average shares of Common stock outstanding – diluted  91,069,640   44,268,110   43,667,225 
             
Net (loss) income per share – basic and diluted $(0.92) $0.10  $0.37 

__________

(1)Potentially dilutive securities consist of stock options and restricted stock units.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company calculates Net (loss) income per share under the two-class method as the shares of the Company’s Series A Preferred Stock are considered participating securities. However, since there was a net loss for the year ended December 31, 2012 and LSC acquisitions is $2.8losses are not allocated to the holders of the Series A Preferred Stock, there was no impact of participating securities for the year ended December 31, 2012. The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the years ended December 31, 2012, 2011 and 2010 excludes approximately 2.8 million, 0.5 million and $14.41.3 million respectively.

The unaudited pro forma information below gives effect to these acquisitionsoutstanding stock-based compensation awards, respectively, as if they had occurred at the beginning of the period. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actuallytheir inclusion would have occurred had the acquisitions been consummated as of that time.
  Pro Forma 
  Year ended 
  December 31, 
  
2007
Restated
 
    
Net sales $510,021 
Net income  65,521 
     
Earnings per common share - basic and diluted $1.81 

be anti-dilutive.

6. Income Taxes

Income before income taxes and the components of the provisionProvision for income taxes were as follows:


  Year ended December 31, 
  
2009
Restated
  
2008
Restated
  
2007
Restated
 
          
Income (loss) before income tax expense:         
Domestic $698  $(54,303) $60,993 
Foreign  31,720   60,299   44,110 
             
  $32,418  $5,996  $105,103 
Provision for income taxes:            
Current income tax expense (benefit):            
Federal $(1,323) $(1,145) $444 
State  344   239   199 
Foreign  6,911   19,701   16,318 
             
   5,932   18,795   16,961 
Deferred income tax expense (benefit):            
Domestic  2,241   (12,607)  24,567 
Foreign  448   (723)  (2,071)
             
   2,689   (13,330)  22,496 
  $8,621  $5,465  $39,457 
U.S. income taxes atconsisted of the statutory rate reconciled to the overall U.S. and foreign provisionfollowing:

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
(Loss) income before income taxes:            
Domestic operations $(73,467) $(27,645) $(12,737)
Foreign operations  121,906   47,632   40,425 
  $48,439  $19,987  $27,688 
             
Provision for (benefit from) income taxes:            
Current:            
Federal $—  $182  $(30)
State  362   (94)  261 
Foreign  83,119   17,066   11,538 
   83,481   17,154   11,769 
Deferred:            
Domestic operations  50,340   —   — 
Foreign operations  (43,118)  (1,722)  (296)
   7,222   (1,722)  (296)
  $90,703  $15,432  $11,473 

The Company’s Provision for income taxes werediffers from the amount that would be computed by applying the U.S. federal statutory rate as follows:

58
  Year ended December 31, 
  
2009
Restated
  
2008
Restated
  
2007
Restated
 
          
Tax at U.S. federal income tax rate $11,346  $2,099  $36,786 
State taxes  34   (1,500)  2,131 
Effect of international tax rates  (2,260)  (3,342)  (2,230)
Payment of non-deductible underwriting fee  -   4,483   - 
Changes in valuation and tax reserves  (710)  2,903   755 
Inclusion of foreign earnings  -   -   1,565 
Other  211   822   450 
             
Provision for income taxes $8,621  $5,465  $39,457 

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Taxes calculated at the U.S. federal statutory rate $16,954  $6,995  $9,691 
State taxes  362   (421)  (5)
Effect of international tax rates  (24,070)  (2,988)  (2,522)
Change in enacted international tax rates  (12,305)  —   — 
Changes in valuation allowance and tax reserves  106,802   11,177   3,827 
Other  2,960   669   482 
Provision for income taxes $90,703  $15,432  $11,473 

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. Significant components of the deferred tax assets and liabilities wereare as follows:


  December 31, 
  2009  2008 
  Restated  Restated 
  Current  Long-Term  Current  Long-Term 
             
Deferred tax assets:            
Post-retirement benefit obligations $1,003  $23,262  $602  $25,632 
Expenses not currently deductible  9,552   30,200   7,536   30,017 
Net operating loss carryover  -   42,268   -   42,770 
Tax credit carryover  -   5,560   -   7,518 
Other  -   837   -   1,094 
                 
Total deferred tax assets  10,555   102,127   8,138   107,031 
Valuation allowance for deferred tax assets  (2,649)  (42,404)  (1,649)  (43,556)
                 
Net deferred tax assets  7,906   59,723   6,489   63,475 
                 
Net tax liabilities:                
Tax over book depreciation  -   10,578   -   10,809 
Other  1,074   7,680   -   6,979 
                 
Total deferred tax liabilities  1,074   18,258   -   17,788 
                 
Net deferred tax assets $6,832  $41,465  $6,489  $45,687 
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.

  December 31, 
  2012  2011 
  (In thousands) 
Deferred tax assets:        
Post-retirement benefit obligation $124,487  $39,172 
Expenses currently not deductible  124,537   50,121 
Net operating loss carryover  288,017   51,614 
Tax credit carryover  11,706   5,882 
Depreciation and amortization  17,010   — 
Other  7,228   1,358 
Valuation allowance  (372,039)  (79,855)
Deferred tax assets, net $200,946  $68,292 
         
Deferred tax liabilities:        
Depreciation and amortization $(286,173) $(13,437)
Post-retirement benefit obligation  (4,843)  — 
Inventory  (4,400)  — 
Other  (29,620)  (14,688)
Total deferred tax liabilities $(325,036) $(28,125)
Total deferred tax (liabilities) assets, net $(124,090) $40,167 

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 ending December 31, 2009,2012, the valuation allowance decreasedincreased from $45.2$79.9 million to $45.1$372.0 million with the decrease$103.8 million recognized in Provision for income tax expense.  The $0.1taxes, $167.7 million net decreaserecorded in 2009 wasthe opening accounts of the Charter Acquisition and $20.6 million recognized in Other comprehensive income. During the year ended December 31, 2011, the valuation allowance increased by $27.0 million, with $16.7 million and $10.3 million of the increase recognized in Provision for income taxes and Other comprehensive income, respectively, primarily attributabledue to a corresponding reduction inU.S. deferred tax assets due tothat the pension restatement, offset in part by an increase attributable to certain separate company losses the company believes mayCompany believed that it is more likely than not that they would be realized. 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.

59

The Company has U.S. net operating loss carryforwards of approximately $109.6$293.9 million expiring in years 2021 through 2028,2032, and 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, 2009, 20082012, 2011 and 2007, the Company intends that2010, 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 U.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, 20092012 is approximately $128.2$251.1 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.

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 adopted an accounting standard which created 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. As a result ofsustained upon examination by the implementation of this accounting standard, the Company increased its net liability for unrecognized tax benefits by $6.7 million with a corresponding charge to beginning retained earnings as of January 1, 2007.
respective taxing authority. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
Balance at December 31, 2007 $10,299 
     
Additions for tax positions in prior periods  886 
Additions for tax positions in current period  886 
Reductions for tax positions in prior periods  (1,658)
Foreign exchange impact / other  (312)
     
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 
follows (inclusive of associated interest and penalties):

  (In thousands) 
Balance, December 31, 2010 $8,896 
Addition for tax positions taken in prior periods  852 
Addition for tax positions taken in the current period  191 
Reduction for tax positions taken in prior periods  (5,802)
Other, including the impact of foreign currency translation  (60)
Balance, December 31, 2011  4,077 
Aquisitions  73,249 
Addition for tax positions taken in prior periods  1,391 
Addition for tax positions taken in the current period  5,241 
Reduction for tax positions taken in prior periods  (3,695)
Other, including the impact of foreign currency translation  4,393 
Balance, December 31, 2012 $84,656 

Prior year amounts were reclassified to be consistent with the current year presentation.

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, Hungary, Italy, 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 $84.7 million and $4.1 million as of December 31, 20092012 and 2008 totaled $9.32011, respectively, inclusive of $16.5 million and $11.1$0.4 million, inclusive of $0.5 million and $1.0 millionrespectively, of interest respectively.and penalties. These amounts were offset in part by tax benefits of approximately $0.7$0.5 million and $1.4 million for the years endedas of both December 31, 20092012 and 2008, respectively.2011. The net liabilities for uncertain tax positions for the years endedas of December 31, 20092012 and 20082011 were $8.6$84.2 million and $9.7$3.6 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 $1.3 million, $0.1 million and penalty expense recorded in income tax expense attributed to uncertain tax positions$0.1 million for the years endingended December 31, 2009, 20082012, 2011 and 2007 was $0.2 million, $0.2 million and $0.3 million,2010, 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 2004 to 2009 and in Germany, tax years 2003 and 2006 to 2008 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 $1.3$60 million.

60
7. Restructuring and Other Related Charges
The Company has initiated a series of restructuring actions during 2009 in response to current and expected future economic conditions. As a result, the Company recorded pre-tax restructuring and related costs of $18.2 million during the year ended December 31, 2009. As of December 31, 2009, we have reduced our company-wide workforce by 328 associates from December 31, 2008.  Additionally, during 2009, approximately 630 associates participated in a German government-sponsored furlough program in which the government pays the wage-related costs for the portion of the work week the associate is not working.  Payroll taxes and other employee benefits related to employees’ furlough time are included in restructuring costs. Our agreement with the German works council allowing participation in the furlough program ends February 2011.  Future restructuring costs that may be incurred cannot be reasonably estimated as of the date these financial statements are filed.
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, 2009 is shown below.
     Year Ended December 31, 2009    
  Restructuring        Foreign  Restructuring 
  Liability at        Currency  Liability at 
  Dec. 31, 2008  Provisions  Payments  Translation  Dec. 31, 2009 
Restructuring Charges:               
Termination benefits (1)
 $-  $15,218  $(5,545) $(200) $9,473 
Furlough charges (2)
  -   1,187   (1,273)  86   - 
Facility closure charges (3)
  -   1,122   (1,122)  -   - 
  Total Restructuring Charges $-   17,527  $(7,940) $(114) $9,473 
                     
Other Related Charges:                    
Asset impairment charges (4)
      648             
                     
Total Restructuring and Other Related Charges     $18,175             

(1)Includes severance and other termination benefits such as outplacement services.62
(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 asset impairment charges associated with the real estate and equipment at the Aberdeen, NC and Sanford, NC locations.
61
8. Earnings (Loss) Per Share

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

7. Goodwill and Intangible Assets

The following table presentssummarizes the computation of basic and diluted earnings (loss) per share:


  Year ended December 31, 
  
2009
Restated
  
2008
Restated
  
2007
Restated
 
Numerator:         
Net income $23,797  $531  $65,646 
Dividends on preferred stock  -   (3,492)  (25,816)
Net income (loss) available to common shareholders $23,797  $(2,961) $39,830 
             
Denominator:            
Weighted-average shares of common stock outstanding - basic  43,222,616   36,240,157   21,885,929 
Net income (loss) per share - basic $0.55  $(0.08) $1.82 
             
Weighted-average shares of common stock outstanding - basic  43,222,616   36,240,157   21,885,929 
Net effect of potentally dilutive securities (1)
  103,088   -   - 
Weighted-average shares of common stock outstanding - diluted  43,325,704   36,240,157   21,885,929 
Net income (loss) per share - diluted $0.55  $(0.08) $1.82 

(1)    Potentially dilutive securities consist of options and restricted stock units.
Inactivity in Goodwill, by segment during the years ended December 31, 20092012 and 2008, respectively, approximately 0.62011:

  

Gas and Fluid

Handling

  

Fabrication

Technology

  Total 
     (In thousands)    
Balance, January 1, 2011 $172,338  $—  $172,338 
Goodwill attributable to Rosscor acquisition  10,212   —   10,212 
Goodwill attributable to COT-Puritech acquisition  25,073   —   25,073 
Impact of foreign currency translation  (2,779)  —   (2,779)
Balance, December 31, 2011  204,844   —   204,844 
Goodwill attributable to Charter Acquisition  933,545   692,090   1,625,635 
Goodwill attributable to Soldex Acquisition  —   115,571   115,571 
Goodwill attributable to other acquisitions  21,376   5,699   27,075 
Impact of foreign currency translation  58,228   42,877   101,105 
Balance, December 31, 2012 $1,217,993  $856,237  $2,074,230 

The following table summarizes the Intangible assets, excluding Goodwill:

  December 31, 
  2012  2011 
  

Gross

Carrying

Amount

  Accumulated
Amortization		  

Gross

Carrying

Amount

  

Accumulated

Amortization

 
  (In thousands) 
Trade names – indefinite life $401,123  $—  $6,803  $— 
Acquired customer relationships  300,253   (24,763)  29,798   (12,987)
Acquired technology  107,018   (12,466)  17,961   (2,791)
Acquired backlog  63,984   (62,432)  3,451   (2,033)
Other intangible assets  12,352   (6,020)  4,962   (4,135)
  $884,730  $(105,681) $62,975  $(21,946)

See Note 4, “Acquisitions” for additional information regarding the activity in Goodwill and Intangible assets, net associated with acquisitions made by the Company during the years presented.

Amortization expense related to amortizable intangible assets was included in the Consolidated Statements of Operations as follows:

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Selling, general and administrative expense $85,106  $7,821  $3,501 

As of December 31, 2012, total amortization expense for amortizable intangible assets is expected to be $40.3 million, $38.9 million, $37.3 million, $37.3 million and 0.5$33.5 million potentially dilutive stock options, restricted stock unitsfor the years ended December 31, 2013, 2014, 2015, 2016 and deferred stock units were excluded from the calculation of diluted loss per share since their effect would have been anti-dilutive.


9. Inventories
Inventories consisted of the following:
  December 31, 
  2009  2008 
       
Raw materials $28,445  $34,074 
Work in process  32,888   33,691 
Finished goods  21,013   21,600 
         
   82,346   89,365 
Less-Customer progress billings  (3,171)  (2,115)
Less-Allowance for excess, slow-moving and obsolete inventory  (8,025)  (6,923)
         
  $71,150  $80,327 
62
10. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
  Depreciable  December 31, 
  Lives in Years  2009  2008 
          
Land -  $16,618  $16,593 
Buildings and improvements 3 - 40
 
  36,651   34,784 
Machinery and equipment 3 - 15   119,727   114,857 
Software 3 - 5   17,324   14,487 
            
      190,320   180,721 
Less-Accumulated depreciation     (98,230)  (88,631)
            
     $92,090  $92,090 

2017, respectively.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8.Property, Plant and Equipment, Net

    December 31, 
  Depreciable Life 2012  2011 
  (In years) (In thousands) 
Land n/a $40,319  $14,786 
Buildings and improvements 5-40  314,216   38,642 
Machinery and equipment 3-15  440,975   134,548 
Software 3-5  70,092   16,948 
     865,602   204,924 
Accumulated depreciation    (177,032)  (113,985)
Property, plant and equipment, net   $688,570  $90,939 

Depreciation expense, including the amortization of assets recorded under capital leases, for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, was approximately $11.8$71.7 million, $12.1$13.1 million and $11.8$12.1 million, respectively. These amounts include depreciation expense related to software for the years ended December 31, 2009, 20082012, 2011 and 20072010 of $10.5 million, $1.7 million $2.0and $1.9 million, respectively.

9.Inventories, Net

Inventories, net consisted of the following:

  December 31, 
  2012  2011 
  (In thousands) 
Raw materials $154,771  $25,241 
Work in process  99,459   26,376 
Finished goods  263,211   20,378 
   517,441   71,995 
Less: customer progress billings  (14,571)  (9,124)
Less: allowance for excess, slow-moving and obsolete inventory  (9,221)  (6,735)
Inventories, net $493,649  $56,136 

10.Debt

Long-term debt consisted of the following:

  December 31, 
  2012  2011 
  (In thousands) 
Term loans $1,682,177  $72,500 
Revolving credit facilities and other  46,134   39,018 
Total Debt  1,728,311   111,518 
Less: current portion  (34,799)  (10,000)
Long-term debt $1,693,512  $101,518 

As of December 31, 2011, the Company was party to a credit agreement (the “Bank of America Credit Agreement”), led and administered by Bank of America, which was a senior secured structure with a revolving credit facility and term credit facility. The term credit facility bore interest at the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 2.25% to 2.75% determined by the total leverage ratio calculated at the end of each quarter. As of December 31, 2011, the interest rate was 2.55% inclusive of a margin of 2.25%. Additionally, an annual commitment fee on the revolver ranged from 40 basis points to 50 basis points determined by the Company’s total leverage ratio calculated at the end of each quarter. As of December 31, 2011, the commitment fee was 40 basis points and there was $21.0 million outstanding on the letter of credit sub-facility.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the year ended December 31, 2012, the Company terminated the Bank of America Credit Agreement in conjunction with the financing of the Charter Acquisition. Upon the early termination of the Bank of America Credit Agreement, the Company incurred a total pre-tax charge of $1.5 million, which included the write-off of $1.0 million of deferred financing fees and $0.5 million of losses reclassified from Accumulated other comprehensive loss in the Consolidated Balance Sheet for the related interest rate swap to Interest expense in the Consolidated Statement of Operations.

On January 13, 2012 and January 25, 2012, Colfax incurred debt consisting of: (i) a $200 million term A-1 facility, (ii) a $500 million term A-2 facility, (iii) a €157.6 million term A-3 facility and (iv) a $900 million term B facility pursuant to a credit agreement (the “Deutsche Bank Credit Agreement”) with Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and certain other lender parties named therein. In addition, the Deutsche Bank Credit Agreement has two revolving credit sub-facilities which total $300 million in commitments (the “Revolver”). The Revolver includes a $200 million letter of credit sub-facility and a $50 million swingline loan sub-facility. The term A-1, term A-2, term A-3 and the Revolver variable-rate borrowings are subject to interest payments of LIBOR or the Euro Interbank Offered Rate (“EURIBOR”) plus a margin ranging from 2.50% to 3.25%, determined by our leverage ratio. Borrowings under the term B facility are also variable rate and are subject to interest payments of LIBOR plus a margin of 3.5%. The Revolver is subject to a commitment fee ranging from 37.5 to 50 basis points, determined by the Company’s leverage ratio. Additionally, as of December 31, 2012 the Company had an original issue discount of $55.4 million and $2.6deferred financing fees of $8.5 million, respectively.

11. Goodwillwhich were recognized in connection with the Deutsche Bank Credit Agreement. As of December 31, 2012, the weighted-average interest rate of borrowings under the Deutsche Bank Credit Agreement was 3.93% and Intangible Assets
Changesthere was $291.9 million available under the Revolver, including $191.9 available under the letter of credit sub-facility.

The Company is also party to additional letter of credit facilities with total borrowing capacity of $474.8 million, of which $330.0 million was outstanding as of December 31, 2012.

The contractual maturities of the Company’s debt as of December 31, 2012 are as follows(1):

  (In thousands) 
2013 $34,799 
2014  119,307 
2015  190,557 
2016  423,170 
2017  145,167 
Thereafter  870,667 
Total contractual maturities  1,783,667 
Debt discount  (55,356)
Total debt $1,728,311 

__________

(1)Represents scheduled payments required under the Deutsche Bank Credit Agreement through the respective final maturities of the term A facilities through January 13, 2017 and the term B facility through January 13, 2019, as well as the contractual maturities of other debt outstanding as of December 31, 2012.

In March 2012, the Company used a portion of the proceeds from the sale of Common stock to pay off $35.0 million in borrowings under the term A facilities in advance of the scheduled payments. During the year ended December 31, 2012, the Company repaid an additional $26.3 million in borrowings under the term A facilities in advance of the scheduled payments. See Note 11, “Equity” for additional discussion regarding the Company’s stock issuances.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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, 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 2.0 to 1.0, measured at the end of each quarter, through the year ended December 31, 2012. The minimum interest coverage ratio increases by 25 basis points each year beginning in the carryingyear ending December 31, 2013 until it reaches 3.0 to 1.0 for the year ending December 31, 2016. 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 for the two subsequent fiscal years until it reaches 4.25 to 1.0 for the year ending December 31, 2016. 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 Revolver and foreclose on the collateral. The Company is in compliance with all such covenants as of December 31, 2012.

11.Equity

Common and Preferred Stock

During the years ended December 31, 2012, 2011 and 2010, 452,062, 248,017 and 194,999 shares of Common stock, respectively, were issued in connection with stock option exercises and employee share-based payment arrangements that vested during the year.

On 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 an increase in Preferred stock from 10,000,000 shares to 20,000,000 shares.

In 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 event 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.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

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.

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 components of Accumulated other comprehensive loss, net of tax, are as follows:

  December 31, 
  2012  2011 
  (In thousands) 
Foreign currency translation adjustment $104,718  $(5,537)
Unrealized loss on hedging activities  (3,980)  (471)
Net unrecognized pension and other post-retirement benefit cost  (247,332)  (164,785)
Accumulated other comprehensive loss $(146,594) $(170,793)

The activity in Accumulated other comprehensive loss for the year ended December 31, 2012 excludes the $4.4 million of Other comprehensive income attributable to Noncontrolling interest, comprised of $4.8 million of foreign currency translation partially offset by $0.4 million of changes in unrecognized pension and other post-retirement benefits cost.

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, 
  2012  2011  2010 
  (In thousands) 
Stock-based compensation expense $9,373  $4,908  $3,137 
Deferred tax benefit  305   1,719   1,120 

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of December 31, 2012, the Company had $23.5 million of unrecognized compensation expense related to stock-based awards that will be recognized over a weighted-average period of approximately 2.4 years. The intrinsic value of awards exercised or converted was $9.9 million, $3.8 million and $1.2 million during the years ended December 31, 20092012, 2011 and 2010, respectively.

Stock Options

Under the 2008 are as follows:

  
Goodwill
Restated
 
    
Balance December 31, 2007 $165,123 
     
Contingent purchase price payment for Fairmount acquisition  439 
Adjustments due to finalization of purchase price allocations  165 
Impact of changes in foreign exchange rates  (4,033)
     
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 
Other intangible assets consistedPlan, 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 following:

  December 31, 
  2009  2008 
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
 
             
Acquired customer relationships $15,512  $(8,989) $14,450  $(7,022)
Trade names - indefinite life  2,062   -   2,040   - 
Acquired developed technology  5,811   (2,444)  5,808   (1,760)
Other intangibles  146   (146)  464   (464)
                 
  $23,531  $(11,579) $22,762  $(9,246)
63
Company’s Common stock on the date of grant. In connectionthe 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.

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, 
  2012  2011  2010 
    
Expected period that options will be outstanding (in years)  5.41   4.50   4.50 
Interest rate (based on U.S. Treasury yields at the time of grant)  0.99%  2.10%  2.38%
Volatility  42.59%  52.50%  52.22%
Dividend yield  —   —   — 
Weighted-average fair value of options granted $13.14  $9.68  $5.63 

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 acquisitioncontinued use of PD-Technikthis method extended under the provisions of Staff Accounting Bulletin No. 110.

Stock option activity is as follows:

  

Number

of Options

  

Weighted-

Average

Exercise

Price

  

Weighted-
Average

Remaining
Contractual

Term

(In years)

  

Aggregate

Intrinsic

Value(1)

(In thousands)

 
Outstanding at January 1, 2012  1,461,157  $14.76         
Granted  1,265,781   33.37         
Exercised  (425,782)  12.59         
Forfeited  (73,494)  29.27         
Expired  (17,546)  14.96         
Outstanding at December 31, 2012  2,210,116  $25.35   5.63  $33,142 
Vested or expected to vest at December 31, 2012  2,178,251  $25.28   5.62  $32,828 
Exercisable at December 31, 2012  614,885  $14.40   4.20  $15,653 

__________

(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.

68

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Restricted Stock Units

Under the 2008 Plan, the Compensation Committee of the Board of Directors may award performance-based restricted stock units (“PRSUs”) 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 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 2009, customer relationship intangiblestwo equal installments on the fourth and fifth anniversary of $0.9 millionthe 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.

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 acquiredsubject to separate criterion.

The activity in the Company’s PRSUs and are being amortized over a periodRSUs 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, 2012  324,447  $15.99   64,263  $14.71 
Granted  283,804   33.48   38,511   33.30 
Vested  (17,942)  18.11   (44,140)  15.40 
Forfeited  (29,358)  23.12   (3,758)  28.94 
Nonvested at December 31, 2012  560,951  $24.40   54,876  $26.23 

The fair value of six years.


Amortization expense forshares vested during the years ended December 31, 2009, 20082012, 2011 and 20072010 was approximately $2.6$1.9 million, $2.7$1.1 million and $3.4$1.0 million, respectively. Amortization

12.Accrued Liabilities

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

  December 31, 
  2012  2011 
  (In thousands) 
Accrued payroll $99,583  $21,415 
Advance payment from customers  61,431   14,704 
Accrued taxes  39,919   4,911 
Accrued asbestos-related liability  58,501   76,295 
Warranty liability – current portion  35,678   2,987 
Accrued restructuring liability – current portion  25,406   4,573 
Accrued third-party commissions  12,320   5,884 
Accrued Charter Acquisition-related liability  —   29,430 
Other  108,195   15,808 
Accrued liabilities $441,033  $176,007 

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accrued Restructuring Liability

The Company initiated a series of restructuring actions beginning in 2009 in response to then current and expected future economic conditions. The Company also communicated initiatives to improve productivity and reduce structural costs by rationalizing and leveraging its existing assets and back office functions. These initiatives include the consolidation of the Company’s commercial marine end-market operations, reduction in the back office personnel at several distribution centers in Europe, the closure of a small facility that previously produced units sold to certain customers located in the Middle East that the Company ceased supplying to during the year ended December 31, 2010, and the closure of a Portland, Maine production facility and consolidation of the operations with a Warren, Massachusetts facility.

During the year ended December 31, 2010, the Company participated in a German government-sponsored furlough program in which the government paid the wage-related costs for participating associates. Payroll taxes and other employee benefits related to employees’ furlough time are included in restructuring costs.

During the year ended December 31, 2011, the Company relocated its Richmond, Virginia corporate headquarters to Fulton, Maryland and eliminated an executive position in its German operations.

As a result of the Charter Acquisition in 2012, the Company’s restructuring programs expanded to include ongoing initiatives at the Company’s fabrication technology operations and efforts to reduce the structural costs and rationalize the corporate overhead of the combined businesses. Initiatives at the Company’s fabrication technology operations include the transfer of European capacity, a reduction in fixed overhead in Europe and the replacement of an old factory in the U.S. with a modern, lower cost and higher capacity facility.

The Company’s Consolidated Statements of Operations reflect the following amounts related to its restructuring activities:

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Restructuring and other related charges $60,060  $9,680  $10,323 

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

A 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, 2012 
  Balance at
Beginning
of Year		  Acquisitions  Provisions  Payments  Foreign
Currency
Translation		  Balance at
End of
       Year(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 charges  72   —   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 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 closure of facilities, discussed above.

(3)As of December 31, 2012, $25.4 million and $1.9 million of the Company’s restructuring liability was included in Accrued liabilities and Other liabilities, respectively.

The Company expects to incur an additional $30.0 million of employee termination benefits, facility closure costs, relocation expense forand operating lease exit costs during the next five fiscal years is expectedyear ending December 31, 2013 related to be: 2010—$2.5 million, 2011—$2.5 million, 2012—$2.2 million, 2013—$1.0 million, and 2014—$0.7 million.

12. Retirement and Benefit Plans
these restructuring activities.

13.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.


COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the total changes in our pensionthe 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, 
2009
Restated
  
2008
Restated
  2009  2008 
             
Change in benefit obligation:            
Projected benefit obligation at beginning of year $295,165  $303,654  $10,370  $7,304 
Service cost  1,381   1,160   -   - 
Interest cost  17,577   17,429   525   501 
Plan amendments  -   -   -   2,359 
Actuarial loss  10,662   3,740   772   901 
Acquisitions  72   -   -   - 
Settlement/curtailment  -   -   -   - 
Foreign exchange effect  2,958   (7,844)  -   - 
Benefits paid  (21,244)  (22,974)  (808)  (695)
                 
Projected benefit obligation at end of year $306,571  $295,165  $10,859  $10,370 
                 
Accumulated benefit obligation at end of year $303,598  $290,007  $-  $- 
                 
Change in plan assets:                
Fair value of plan assets at beginning of year $192,859  $257,036  $-  $- 
Actual return on plan assets  29,193   (42,694)  -   - 
Employer contribution  7,517   5,695   808   695 
Acquisitions  60   -   -   - 
Foreign exchange effect  1,536   (4,204)  -   - 
Benefits paid  (21,244)  (22,974)  (808)  (695)
                 
Fair value of plan assets at end of year $209,921  $192,859  $-  $- 
                 
Funded status at end of year $(96,650) $(102,306) $(10,859) $(10,370)
                 
Amounts recognized in the balance sheet at December 31:                
Non-current assets $244  $132  $-  $- 
Current liabilities  (1,114)  (1,153)  (1,409)  (1,437)
Non-current liabilities  (95,780)  (101,285)  (9,450)  (8,933)
                 
Total $(96,650) $(102,306) $(10,859) $(10,370)

  Pension Benefits  Other Post-Retirement 
         Benefits		 
  Year Ended December 31,  Year Ended December 31, 
  2012  2011  2012  2011 
  (In thousands) 
Change in benefit obligation:                
Projected benefit obligation, beginning of year $347,911  $331,288  $15,397  $13,803 
Acquisitions  1,148,906   —   22,629   — 
Service cost  3,381   1,383   110   — 
Interest cost  67,745   16,408   1,507   690 
Actuarial (gain) loss  135,715   25,764   (1,449)  1,507 
Settlement(1)  —   (2,857)  —   — 
Foreign exchange effect  45,458   (1,921)  —   — 
Benefits paid  (84,333)  (22,154)  (2,675)  (603)
Other  355   —   —   — 
Projected benefit obligation, end of year $1,665,138  $347,911  $35,519  $15,397 
Accumulated benefit obligation, end of year $1,641,252  $343,767  $33,405  $— 
Change in plan assets:                
Fair value of plan assets, beginning of year $221,004  $231,240  $—  $— 
Acquisitions  954,919   —   —   — 
Actual return on plan assets  100,153   6,864   —   — 
Employer contribution(2)  58,494   8,684   2,675   603 
Settlement(1)  —   (3,388)  —   — 
Foreign exchange effect  37,359   (242)  —   — 
Benefits paid  (84,333)  (22,154)  (2,675)  (603)
Other  248   —   —   — 
Fair value of plan assets, end of year $1,287,844  $221,004  $—  $— 
Funded status, end of year $(377,294) $(126,907) $(35,519) $(15,397)
                 
Amounts recognized on the Consolidated Balance Sheet at December 31:                
                 
Non-current assets $31,826  $—  $—  $— 
Current liabilities  (5,639)  (1,079)  (3,076)  (795)
Non-current liabilities  (403,481)  (125,828)  (32,443)  (14,602)
Total $(377,294) $(126,907) $(35,519) $(15,397)

__________

(1)Represents the change in benefit obligation and plan assets related to the termination of a frozen pension plan of one of the Company’s non-U.S. subsidiaries.

(2)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 $301.2 million$1.3 billion and $207.2$864.6 million, respectively, as of December 31, 20092012 and $288.1$343.8 million and $190.7$221.0 million, respectively, as of December 31, 2008.


64

2011.

The projected benefit obligation and fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets were $304.1 million$1.3 billion and $207.2$868.2 million, respectively, as of December 31, 20092012 and $293.1$347.9 million and $190.7$221.0 million, respectively, as of December 31, 2008.


2011.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the changes in ourthe Company’s foreign pension plans’ obligationsPension benefit 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, 2009  2008 
       
Change in benefit obligation:      
Projected benefit obligation at beginning of year $82,253  $83,649 
Service cost  1,381   1,160 
Interest cost  4,668   4,364 
Actuarial (gain) loss  (5,947)  5,786 
Acquisitions  72   - 
Foreign exchange effect  2,958   (7,844)
Benefits paid  (4,425)  (4,862)
         
Projected benefit obligation at end of year $80,960  $82,253 
         
Accumulated benefit obligation at end of year $77,988  $77,097 
         
Change in plan assets        
Fair value of plan assets at beginning of year $23,219  $28,918 
Actual return on plan assets  1,390   69 
Employer contribution  3,061   3,298 
Acquisitions  60   - 
Foreign exchange effect  1,536   (4,204)
Benefits paid  (4,425)  (4,862)
         
Fair value of plan assets at end of year $24,841  $23,219 
         
Funded status at end of year $(56,119) $(59,034)

  Foreign Pension Benefits 
  Year Ended December 31, 
  2012  2011 
  (In thousands) 
Change in benefit obligation:        
Projected benefit obligation, beginning of year $97,108  $95,136 
Acquisitions  957,080   — 
Service cost  3,381   1,383 
Interest cost  49,291   5,132 
Actuarial loss  85,167   5,704 
Settlement(1)  —   (2,857)
Foreign exchange effect  45,458   (1,921)
Benefits paid  (56,816)  (5,469)
Other  355   — 
Projected benefit obligation, end of year $1,181,024  $97,108 
Accumulated benefit obligation, end of year $1,157,140  $92,964 
Change in plan assets:        
Fair value of plan assets, beginning of year $32,339  $34,071 
Acquisitions  817,258   — 
Actual return on plan assets  58,139   3,039 
Employer contribution(2)  49,640   4,328 
Settlement(1)  —   (3,388)
Foreign exchange effect  37,359   (242)
Benefits paid  (56,816)  (5,469)
Other  248   — 
Fair value of plan assets, end of year $938,167  $32,339 
Funded status, end of year $(242,857) $(64,769)

__________

(1)Represents the change in benefit obligation and plan assets related to the termination of a frozen pension plan of one of the Company’s non-U.S. subsidiaries.

(2)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 2010the year ended December 31, 2013, related to plans as of December 31, 2012, are $5.5 million. The$51.8 million.The following benefit payments are expected to be paid during the years ending December 31:


        Other 
  Pension Benefits  Post-retirement 
  All Plans  Foreign Plans  Benefits 
  Restated       
          
2010 $22,203  $4,664  $1,409 
2011  23,308   4,760   843 
2012  22,290   4,793   850 
2013  22,219   4,858   840 
2014  22,281   4,969   817 
Years 2015-2019  109,186   24,652   3,689 
each respective fiscal year:

  Pension Benefits  Other Post- 
  All Plans  Foreign Plans  Retirement
Benefits		 
  (In thousands) 
2013 $88,543  $58,090  $3,076 
2014  89,878   59,343   2,965 
2015  89,937   59,450   2,821 
2016  90,498   59,941   2,783 
2017  93,000   62,654   2,676 
Thereafter  469,090   321,728   9,899 

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:


65

  Actual Allocation    
  December 31,  Target 
  2009  2008  Allocation 
          
United States Plans:         
Equity securities:         
U.S.  39%  36%  34% - 42%
International  12   12   10% - 14%
Fixed income securities  34   37   27% - 43%
Hedge fund  15   15   13% - 17%
             
Foreign Plans:            
Large cap equity securities  15   19   0% - 20%
Fixed income securities  83   80   80% - 100%
Cash and cash equivalents  2   1   0% - 5%

The following table presents

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

  

Actual Asset Allocation

December 31,

  

 

 

Target

  2012  2011  Allocation
U.S. Plans:   
Equity securities:          
U.S.  36%  32% 30% - 45%
International  15%  16% 10% - 20%
Fixed income  37%  33% 30% - 50%
Hedge funds  11%  19% 0% - 20%
Cash and cash equivalents  1%  —  0% - 5%
Foreign Plans:          
Equity securities  37%  22% 20% - 45%
Fixed income securities  58%  54% 50% - 80%
Cash and cash equivalents  2%  23% 0% - 25%
Other  3%  1% 0% -5%

A summary of 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, 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.
74

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

  December 31, 2011 
  

Level

One

  

Level

Two

  

Level

Three

  

 

Total

 
  (In thousands) 
U.S. Plans:                
Equity securities:                
U.S. large cap $50,572  $—  $—  $50,572 
U.S. small/mid cap  10,633   —   —   10,633 
International  29,400   —   —   29,400 
Fixed income mutual funds:                
U.S. government and corporate  40,561   —   —   40,561 
High-yield bonds  15,258   —   —   15,258 
Emerging markets debt  5,920   —   —   5,920 
Multi-strategy hedge funds  —   —   36,321   36,321 
Foreign Plans:                
Cash and cash equivalents  7,595   —   —   7,595 
Equity securities  6,953   —   —   6,953 
Non-U.S. government bonds  —   17,576   —   17,576 
Other(1)  —   215   —   215 
  $166,892  $17,791  $36,321  $221,004 

__________

(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, 2009.  Themulti-strategy hedge funds and the 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.


  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   -   - 
Foreign  22,548   22,548   -   - 
Fixed income mutual funds:                
U.S.  50,805   50,805   -   - 
Foreign  11,386   11,386   -   - 
Hedge fund  26,769   -   -   26,769 
                 
Foreign Plans:                
Cash and cash equivalents  568   568   -   - 
Large cap equity securities  3,688   3,688   -   - 
Fixed income securities  20,585   -   20,585   - 
                 
  $209,921  $162,567  $20,585  $26,769 

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, 2012 or 2011. A summary of the changes in the fair value of the Company’s pension assets included in Level 3 assets held duringThree of the year ended December 31, 2009.

Balance at January 1, 2009 $25,983 
Unrealized gains  786 
     
Balance at December 31, 2009 $26,769 

66

fair value hierarchy is as follows:

  (In thousands) 
Balance, January 1, 2010 $26,769 
Net purchases and sales  9,036 
Realized loss  (316)
Unrealized gain  853 
Balance, December 31, 2010  36,342 
Unrealized loss  (21)
Balance, December 31, 2011  36,321 
Realized loss  152 
Unrealized gain  2,359 
Balance, December 31, 2012 $38,832 

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the components of net periodic benefit cost and Other comprehensive loss (income) of the non-contributory defined benefit pension plans and the Company’s other post-retirement employee benefit plans:

  Pension Benefits  Other Post-Retirement Benefits 
  Year Ended December 31,  Year Ended December 31, 
  2012  2011  2010  2012  2011  2010 
  (In thousands) 
Components of Net Periodic Benefit Cost:                        
Service cost $3,381  $1,383  $1,168  $110  $—  $— 
Interest cost  67,743   16,408   16,514   1,507   690   553 
Amortization  8,091   5,839   4,593   801   852   482 
Plan combinations(1)  —   —   2,877   —   —   — 
Settlement loss  —   1,499   —   —   —   — 
Other  28   —   —   —   —   — 
Expected return on plan assets  (61,094)  (18,101)  (19,331)  —   —   — 
Net periodic benefit cost $18,149  $7,028  $5,821  $2,418  $1,542  $1,035 
Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss (Income):                        
Current year net actuarial loss (gain) $98,784  $37,037  $16,736  $(1,449) $1,507  $3,671 
Less amounts included in net periodic benefit cost:                        
Amortization of net loss  (8,012)  (5,839)  (4,593)  (553)  (604)  (234)
Settlement loss  —   (835)  —   —   —   — 
Amortization of prior service cost  (79)  —   —   (248)  (248)  (248)
Total recognized in Other comprehensive loss (income) $90,693  $30,363  $12,143  $(2,250) $655  $3,189 

__________

(1)Represents the transfer of assets associated with the pension obligation assumed by the Company for a group of former employees.

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

  Foreign Pension Benefits 
  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Components of Net Periodic Benefit Cost:   
Service cost $3,381  $1,383  $1,168 
Interest cost  49,291   5,132   4,138 
Amortization  944   588   385 
Plan combinations(1)  —   —   2,877 
Settlement loss  —   1,499   — 
Other  28   —   — 
Expected return on plan assets  (36,535)  (1,400)  (1,259)
Net periodic benefit cost $17,109  $7,202  $7,309 
Change in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss:            
Current year net actuarial loss $65,689  $4,101  $5,062 
Less amounts included in net periodic benefit cost:            
Amortization of net loss  (865)  (588)  (385)
Settlement loss  —   (835)  — 
Amortization of prior service cost  (79)  —   — 
Total recognized in Other comprehensive loss $64,745  $2,678  $4,677 

__________

(1)Represents the transfer of assets associated with the pension obligation assumed by the Company for a group of former employees.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The components of net periodic costunrecognized pension and other comprehensive (income) loss were as follows:


  
Pension Benefits
  
Other Post-retirement Benefits
 
  
2009
Restated
  
2008
Restated
  
2007
Restated
  
2009
  
2008
  
2007
 
                   
Components of net periodic benefit cost:                  
Service cost $1,381  $1,160  $1,170  $-  $-  $- 
Interest cost  17,577   17,429   16,954   525   501   445 
Amortization  3,639   2,523   3,606   353   227   133 
Expected return on plan assets  (19,570)  (20,509)  (19,667)  -   -   - 
                         
Net periodic benefit cost $3,027  $603  $2,063  $878  $728  $578 
                         
Change in plan assets and benefit obligations recognized in other comprehensive (income) loss:                        
Current year net actuarial loss (gain)  710   66,101   (8,225)  772   901   167 
Prior service cost  -   -   -   -   2,359   - 
Less amounts included in net periodic cost:              -         
Amortization of net loss  (3,639)  (2,523)  (3,606)  (104)  (165)  (133)
Amortization of prior service cost  -   -   -   (249)  (62)  - 
                         
Total recognized in other comprehensive (income) loss $(2,929) $63,578  $(11,831) $419  $3,033  $34 

The components of net periodicpost-retirement benefit cost andincluded in Accumulated other comprehensive (income) loss for our foreign pension plans, included withinin the previous disclosure, were as follows:

  Foreign Pension Benefits 
  2009  2008  2007 
          
Components of net periodic benefit cost:         
Service cost $1,381  $1,160  $1,170 
Interest cost  4,668   4,364   3,738 
Recognized net actuarial loss  808   348   718 
Expected return on plan assets  (1,204)  (1,456)  (1,538)
             
Net periodic benefit cost $5,653  $4,416  $4,088 
             
Change in plan assets and benefit obligations recognized in other comprehensive loss (income):            
Current year net actuarial (gain) loss  (6,464)  6,339   (4,202)
Less amounts included in net periodic cost:            
Amortization of net loss  (808)  (348)  (718)
             
Total recognized in other comprehensive loss (income) $(7,272) $5,991  $(4,920)

67

The components of accumulated other comprehensive incomeConsolidated Balance Sheets that have not been recognized as componentsa component of net periodic benefit cost are as follows:

     Other 
  Pension Benefits  Post-retirement Benefits 
At December 31, 
2009
Restated
  
2008
Restated
  2009  2008 
             
Net actuarial loss $141,614  $144,543  $3,337  $2,669 
Prior service cost  -   -   2,048   2,297 
                 
Total $141,614  $144,543  $5,385  $4,966 

  Pension Benefits  Other Post-Retirement
Benefits		 
  December 31,  December 31, 
  2012  2011  2012  2011 
  (In thousands) 
Net actuarial loss $275,211  $184,532  $5,676  $7,677 
Prior service cost  —   —   1,303   1,552 
Total $275,211  $184,532  $6,979  $9,229 

The components of accumulatednet unrecognized pension and other post-retirement benefit cost included in Accumulated other comprehensive incomeloss in the Consolidated Balance Sheets that are expected to be recognized inas a component of net periodic benefit cost during the year ended December 31, 20102013 are as follows:


  Pension  Other 
  Benefits  Post-retirement 
  Restated  Benefits 
       
Net actuarial loss $4,565  $248 
Prior service cost  -   233 
         
Total $4,565  $481 

  Pension Benefits  

Other Post-

Retirement

Benefits

 
  (In thousands) 
Net actuarial loss $10,151  $465 
Prior service cost  —   248 
Total $10,151  $713 

The key economic assumptions used in the measurement of the Company’s pension and other post-retirement benefit obligations at December 31, 2009 and 2008 are as follows:

  Pension Benefits  
Other
Post-retirement Benefits
 
  2009  2008  2009  2008 
             
Weighted-average discount rate:            
For all plans  5.7%  6.1%  5.6%  6.0%
For all foreign plans  5.6%  5.8%  -   - 
                 
Weighted-average rate of increase in compensation levels for active foreign plans  2.0%  2.1%  -   - 

  Pension Benefits  Other Post-Retirement
Benefits		 
  December 31,  December 31, 
  2012  2011  2012  2011 
Weighted-average discount rate:                
All plans  4.0%  4.2%  3.4%  4.2%
Foreign plans  4.2%  4.9%  —   — 
                 
Weighted-average rate of increase in compensation levels for active foreign plans  1.5%  2.6%  —   — 

The key economic assumptions used in the computation of net periodic benefit cost for the years ended December 31, 2009, 2008 and 2007 are as follows:

  Pension Benefits  Other Post-retirement Benefits 
  2009  2008  2007  2009  2008  2007 
                   
Weighted-average discount rate:                  
For all plans  6.1%  6.0%  5.9%  6.0%  6.3%  6.0%
For all foreign plans  5.8%  4.7%  5.4%  -   -   - 
                         
Weighted-average expected return on plan assets:                        
For all plans  8.3%  8.3%  8.4%  -   -   - 
For all foreign plans  5.0%  5.1%  5.5%  -   -   - 
                         
Weighted-average rate of increase in compensation levels for active foreign plans  2.1%  2.2%  2.6%  -   -   - 

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  Pension Benefits  Other Post-Retirement Benefits 
  Year Ended December 31,  Year Ended December 31, 
  2012  2011  2010  2012  2011  2010 
Weighted-average discount rate:                        
All plans  4.6%  5.0%  5.7%  4.3%  5.2%  5.6%
Foreign plans  4.7%  5.1%  5.6%  —   —   — 
Weighted-average expected return on plan assets:                        
All plans  5.3%  7.7%  8.3%  —   —   — 
Foreign plans  4.5%  4.7%  5.4%  —   —   — 
Weighted-average rate of increase in compensation levels for active foreign plans  1.3%  2.6%  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.


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 7.0%10.7% was assumed. The rate was assumed to decrease gradually to 4.5% by 2027 for three of the Company’s plans and to 5.0% by 20142019 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.


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 Percentage
Point Increase
  
1 Percentage
Point Decrease
 
       
Effect on total service and interest cost components for 2009 $44  $(35)
Effect on post-retirement benefit obligation at December 31, 2009  1,201   (945)

  1% Increase  1% Decrease 
  (in thousands) 
Effect on total service and interest cost components for the year ended December 31, 2012 $165  $(142)
Effect on post-retirement benefit obligation at December 31, 2012  3,149   (2,659)

The Company maintains defined contribution plans covering substantially all of theirits non-union domestic employees, as well asand certain union domestic 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 2009, 2008 and 2007 was $2.4 million, $2.2 million and $2.0 million, respectively, related to these plans.

13. Debt
Long-term debt consisted of the following:
  December 31, 
  2009  2008 
Term A notes (senior bank debt) $91,250  $96,250 
Capital leases and other  235   871 
         
Total debt  91,485   97,121 
         
Less-current portion Term A  (8,750)  (5,000)
Less-current portion capital leases and other  (219)  (420)
         
  $82,516  $91,701 
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, 2009, the interest rate was 2.48% inclusive of 2.25% margin.  The Term A Note, as entered into on May 13, 2008, has $1.25 million due on a quarterly basis on the last day of each March, June, September and December beginning with June 30, 2008 and ending March 31, 2010, $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.

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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, 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. 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 it is doubtful that we would be able to draw on their commitment of $6.0 million.  At December 31, 2008, the commitment fee was 0.4% and there was $16.7 million outstanding on the letter of credit sub-facility, leaving approximately $130 million available under the revolver loan.
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, 2009.
The future aggregate annual maturities of long-term debt and annual principal payments for capital leases at December 31, 2009 are:

  Term Debt  
Capital Leases
& Other
  Total 
          
2010 $8,750  $219  $8,969 
2011  10,000   7   10,007 
2012  10,000   9   10,009 
2013  62,500   -   62,500 
2014  -   -   - 
             
Total $91,250  $235  $91,485 
14. 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.

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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 2009, 18,078 shares of common stock were issued in connection with employee share-based payment arrangements that vested during the year.
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.
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, 
  
2009
Restated
  
2008
Restated
 
       
Foreign currency translation adjustment $14,188  $8,787 
Unrealized losses on hedging activities  (3,035)  (5,050)
Net unrecognized pension and other post-retirement benefit costs  (120,950)  (122,594)
         
Total accumulated other comprehensive loss $(109,797) $(118,857)
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.

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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. In the years ended December 31, 2009 and 2008, $2.6 million and $1.3 million, respectively, of compensation cost and deferred tax benefits of approximately $0.9 million and $0.4 million, respectively, were recognized. At December 31, 2009, the Company had $4.5 million of unrecognized compensation expense related to stock-based awards that will be recognized over a weighted-average period of approximately 2.3 years. At December 31, 2009, the Company had issued stock-based awards that are described below.
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, 2009 and 2008.

  Years Ended December 31, 
  2009  2008 
Weighted-average assumptions used in Black-Scholes model:      
Expected period that options will be outstanding (in years)
  4.50   4.50 
Interest rate (based on U.S. Treasury yields at time of grant)
  1.87%  3.08%
Volatility  32.50%  32.35%
Dividend yield  -   - 
Weighted-average fair value of options granted $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.
Stock option activity for the years ended December 31, 20092012, 2011 and 2008 is 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   5.88  $3,655 
Vested and expected to vest at December 31, 2009  1,150,635  $11.16   5.90  $3,439 
Exercisable at December 31, 2009  159,883  $17.93   5.36  $8 

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The aggregate intrinsic value is based on the difference between the Company’s closing stock price at the balance sheet date2010 was $19.3 million, $2.4 million and the exercise price of the stock option, multiplied by the number of in-the-money options.  The amount of intrinsic value will change based on the fair value of the Company’s stock.
The aggregate fair value of options that vested in 2009 was $0.9 million.
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.
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.
The following table summarizes the Company’s PRSU and RSU and activity for 2009 and 2008:
  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 
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).

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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$2.4 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.
15. Financial Instruments

respectively.

14.Financial Instruments and Fair Value Measurements

The carrying values of financial instruments, including accounts receivable, accountsTrade 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 $88.6$1.7 billion and $110.9 million and $92.3 million atas of December 31, 20092012 and 2008,2011, 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 of the Consolidated Balance Sheets or that will be realized in the future.


COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 foris as follows:

  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 

  December 31, 2011 
  

Level

One

  

Level

Two

  

Level

Three

  Total 
  (In thousands) 
Assets:                
Cash equivalents $15,540  $—  $—  $15,540 
Foreign currency contracts – primarily related to customer sales contracts  —   5   —   5 
  $15,540  $5  $—  $15,545 
                 
Liabilities:                
Interest rate swap $—  $471  $—  $471 
Foreign currency contracts – acquisition-related  —   14,986   —   14,986 
Foreign currency contracts – primarily related to customer sales contracts  —   371   —   371 
Liability for contingent payments  —   —   4,359   4,359 
  $—  $15,828  $4,359  $20,187 

There were no transfers in or out of Level One, Two or Three during the periods presented follows:years ended December 31, 2012 or 2011.

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  Total  Level 1  Level 2  Level 3 
As of December 31, 2009            
             
Assets:            
Cash equivalents $33,846  $33,846  $-  $- 
                 
Liabilities:                
Derivatives $3,156  $-  $3,156  $- 
                 
As of December 31, 2008                
                 
Assets:                
Cash equivalents $17,965  $17,965  $-  $- 
Derivatives  1,651   -   1,651   - 
  $19,616  $17,965  $1,651  $- 
                 
Liabilities:                
Derivatives $7,070  $-  $7,070  $- 

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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 valued based on forward curves observableused to manage exchange rate fluctuations. Commodity futures contracts are used to manage costs of raw materials used in the market.  Other derivative contracts are measured using broker quotations or observable market transactions in either listed or over-the-counter markets. Company’s production processes.

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.


On June 24, 2008, the Company entered into an

Interest Rate Swap.The Company’s interest rate swap with an aggregateis valued based on forward curves observable in the market. The notional value of $75the Company’s interest rate swap was $25 million whereby itas of December 31, 2011, which exchanged its LIBOR-based variable ratevariable-rate interest for a fixed rate of 4.1375%. The notional value decreases to $50 million and then $25 million on June 30, 2010 and June 30, 2011, respectively, and expires on June 29, 2012. The fair valueOn January 11, 2012, the Company terminated its interest rate swap in conjunction with the repayment of the swap agreement, based on third-party quotes, was a liabilityBank of $3.0 millionAmerica Credit Agreement and $5.0 million at December 31, 2009 and 2008, respectively, which 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. There has been no ineffectiveness related to this arrangement since its inception. During the years ended December 31, 2009 and 2008, $2.9 million and $0.8 million, respectively, of losses on the swap were reclassified from AOCI to interest expense.  At December 31, 2009, the Company expects to reclassify $2.3$0.5 million of net losses on the interest rate swap from accumulatedAccumulated other comprehensive incomeloss to earnings duringInterest expense in the next twelve months.


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Also on June 24, 2008,Consolidated Statement of 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 Company entered into a cross currency swaprisk associated with customer forward sale agreements denominated in Euro with an aggregate notional value of $27.3 million.  The notional value decreased ratably each month overcurrencies other than the term ofapplicable local currency, and to match costs and expected revenues where production facilities have a different currency than the agreement and expired on March 31, 2009. selling currency.

The fair value of the swap agreement, based on third-party quotes, was an asset of $1.0 million at December 31, 2008. The swap agreement was designated as a cash flow hedge, and therefore changes in its fair value were recorded as an adjustment to other comprehensive income.  There was no ineffectiveness related to this arrangement.


As of December 31, 2009, the Company had no open commodity futures contracts.  As of December 31, 2008, the Company had copper and nickel futures contracts with notional values of $3.6 million.  The fair value of the contracts, based on third-party quotes, was a liability of $2.1 million as of December 31, 2008, and is recorded in “Other accrued liabilities” on the accompanying consolidated balance sheets. The Company did not electe hedge accounting for these contracts, and therefore changes in their fair value were recognized in earnings.  For the years ended December 31, 2009, 2008 and 2007, the consolidated statements of operations include $2.0 million, $(1.7) million and $(0.1) million, respectively, of unrealized gains (losses) as a result of changes in the fair value of these contracts.  Realized gains (losses) on these contracts of $(1.0) million, $(0.4) million and $0.1 million were recognized in the years ended December 31, 2009, 2008, and 2007, respectively.

As of December 31, 2009 and 2008, the Company had foreign currency contracts with the following notional values of $10.5 million and $16.5 million, respectively. The fair values of the contracts was a liability of $0.1 million at December 31, 2009 and an asset of $0.7 million at December 31, 2008, and are recorded in “Other accrued liabilities” and in “Other current assets”, respectively, on the consolidated balance sheets. values:

  December 31, 
  2012  2011 
  (In thousands) 
Foreign currency contracts sold – not designated as hedges $301,185  $— 
Foreign currency contracts sold – designated as hedges  238,537   5,116 
Foreign currency contracts purchased – not designated as hedges  121,741   — 
Foreign currency contracts purchased – designated as hedges  37,065   — 
Foreign currency contracts – acquisition related  —   4,249,954 
Total foreign currency derivatives $698,528  $4,255,070 

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, 
  2012  2011  2010 
  (In thousands) 
Contracts Designated as Hedges:            
Interest Rate Swap:            
Unrealized loss $—  $(161) $(1,201)
Realized loss  (471)  (1,479)  (2,447)
Foreign Currency Contracts – related to customer sales contracts:            
Unrealized gain  2,120   —   — 
Realized gain  2,297   —   — 
Foreign Currency Contracts – related to supplier purchases contracts:            
Unrealized loss  (374)  —   — 
Realized loss  (475)  —   — 
Unrealized loss on net investment hedge  (7,783)  —   — 
Contracts Not Designated in a Hedge Relationship:            
Foreign Currency Contracts – acquisition-related:            
Unrealized loss, net  —   (21,013)  — 
Realized loss, net  (7,177)  —   — 
Foreign Currency Contracts – primarily related to customer sales contracts:            
Unrealized gain (loss)  778   (204)  93 
Realized gain (loss)  712   152   (838)

Foreign Currency Contracts – related to supplier purchases contracts:

            

Unrealized (loss) gain

  

(560

)  

81

   

—

 

Realized gain (loss)

  868   

(20

)  

—

 

Liability for these contracts; therefore, changes inContingent Payments

The Company’s liability for contingent payments represents the fair value of estimated additional cash payments related to its acquisition of COT-Puritech in December of 2011, which are subject to the achievement of certain performance goals, and is 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 Interest expense in the Consolidated Statements of Operations and realized or unrealized gains or losses are recognized as a component of selling,in Selling, general and administrative expense.  Forexpense in the Consolidated Statements of Operations.

A summary of activity in the Company’s liability for contingent payments during the years ended December 31, 2009, 20082011 and 2007, the consolidated statements of operations include $(0.7) million, $0.3 million and $0.2 million, respectively, of unrealized gains (losses)2012 is as a result of changes in the fair value of these contracts.  Realized gains (losses) on these contracts of $0.9 million, $(0.3) million and $0.5 million were recognized in the years ended December 31, 2009, 2008, and 2007, respectively.


On July 1, 2005, the Company entered into an interest rate collar with an aggregate notional value of $90 million, whereby the Company exchanged its LIBOR based variable rate interest for a ceiling of 4.75% and a floor of approximately 3.40%. The LIBOR-based interest can vary between the ceiling and floor based on market conditions. follows:

  (In thousands) 
Balance, January 1, 2011 $— 
Additions  4,300 
Interest accretion  59 
Balance, December 31, 2011  4,359 
Interest accretion  712 
Unrealized loss  (1,446)
Balance, December 31, 2012 $6,517 

15.Concentration of Credit Risk

The Company did not elect hedge accounting for the collar agreement, and therefore changes in the fair value were recognized in income as a component of interest expense. The collar agreement expired on July 1, 2008.

16. Concentration of Credit Risk

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

with respect to its Trade receivables, net. 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 does not believe that accounts receivable represent significant concentrations of credit risk because of the diversified portfolio of individual customers and geographical areas.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company may be exposed to credit-related losses in the event of non-performance by counterparties to financial instruments. Counterparties to the Company’s financial instruments represent, in general, internationalThe Company enters into derivative contracts with financial institutions or well-established financial institutions.


No one customer accounted for 10% or more of good standing, and the Company’s sales in 2009, 2008 or 2007 or accounts receivable at December 31, 2009 or 2008.

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17. Related Party Transactions

During 2008 and 2007,total credit exposure related to non-performance by those institutions is not material to the Company paid a management fee of $0.5 million, and $1.0 million, respectively, to Colfax Towers, a party related by common ownership, recorded in selling, general and administrative expenses. This arrangement was discontinued following the Company’s IPO in May 2008.

18. Operations by Geographical Area

The Company’s operations have been aggregated into a single reportable operating segment for the design, production and distribution of fluid handling products. The operations of the Company. The Company on a geographic basis are as follows:

  Year ended December 31, 
  2009  2008  2007 
Net sales by origin:         
United States $177,373  $189,924  $173,713 
Foreign locations:            
Germany  180,917   239,723   190,693 
Other  166,734   175,207   141,899 
Total foreign locations  347,651   414,930   332,592 
             
Total net sales $525,024  $604,854  $506,305 
             
Net sales by product:            
Pumps, including aftermarket parts and service $443,073  $529,300  $441,692 
Systems, including installation service  69,339   58,231   48,355 
Valves  10,081   10,094   9,537 
Other  2,531   7,229   6,721 
             
Total net sales $525,024  $604,854  $506,305 

  December 31, 
  2009  2008 
Long-lived assets:      
United States $24,785  $26,257 
Foreign locations:        
Germany  48,232   48,598 
Other  19,073   17,235 
Total foreign locations  67,305   65,833 
         
Total long-lived assets $92,090  $92,090 

19. does not enter into derivative contracts for trading purposes.

16.Commitments and Contingencies

Asbestos and Other Product Liability Contingencies

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 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.


76

Of the 25,295 pending claims, approximately 4,400 of such claims have been brought in various federal and state courts in Mississippi; approximately 3,100 of 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 1,000 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.

Claims activity since December 31 related to asbestos claims is as follows(1):

  Year ended December 31, 
  2009  2008  2007 
          
Claims unresolved at the beginning of the period  35,357   37,554   50,020 
Claims filed (2)
  3,323   4,729   6,861 
Claims resolved (3)
  (13,385)  (6,926)  (19,327)
             
Claims unresolved at the end of the period  25,295   35,357   37,554 
             
Average cost of resolved claims (4)
 $11,106  $5,378  $5,232 

  Year Ended December 31, 
  2012  2011  2010 
  (Number of Claims) 
Claims unresolved, beginning of period  23,682   24,764   25,295 
Acquisitions  1,599   —   — 
Claims filed(2)  4,335   4,927   3,692 
Claims resolved(3)  (6,093)  (6,009)  (4,223)
Claims unresolved, end of period  23,523   23,682   24,764 
             
  (In dollars) 
Average cost of resolved claims(4) $6,606  $15,397  $12,037 

__________

(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 all 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(4)Excludes claims in whole dollars. These amounts exclude claimssettled in Mississippi for which the majority of claims have historically been without merit and have been resolved for no payment. These amounts exclude any potentialpayment 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 thea standard approach used by most 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.  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.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Each subsidiary has separate substantial insurance coverage resulting from the independent corporate historyacquired prior to Company ownership of each independent entity. In its evaluation of the insurance asset, in addition to the criteria listed above, the Company used differing insurance allocation methodologies for each subsidiary based upon the applicable law pertaining to the affected subsidiary.

For one of the subsidiaries, on October 14, 2009, 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 determinationassertion and belief that defense costs are outside policy limits, the Company as of October 2, 2009, increased itsCompany’s future expected recovery percentage from 67% tois 90% of asbestos-related costs following the exhaustion in the future 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 allits future asbestos-related costs.


77

In November 2008,

For this subsidiary, during the year ended December 31, 2010, an insolvent carrier that had written approximately $1.4 million in limits for which the subsidiary entered intohad assumed no recovery made a cash settlement agreement withoffer of approximately $0.7 million. As such, the subsidiary recorded a gain for this amount.

The subsidiary was notified in 2010 by the primary and umbrella carrier governing all aspectswho had been fully defending and indemnifying the subsidiary for 20 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, subject to their reservations of rights and their applicable policy limits. A trial concerning the payment obligations of the carrier’s pastCompany’s excess insurers concluded during fourth quarter of 2012, with a final ruling pending. The subsidiary continues to work with its excess insurers to obtain defense and future handlingindemnity payments while the litigation is proceeding. Given the uncertainties of litigation, there is a variety of possible outcomes, including but not limited to the subsidiary being required to fund all or a portion of the asbestos related bodily injurysubsidiary’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 against the subsidiary. As a result ofhad occurred and was expected to continue to occur in certain regions, 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 andsubsidiary recorded a corresponding pretax gain. The additional$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 will be allocated by the carrier to cover any gaps in coverage up to $7.0recoveries of $16.3 million, resulting from exhaustion of umbrella policies and/or the failure of any excess carrier to pay amounts incurred in connection with asbestos claims. The Company reimbursed the primary insurer for $7.6 million in deductibles and retrospective premiums induring the fourth quarter of 2008 and has no further liability to the insurer under these provisions of the primary policies.

Presently, this subsidiary is having all of its liability and defense costs covered in full by its primary and umbrella insurance carrier; however, this coverage is expected to exhaust in the first quarter of 2010.  No cost sharing or allocation agreement is currently in place with the Company’s excess insurers; however, certain excess insurers have stated that they will abide by the Delaware Chancery Court's recent coverage rulings, including its ruling that the subsidiary may seek insurance coverage from the Company's excess insurers on and “all sums” basis and that they will defend and/or indemnify the subsidiary against asbestos claims, subject to their reservation of rights.
year ended December 31, 2011.

In 2003, the other subsidiary brought legal actionfiled 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.

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 2010, the court-appointed special allocation master made its recommendation. 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.  The subsidiary expects to responsible for approximately 14% of all future asbestos-related costs.

The Company has established reserves of $443.8 million and $357.3 million as of December 31, 2009 and December 31, 2008, 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 $389.4 million and $304.0 million as of December 31, 2009 and December 31, 2008, 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 $54.3 million and $53.3 million as of December 31, 2009 and December 31, 2008, respectively. In addition, the Company has recorded a receivable for liability and defense costs previously paid in the amount of $45.9 million and $36.4 million as of December 31, 2009 and December 31, 2008, 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” in the accompanying consolidated balance sheets.
The income related to these liabilities and legal defense was $2.2 million, net of estimated insurance recoveries, for the year ended December 31, 2009 compared to $4.82010, the Company reduced the current asbestos receivable by $2.8 million, decreased the long-term asbestos asset by $1.2 million and $63.9 million forrecorded a net charge to asbestos liability and defense costs of $4.0 million. In May 2011, the years ended December 31, 2008 and 2007, respectively.  Legal costs related tocourt accepted the subsidiaries’ action against their asbestos insurers were $11.7 million forrecommendation with modifications. A final judgment at the trial court level in this litigation was rendered during the year ended December 31, 2009 compared to $17.22011, but appeals have been entered. As a result of this judgment, the Company recorded a provision for $2.1 million and $13.6 million forduring the yearsyear ended December 31, 20082011, which is reflected in the Consolidated Balance Sheet as an increase of $1.4 million in Other accrued liabilities and 2007, respectively.
a reduction of $0.7 million in Asbestos insurance asset. The Company made a payment of $5.0 million, which was previously accrued for, to return certain overpayments to the insurers. In addition, because of the higher settlement values per mesothelioma claim in 2011 in a specific region, this subsidiary recorded a $0.7 million pre-tax charge, which was comprised of an increase to its asbestos-related liabilities of $4.7 million partially offset by an increase in expected insurance recoveries of $4.0 million, during the fourth quarter of the year ended December 31, 2011. The subsidiary expects to be responsible for approximately 17% of all future asbestos-related costs.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s Consolidated Balance Sheets included the following amounts for asbestos-related litigation:

  December 31, 
  2012  2011 
  (In thousands) 
Current asbestos insurance asset(1) $35,566  $43,452 
Current asbestos insurance receivable(1)  36,778   33,696 
Long-term asbestos insurance asset(2)  315,363   326,838 
Long-term asbestos insurance receivable(2)  7,063   14,034 
Accrued asbestos liability(3)  58,501   76,295 
Long-term asbestos liability(4)  375,493   382,394 

__________

(1)Included in Other current assets in the Consolidated Balance Sheets.

(2)Included in Other assets in the Consolidated Balance Sheets.

(3)Represents current reserves for probable and reasonably estimable asbestos-related liability cost that the Company believes the subsidiaries will pay through the next 15 years, overpayments by certain insurers and unpaid legal costs related to defending themselves against asbestos-related liability claims and legal action against the Company’s insurers, which is included in Accrued liabilities in the Consolidated Balance Sheets.

(4)Included in Other liabilities in the 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.


78

General Litigation

On June 3, 1997, one of ourthe Company’s 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. In June 2012, the subsidiary entered into a settlement agreement for and made a payment of $8.5 million. The datesettlement did not have a significant impact on the Consolidated Statement of Operations 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. Atyear ended December 31, 2009, the Company’s consolidated balance sheet includes a liability, reflected in “Other liabilities”, related to this matter of $9.5 million.

In April 1999, the Company’s Imo Industries subsidiary resolved through a settlement the matter of Young v. Imo Industries Inc. that was pending in the United States District Court for the District of Massachusetts. This matter had been brought on behalf of a class of retirees of one of the subsidiary’s divisions relating to retiree health care obligations.  On June 15, 2005, a motion was filed seeking an order that certain of the features of the plan as implemented by the Company were in violation of the settlement agreement. On December 16, 2008, the parties executed a Memorandum of Understanding, memorializing the principal terms of a new settlement agreement that resolved the litigation in its entirety. A final settlement agreement was executed by the parties and approved by the court in the fourth quarter of 2009.  At December 31, 2009, the Company’s consolidated balance reflected an accumulated post retirement benefit obligation of $2.4 million related to this matter, of which $0.6 million was paid in January 2010.
2012.

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 reserves 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.

84

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Guarantees

At

As of December 31, 2009, there were $14.4 million of letters of credit outstanding.  Additionally, at December 31, 2009, we had issued $12.92012, the Company has $59.7 million of bank guarantees securing primarily customer prepayments, performance and product warranties in our European and Asian operations.


79

warranties. See Note 10, “Debt” for discussion regarding the Company’s letters of credit outstanding as of December 31, 2012.

Minimum Lease Obligations


The Company has the followingCompany’s minimum rental obligations under non-cancelable operating leases are as follows:

  December 31, 2012 
  (In thousands) 
2013 $30,166 
2014  21,324 
2015  16,235 
2016  10,440 
2017  6,639 
Thereafter  40,885 
Total $125,689 

The Company’s operating leases extend for certain property, plantvarying periods and, equipment. The remaining lease terms range from 1 to 5 years.


Year ended December 31,   
    
2010 $3,873 
2011  2,428 
2012  1,719 
2013  1,087 
2014  519 
Thereafter  240 
     
Total $9,866 
Netin some cases, contain renewal options that would extend the existing terms. During the years ended December 31, 2012, 2011 and 2010, the Company’s net rental expense underrelated to operating leases was approximately $4.8$39.5 million, $5.1$4.9 million and $4.6 million, respectively.

17.Segment Information

Upon the closing of the Charter Acquisition, the Company changed the composition of its reportable segments to reflect the changes in 2009, 2008 and 2007, respectively.

20. Quarterly Results for 2009 and 2008 (Unaudited)
its internal organization resulting from the integration of the acquired businesses. The summarized interim financial data presented below for 2009 and 2008 gives effectCompany now reports its operations through the following reportable segments:

·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 restatementtwo 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 (loss), which represents Operating income before Restructuring and other related charges.

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s segment results were as follows:

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Net Sales:            
Gas and fluid handling $1,901,132  $693,392  $541,987 
Fabrication technology  2,012,724   —   — 
Total Net sales $3,913,856  $693,392  $541,987 
             
Segment operating income (loss)(1):            
Gas and fluid handling $141,524  $86,664  $65,357 
Fabrication technology  140,184   —   — 
Corporate and other  (81,639)  (51,078)  (20,662)
Total segment operating income $200,069  $35,586  $44,695 
             
Depreciation and Amortization:            
Gas and fluid handling $112,389  $22,375  $15,823 
Fabrication technology  69,708   —   — 
Corporate and other  18,303   958   984 
Total depreciation and amortization $200,400  $23,333  $16,807 
             
Capital Expenditures:            
Gas and fluid handling $42,343  $14,420  $12,118 
Fabrication technology  41,146   —   — 
Corporate and other  97   366   409 
Total capital expenditures $83,586  $14,786  $12,527 

________

(1)The following is a reconciliation of Income before income taxes to segment operating income:

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Income before income taxes $48,439  $19,987  $27,688 
Interest expense  91,570   5,919   6,684 
Restructuring and other related charges  60,060   9,680   10,323 
Segment operating income $200,069  $35,586  $44,695 

  Year Ended December 31, 
  2012  2011 
  (In thousands) 
Investment in Equity Method Investees:        
Gas and fluid handling $11,451  $7,680 
Fabrication technology  44,106   — 
  $55,557  $7,680 
Total Assets:        
Gas and fluid handling $3,329,948  $947,773 
Fabrication technology  2,565,582   — 
Corporate and other  234,197   140,770 
  $6,129,727  $1,088,543 

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The detail of the Company’s consolidatedoperations by geography and product type is as follows:

  Year Ended December 31, 
  2012  2011  2010 
  (In thousands) 
Net Sales by Origin:            
United States $789,259  $207,459  $183,803 
Foreign locations  3,124,597   485,933   358,184 
Total Net sales $3,913,856  $693,392  $541,987 
             
Net Sales by Major Product:            
Gas handling $1,242,371  $—  $— 
Fluid handling  658,761   693,392   541,987 
Welding and cutting  2,012,724   —   — 
Total Net sales $3,913,856  $693,392  $541,987 

  December 31, 
  2012  2011 
  (In thousands) 
Property, Plant and Equipment, Net:        
United States $127,719  $28,699 
Foreign locations  560,851   62,240 
Property, plant and equipment, net $688,570  $90,939 

18.Selected Quarterly Data–(unaudited)

Provided below is selected unaudited quarterly financial statements as discussed in Note 2.

  
First Quarter
  
Second Quarter
 
  As        As       
  Previously     As  Previously     As 
  
Reported
  
Adjustment
  
Restated
  
Reported
  
Adjustment
  
Restated
 
2009                  
Net sales $136,323     $136,323  $129,185     $129,185 
Cost of sales  88,308      88,308   84,630      84,630 
Gross profit  48,015      48,015   44,555      44,555 
Selling, general and administrative expenses  30,187   (322)  29,865   28,586   (193)  28,393 
Restructuring and other related charges  -       -   486   -   486 
Research and development expenses  1,407       1,407   1,680       1,680 
Asbestos liability and defense costs  1,645       1,645   1,482       1,482 
Asbestos coverage litigation expenses  2,966       2,966   4,027       4,027 
Operating income  11,810   322   12,132   8,294   193   8,487 
Interest expense  1,846       1,846   1,786       1,786 
Income before income taxes  9,964   322   10,286   6,508   193   6,701 
Provision for income taxes  3,103   118   3,221   2,142   83   2,225 
Net income available to common shareholders $6,861  $204  $7,065  $4,366  $110  $4,476 
                         
Net income per share—basic and diluted $0.16  $-  $0.16  $0.10  $-  $0.10 

80
  
Third Quarter
  
Fourth Quarter
 
  As        As       
  Previously     As  Previously     As 
  
Reported
  
Adjustment
  
Restated
  
Reported
  
Adjustment
  
Restated
 
2009                  
Net sales $128,545     $128,545  $130,971     $130,971 
Cost of sales  82,339      82,339   83,960      83,960 
Gross profit  46,206      46,206   47,011      47,011 
Selling, general and administrative expenses  28,136   (258)  27,878   27,426   (398)  27,028 
Restructuring and other related charges  9,608       9,608   7,420       7,420 
Research and development expenses  1,523       1,523   1,320       1,320 
Asbestos liability and defense income  (4,303)      (4,303)  (1,017)      (1,017)
Asbestos coverage litigation expenses  1,845       1,845   2,904       2,904 
Operating income  9,397   258   9,655   8,958   398   9,356 
Interest expense  1,834       1,834   1,746       1,746 
Income before income taxes  7,563   258   7,821   7,212   398   7,610 
Provision for income taxes  2,188   103   2,291   2,092   (1,208)  884 
Net income available to common shareholders $5,375  $155  $5,530  $5,120  $1,606  $6,726 
                         
Net income per share—basic $0.12  $0.01  $0.13  $0.12  $0.04  $0.16 
Net income per share—diluted $0.12  $0.01  $0.13  $0.12  $0.04  $0.15 
  
First Quarter
  
Second Quarter
 
  As        As       
  Previously     As  Previously     As 
  
Reported
  
Adjustment
  
Restated
  
Reported
  
Adjustment
  
Restated
 
2008                  
Net sales $130,651     $130,651  $161,431     $161,431 
Cost of sales  82,473      82,473   104,654      104,654 
Gross profit  48,178      48,178   56,777      56,777 
Selling, general and administrative expenses  28,507   (330)  28,177   35,776   (331)  35,445 
Initial public offering related costs  -       -   57,017       57,017 
Research and development expenses  1,381       1,381   1,571       1,571 
Asbestos liability and defense costs (income)  278       278   (715)      (715)
Asbestos coverage litigation expenses  3,139       3,139   3,970       3,970 
Operating income  14,873   330   15,203   (40,842)  331   (40,511)
Interest expense  4,497       4,497   3,236       3,236 
Income before income taxes  10,376   330   10,706   (44,078)  331   (43,747)
Provision for income taxes  3,578   102   3,680   (12,679)  88   (12,591)
Net income (loss)  6,798   228   7,026   (31,399)  243   (31,156)
Dividends on preferred stock  -       -   (3,492)      (3,492)
Net income (loss) available to common shareholders $6,798  $228  $7,026  $(34,891) $243  $(34,648)
                         
Net income (loss) per share—basic and diluted $0.31  $0.01  $0.32  $(1.01) $0.01  $(1.00)
81

  
Third Quarter
  
Fourth Quarter
 
  As        As       
  Previously     As  Previously     As 
  
Reported
  
Adjustment
  
Restated
  
Reported
  
Adjustment
  
Restated
 
2008                  
Net sales $153,461     $153,461  $159,311     $159,311 
Cost of sales  98,983      98,983   101,557      101,557 
Gross profit  54,478      54,478   57,754      57,754 
Selling, general and administrative expenses  33,233   (330)  32,903   27,718   (138)  27,580 
Research and development expenses  1,478       1,478   1,426       1,426 
Asbestos liability and defense (income) costs  (6,312)      (6,312)  1,978       1,978 
Asbestos coverage litigation expenses  5,148       5,148   4,905       4,905 
Operating income  20,931   330   21,261   21,727   138   21,865 
Interest expense  1,951       1,951   2,138       2,138 
Income before income taxes  18,980   330   19,310   19,589   138   19,727 
Provision for income taxes  5,329   173   5,502   9,210   (336)  8,874 
Net income available to common shareholders $13,651  $157  $13,808  $10,379  $474  $10,853 
                         
Net income per share—basic $0.31  $-  $0.31  $0.24  $0.01  $0.25 

data for the years ended December 31, 2012 and 2011.

  Quarter Ended 
  March 30,
2012(1)(2)		  

June 29,

2012(1)(2)

  

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)Second quarter 2008 results(1)Net (loss) income and Net (loss) income per share for the three months ended March 30, 2012 and June 29 2012, include $57.0$42.9 million and $0.8 million of non-recurring costs associatedpre-tax Charter acquisition-related expense. See Note 4, “Acquisitions” for additional information regarding the Company’s acquisition of Charter.

(2)Gross profit for the three months ended March 30, 2012 and June 29, 2012 reflects the reclassification of $13.7 million and $13.0 million, respectively, of additional Cost of sales, which was included in Selling, general and administrative expense in the Condensed Consolidated Statements of Operations included in the respective quarterly report on Form 10-Q. These amounts were reclassified in order to comply with our IPO.current period presentation.
21. Subsequent Event

The board of directors of the Company appointed Clay H. Kiefaber as the Company’s President

COLFAX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

  Quarter Ended 
  April 1,
2011		  

July 1,

2011

  

September 30,

2011(1)

  

December 31,

2011(1)

 
  (In thousands, except per share data) 
Net sales $158,558  $186,749  $170,294  $177,791 
Gross profit  53,254   64,674   60,627   61,544 
Net income (loss)  6,555   10,390   3,690   (16,080)
Net income (loss) per share – basic $0.15  $0.24  $0.08  $(0.37)
Net income (loss) per share – diluted $0.15  $0.23  $0.08  $(0.37)

__________

(1)Net income (loss) and Net income (loss) per share for the three months ended September 30, 2011 and December 31, 2011 include $5.7 million and $25.3 million, respectively, of pre-tax Charter acquisition-related expense. See Note 4, “Acquisitions” for additional information regarding the Company’s acquisition of Charter.

Item 9.Changes in and Chief Executive Officer effective January 9, 2010.  Mr. Kiefaber succeeds John A. Young, who resigned as PresidentDisagreements with Accountants on Accounting and Chief Executive OfficerFinancial Disclosure

None.

Item 9A.Controls and as a director of the Company, effective January 9, 2010.


In connection with Mr. Young’s resignation, the Company and Mr. Young entered into a separation agreement on January 9, 2010, which provided Mr. Young with certain termination benefits, including cash payments totaling $1.6 million, health coverage for a period of one year and accelerated vesting of share-based payments.  In the first quarter of 2010, the Company expects to recognize restructuring and other related charges totaling $2.1 million for these benefits.

In connection with Mr. Kiefaber’s appointment, the board of directors approved a grant to him of 102,124 stock options and 40,850 performance restricted stock units, effective on January 11, 2010 (the “Grant Date”) pursuant to the terms of the 2008 Plan. The stock options vest in three equal annual installments beginning with the first anniversary of the Grant Date (subject to Mr. Kiefaber’s continued employment with the Company on each such anniversary) and will have a per share exercise price of $12.27, the closing price of the Company’s common stock on the Grant Date. The performance restricted stock units will be earned if the Company has cumulative adjusted earnings per share equal to at least 110% of the adjusted earnings per share for the 2009 fiscal year for any four consecutive fiscal quarters beginning with the first fiscal quarter of 2010 and ending with the last fiscal quarter of 2013, and, if earned, will vest in two equal installments upon the fourth and fifth anniversaries of the Grant Date, subject to Mr. Kiefaber’s continued employment with the Company on each such anniversary.  The fair value of these awards totaled $1.1 million, which is expected to be recognized over a period of approximately 3.4 years.

82

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A.CONTROLS AND PROCEDURES

Procedures

Disclosure Controls and Procedures


In connection with this restatement on Form 10-K/A, under

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company has re-evaluatedwe 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. Management, in consultation with the Audit Committee, hasreport on this Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the restatement errors, described in Note 2 to the Consolidated Financial Statements, constituted a material weakness in the Company’s internal control over financial reporting as of the date of the Original Form 10-K.  As a result of the material weakness, management has concluded that the Company’sour disclosure controls and procedures were not 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.


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 Securities and Exchange CommissionsCommission’s (the “SEC’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.


The financial statements for the period covered by this amended report were prepared with particular attention to the material weakness. Accordingly, management believes that the consolidated financial statements included in this Annual Report fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented.

The Company continually reviews its disclosure controls and procedures and makes changes, as necessary, to ensure the quality of its financial reporting. As detailed below, the Company has implemented certain additional controls that it believes will remediate the issues that arose with respect to the material weakness.

Changes in Internal Control Over Financial Reporting


Management

The Company completed the Charter Acquisition and the Board of Directors are committedSoldex Acquisition on January 13, 2012 and October 31, 2012, respectively. Management considers these transactions to be material to the remediationCompany’s Consolidated Financial Statements and believes that the internal controls and procedures of theCharter and Soldex have a material weakness set forth above as well as the continued improvement ofeffect on the Company’s overall system of internal control over financial reporting. Subsequent toWe are currently in the period covered by this report, management has implemented measures to remediateprocess of incorporating the material weakness in internal controlcontrols and procedures of Charter and Soldex into our internal controls over financial reporting described above. Specifically, we have implemented proceduresand extending our compliance program under the Sarbanes-Oxley Act of 2002 to enhanceinclude Charter and Soldex. The Company has elected to exclude Charter and Soldex from the maintenance and reviewscope of participant data for benefit plans.  As part of the Company’s fiscal 2010its 2012 annual assessment of internal control over financial reporting management will conduct sufficient testingas provided by the Act and the applicable SEC rules and regulations concerning business combinations.

Other than the Charter Acquisition and the Soldex Acquisition noted above, there have been no changes 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 implemented controlsExchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to ascertain whether they are designed and operating effectively.  Management believes the implemented controls will remediate the material weakness related to the maintenance and review of participant data for benefit plans discussed in Note 2 to the Consolidated Financial Statements.


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;

83

(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, 20092012 based on the criteria established inInternal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of the material weakness discussed above,Based on this assessment, our management has concluded that our internal control over financial reporting were notwas effective as of December 31, 2009.


2012.

In making its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012, management excluded Charter and Soldex from its assessment, as provided by the Act and the applicable SEC rules and regulations concerning business combinations, because these entities were acquired by Colfax Corporation in January and October 2012, respectively, and the Company has not yet fully incorporated the internal control procedures of these businesses into the Company’s internal control over financial reporting. During the year ended December 31, 2012, Charter and Soldex represented 83% of the Company’s Net sales. See Note 4, “Acquisitions” in the accompanying Notes to Consolidated Financial Statements for further discussion regarding these acquisitions.

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/A10-K under the caption “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm on —Internal Control Over Financial Reporting.”


ITEM 9B.OTHER INFORMATION
None

Item 9B.Other Information

On February 18, 2013, the Company entered into an amendment to the registration rights agreement, dated May 30, 2003, by the Company and each of Mitchell P. Rales and Steven M. Rales.

The amendment extends the duration of the registration rights period for 18,271,832 shares of Colfax Common stock subject to the agreement until May 8, 2016. In consideration for entering into the amendment, each of Mitchell P. Rales and Steven M. Rales agreed to refrain from exercising their registration rights prior to May 8, 2013, the original expiration date of the registration rights period under the agreement.

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/A10-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 20102013 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 “2010“2013 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 our website atwww.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 20102013 Proxy Statement under the captions “Executive Compensation”, “Director Compensation”, “Compensation Discussion and Analysis”, “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation”,


ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Participation.”

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 20102013 Proxy Statement under the captions “Beneficial Ownership of Our Common Stock” and “Equity Compensation Plan Information”.


84

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information.”

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 20102013 Proxy Statement under the captions “Certain Relationships and Related Person Transactions” and “Director Independence”.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independence.”

Item 14.Principal Accountant Fees and Services

Information responsive to this item is incorporated by reference to such information included in our 20102013 Proxy Statement under the captions “Independent Registered Public Accountant Fees and Services” and “Audit Committee’s Pre-Approval Policies and Procedures”.

PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Item 15.Exhibits and Financial Statement Schedules

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

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

 
(2)Schedules. An index of Exhibits and Schedules is on page 8892 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)Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report.

(c)Not applicable.

85

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 December 13, 2010.

February 18, 2013.

COLFAX CORPORATION
  
By:
/s/ CLAY H. KIEFABER
 Clay H. KiefaberBy:

 /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 18, 2013

/s/ STEVEN E. SIMMS

Steven E. Simms
President, 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/ THOMAS S. GAYNER

Thomas S. Gayner
Director

/s/ RHONDA L. JORDAN

Rhonda L. Jordan
Director

/s/ CLAY H. KIEFABER

Clay H. Kiefaber
Director
/s/ SAN W. ORR, III
San W. Orr, III
Director

/s/ A. CLAYTON PERFALL

A. Clayton Perfall
Director

/s/ RAJIV VINNAKOTA

Rajiv Vinnakota
Director

92
86

COLFAX CORPORATION

INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULES

  
Page Number in

Form 10-K/A
10-K
Schedules:  
   
Valuation and Qualifying Accounts 9199

87
EXHIBIT INDEX
93

EXHIBIT INDEX

Exhibit

Number

No.

 

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
     
  3.3Certificate of Designations of Series A Perpetual Convertible Preferred Stock of Colfax CorporationIncorporated by reference to Exhibit 3.02 to Colfax Corporation’s Form 8-K (File No. 001-34045) as filed with the Commission on January 30, 2012
 
4.1 Specimen Common Stock Certificate  
     
10.1 Colfax Corporation 2008 Omnibus Incentive Plan**  
     
10.2Colfax 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
 
10.1a10.3 Form of Non-Qualified Stock Option Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan***
10.4Form of Performance Stock Unit Agreement**
10.5Form of Outside Director Restricted Stock Unit Agreement (Three Year Vesting)**  
     
10.1b10.6 Form of PerformanceOutside Director Deferred Stock Unit Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan*Agreement**  
     
10.1cForm of Outside Director Restricted Stock Unit Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan**
10.1dForm of Outside Director Deferred Stock Unit Agreement for grants pursuant to the Colfax Corporation 2008 Omnibus Incentive Plan**
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**  
     
10.9 

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
10.2  Service Contract
10.10Form of Outside Director Restricted Stock Unit Agreement (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
10.11

Form of Outside Director Deferred Stock Unit Agreement for Board Member, dated November 14, 2006, betweendeferral 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 CompanySEC on August 7,2012

Exhibit

No.

Description

Location*

10.12

Form of Outside Director Deferred Stock Unit Agreement for deferral of grants of restricted stock units

10.13Colfax Corporation Amended and Dr. Michael Matros*Restated Excess Benefit Plan, effective as of January 1, 2013**  
     
10.310.14 Form of IndemnificationEmployment Agreement entered into between the CompanyColfax Corporation and each of its directors and officers*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
     
10.4Colfax Corporation Amended and Restated Excess Benefit Plan**
10.5Retirement Plan for salaried U.S. Employees of Imo Industries, Inc. and Affiliates**
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 KiefaberH. 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

88
10.10  
10.16Amendment No. 1 to the Employment Agreement between Colfax Corporation and John A. Young*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
  
     
10.1110.17 Employment Agreement between Colfax Corporation and Thomas M. O’Brien*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
     
10.1210.18 Employment Agreement between Colfax Corporation and Michael K. Dwyer*Daniel A. 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
     
10.19Employment Agreement between Colfax Corporation and A. Lynne Puckett**Incorporated by reference to Exhibit 10.05 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the SEC on August 7, 2012
 
10.1310.20 Employment Agreement between Colfax Corporation and William E. Roller** Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the Commission on May 8, 2009
     
10.14Employment Agreement between Colfax Corporation and Mario E. DiDomenico**Incorporated by reference to Exhibit 10.3 to Colfax Corporation’s Form 10-Q (File No. 001-34045) as filed with the Commission on May 8, 2009
10.15Employment Agreement between Colfax Corporation and G. Scott Faison**
10.16Amendment to the Employment Agreement between Colfax Corporation and John A. Young**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
10.17Amendment 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
10.18Amendment to the Employment Agreement between Colfax Corporation and Michael K. Dwyer**Incorporated by reference to Exhibit 10.15 to Colfax Corporation’s Form 10-K (File No. 001-034045) as filed with the Commission on March 6, 2009
10.1910.21 Amendment 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
     
10.2010.22 AmendmentLetter to the Employment Agreement between Colfax Corporation and MarioWilliam E. DiDomenico*Roller** Incorporated by reference to Exhibit 10.410.07 to Colfax Corporation’s Form 10-Q (File No. 001-34045)001-345045), as filed with the Commission on May 8, 2009October 27, 2011

Exhibit

No.

 

Description

 

Location*

10.21Amendment 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
10.22Separation Agreement between Colfax Corporation and John A. Young**Incorporated by reference to Exhibit 10.2 to Colfax Corporation’s 8-K (File No. 001-34045) as filed with the Commission on January 11, 2010
     
10.23 Tax Equalization Program Amendment LetterConsulting Agreement between Colfax Corporation and Michael K. Dwyer*Joseph O. Bunting III** Incorporated by reference to Exhibit 10.1710.3 to Colfax Corporation’s Form 10-K (File No. 001-034045) as filed with the Commission on March 6, 2009

89

10.24Colfax Corporation Annual Incentive Plan**Incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 10-Q8-K (File No. 001-34045) as filed with the Commission on August 4, 2009April 23, 2012
 
10.24Colfax Corporation Annual Incentive Plan, as amended and restated April 2, 2012**Filed herewith
     
10.25 Credit 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
10.26Amendment 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
 
10.27Share 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, 2012Filed herewith
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, 2013Filed herewith
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

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 Incorporated by reference to Exhibit 21.1 to Colfax Corporation’s Form 10-K (File No. 001-34045) as filed with the Commission on February 25, 2010Filed 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

*Unless otherwise noted, all exhibits are incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 001-34045).
101.INS***Indicates management contract or compensatory plan, contract or arrangement.XBRL Instance DocumentFiled herewith

Exhibit

No.

Description

Location*

101.SCH***XBRL Taxonomy Extension Schema DocumentFiled herewith
101.CAL***XBRL Extension Calculation Linkbase DocumentFiled herewith
101.DEF***XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101.LAB***XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PRE***XBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith

 
90

* 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.

*** In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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
  
Write-offs,
Write-downs
& Deductions
  
Foreign
Currency
Translation
  
Balance at
End of Period
 
Year Ended December 31, 2009                  
Allowance for doubtful accounts $2,486   405   -   (178)  124  $2,837 
Allowance for excess, slow-moving and obsolete inventory $6,923   1,368   -   (413)  147  $8,025 
                         
Valuation allowance for deferred tax assets (as restated) $45,206   (82)  -   -   (71) $45,053 
                         
Year Ended December 31, 2008                        
Allowance for doubtful accounts $1,812   828   -   (33)  (121) $2,486 
Allowance for excess, slow-moving and obsolete inventory $7,589   (334)  -   (74)  (258) $6,923 
Valuation allowance for deferred tax assets (as restated) $17,776   2,999   24,431(b)  -   -  $45,206 
                         
Year Ended December 31, 2007                        
Allowance for doubtful accounts $1,650   964   (10) (c)  (909)  117  $1,812 
Allowance for excess, slow-moving and obsolete inventory $6,412   1,735   144(c)  (1,309)  607  $7,589 
                         
Valuation allowance for deferred tax assets (as restated) $17,884   (108)  -   -   -  $17,776 

  Balance at
Beginning
of Period		  

Charged to
Cost and

Expense(1)

  

Charged to Other

Accounts(2)

  Write-Offs Write-Downs and
Deductions		  Acquisitions  Foreign
Currency
Translation		  Balance at
End of
Period		 
  (In thousands) 
Year Ended December 31, 2012:                     
Allowance for doubtful accounts $2,578  $13,917  $—  $(192) $—  $161  $16,464 
Allowance for excess slow-moving and obsolete inventory  6,735   3,341   —   (1,001)  —   146   9,221 
Valuation allowance for deferred tax assets  79,855   

103,785

   

20,676

   —   

167,723

   —   

372,039

 
Year Ended December 31, 2011:                            
Allowance for doubtful accounts $2,562  $112  $—  $(70) $—  $(26) $2,578 
Allowance for excess slow-moving and obsolete inventory  7,777   181   —   (1,258)  —   35   6,735 
Valuation allowance for deferred tax assets  52,891   16,621   10,346   —   —   (3)  79,855 
Year Ended December 31, 2010:                            
Allowance for doubtful accounts $2,837  $218  $—  $(405) $—  $(88) $2,562 
Allowance for excess slow-moving and obsolete inventory  8,025   1,942   —   (1,849)  —   (341)  7,777 
Valuation allowance for deferred tax assets  45,053   4,407   3,666   (180)  —   (55)  52,891 

__________

(a)Net of recoveries.
(b)(1)Amounts charged to other accounts is net of recoveries for the respective period.

(2)Represents amount charged to Accumulated other comprehensive income.loss.

99
(c)Amounts related to businesses acquired and related adjustments.

91