UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended April 2, 20211, 2022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number - 001-34045
ColfaxEnovis Corporation
(Exact name of registrant as specified in its charter)
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Delaware | | 54-1887631 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
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420 National Business Parkway,2711 Centerville Road, | 5th FloorSuite 400 | | |
Annapolis Junction,Wilmington, | MarylandDelaware | | 2070119808 |
(Address of principal executive offices) | | (Zip Code) |
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(302) | 252-9160 |
(Registrant’s telephone number, including area code) |
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(301) | 323-9000Colfax Corporation |
(Registrant’s telephone number, including area code)Former name, former address and former fiscal year, if changed since last report |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | CFX | New York Stock Exchange |
5.75% Tangible Equity Units | CFXAENOV | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑Accelerated filer ☐Non-accelerated filer ☐
Smaller reporting company ☐Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 2, 2021,18, 2022, there were 135,597,33154,030,880 shares of the registrant’s common stock, par value $.001 per share, outstanding.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Condensed Consolidated Statements of Operations | |
Condensed Consolidated Statements of Comprehensive Income (Loss) | |
Condensed Consolidated Balance Sheets | |
Condensed Consolidated Statements of Equity | |
Condensed Consolidated Statements of Cash Flows | |
Notes to Condensed Consolidated Financial Statements | |
Note 1. General | |
Note 2. Recently Issued Accounting Pronouncements | |
Note 3. Discontinued Operations | |
Note 4. Acquisitions and Investments | |
Note 5. Revenue | |
Note 6. Net Income Per Share from Continuing Operations | |
Note 7. Income Taxes | |
Note 8. Equity | |
Note 9. Inventories, Net | |
Note 10. Debt | |
Note 11. Accrued Liabilities | |
Note 12. Financial Instruments and Fair Value Measurements | |
Note 13. Commitments and Contingencies | |
Note 14. Segment Information | |
Note 15. Subsequent Events | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
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PART II - OTHER INFORMATION | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. Defaults Upon Senior Securities | |
Item 4. Mine Safety Disclosures | |
Item 5. Other Information | |
Item 6. Exhibits | |
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SIGNATURES | |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLFAXENOVIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands, except per share amounts
(Unaudited)
| | | Three Months Ended | | | Three Months Ended | |
| | April 2, 2021 | | April 3, 2020 | | | April 1, 2022 | | April 2, 2021 | |
| Net sales | Net sales | $ | 879,211 | | | $ | 816,356 | | | Net sales | $ | 1,023,368 | | | $ | 879,211 | | |
Cost of sales | Cost of sales | 508,134 | | | 468,142 | | | Cost of sales | 593,137 | | | 508,134 | | |
Gross profit | Gross profit | 371,077 | | | 348,214 | | | Gross profit | 430,231 | | | 371,077 | | |
Selling, general and administrative expense | Selling, general and administrative expense | 305,724 | | | 292,197 | | | Selling, general and administrative expense | 369,390 | | | 305,724 | | |
Restructuring and other related charges | Restructuring and other related charges | 4,046 | | | 9,180 | | | Restructuring and other related charges | 7,723 | | | 4,046 | | |
Operating income | Operating income | 61,307 | | | 46,837 | | | Operating income | 53,118 | | | 61,307 | | |
| Interest expense, net | Interest expense, net | 25,660 | | | 24,796 | | | Interest expense, net | 15,099 | | | 25,660 | | |
| Income from continuing operations before income taxes | Income from continuing operations before income taxes | 35,647 | | | 22,041 | | | Income from continuing operations before income taxes | 38,019 | | | 35,647 | | |
Income tax expense | Income tax expense | 7,917 | | | 13,173 | | | Income tax expense | 18,660 | | | 7,917 | | |
Net income from continuing operations | Net income from continuing operations | 27,730 | | | 8,868 | | | Net income from continuing operations | 19,359 | | | 27,730 | | |
| Loss from discontinued operations, net of taxes | Loss from discontinued operations, net of taxes | (7,490) | | | (3,360) | | | Loss from discontinued operations, net of taxes | (3,058) | | | (7,490) | | |
Net income | Net income | 20,240 | | | 5,508 | | | Net income | 16,301 | | | 20,240 | | |
Less: income attributable to noncontrolling interest, net of taxes | Less: income attributable to noncontrolling interest, net of taxes | 1,166 | | | 1,027 | | | Less: income attributable to noncontrolling interest, net of taxes | 1,233 | | | 1,166 | | |
Net income attributable to Colfax Corporation | $ | 19,074 | | | $ | 4,481 | | | |
Net income attributable to Enovis Corporation | | Net income attributable to Enovis Corporation | $ | 15,068 | | | $ | 19,074 | | |
Net income (loss) per share - basic | Net income (loss) per share - basic | | | | | Net income (loss) per share - basic | | | | |
Continuing operations | Continuing operations | $ | 0.19 | | | $ | 0.06 | | | Continuing operations | $ | 0.34 | | | $ | 0.57 | | |
Discontinued operations | Discontinued operations | $ | (0.05) | | | $ | (0.02) | | | Discontinued operations | $ | (0.06) | | | $ | (0.16) | | |
Consolidated operations | Consolidated operations | $ | 0.14 | | | $ | 0.03 | | | Consolidated operations | $ | 0.28 | | | $ | 0.41 | | |
Net income (loss) per share - diluted | Net income (loss) per share - diluted | | | | | Net income (loss) per share - diluted | | | | |
Continuing operations | Continuing operations | $ | 0.19 | | | $ | 0.06 | | | Continuing operations | $ | 0.33 | | | $ | 0.56 | | |
Discontinued operations | Discontinued operations | $ | (0.05) | | | $ | (0.02) | | | Discontinued operations | $ | (0.06) | | | $ | (0.16) | | |
Consolidated operations | Consolidated operations | $ | 0.13 | | | $ | 0.03 | | | Consolidated operations | $ | 0.28 | | | $ | 0.40 | | |
See Notes to Condensed Consolidated Financial Statements.
COLFAXENOVIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
Dollars in thousands
(Unaudited)
| | | | Three Months Ended | | | Three Months Ended |
| | | April 2, 2021 | | April 3, 2020 | | | April 1, 2022 | | April 2, 2021 |
Net income | Net income | | $ | 20,240 | | | $ | 5,508 | | Net income | | $ | 16,301 | | | $ | 20,240 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | | Other comprehensive income (loss): | | | | |
Foreign currency translation, net of tax expense of $2,280 and $519 | | (53,181) | | | (172,792) | | |
Unrealized gain on hedging activities, net of tax expense of $4,243 and $3,873 | | 12,381 | | | 11,036 | | |
Foreign currency translation, net of tax expense of $338 and $2,280 | | Foreign currency translation, net of tax expense of $338 and $2,280 | | (53,461) | | | (53,181) | |
Unrealized gain on hedging activities, net of tax expense of $2,711 and $4,243 | | Unrealized gain on hedging activities, net of tax expense of $2,711 and $4,243 | | 9,028 | | | 12,381 | |
| Amounts reclassified from Accumulated other comprehensive loss: | Amounts reclassified from Accumulated other comprehensive loss: | | | Amounts reclassified from Accumulated other comprehensive loss: | | |
Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $317 and $252 | | 1,055 | | | 866 | | |
Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $199 and $317 | | Amortization of pension and other post-retirement net actuarial gain, net of tax expense of $199 and $317 | | 629 | | | 1,055 | |
| Other comprehensive loss | Other comprehensive loss | | (39,745) | | | (160,890) | | Other comprehensive loss | | (43,804) | | | (39,745) | |
Comprehensive loss | Comprehensive loss | | (19,505) | | | (155,382) | | Comprehensive loss | | (27,503) | | | (19,505) | |
Less: comprehensive income (loss) attributable to noncontrolling interest | | 1,042 | | | (1,567) | | |
Comprehensive loss attributable to Colfax Corporation | | $ | (20,547) | | | $ | (153,815) | | |
Less: comprehensive income attributable to noncontrolling interest | | Less: comprehensive income attributable to noncontrolling interest | | 895 | | | 1,042 | |
Comprehensive loss attributable to Enovis Corporation | | Comprehensive loss attributable to Enovis Corporation | | $ | (28,398) | | | $ | (20,547) | |
See Notes to Condensed Consolidated Financial Statements.
COLFAXENOVIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share amounts
(Unaudited)
| | | April 2, 2021 | | December 31, 2020 | | April 1, 2022 | | December 31, 2021 |
ASSETS | ASSETS | | | | ASSETS | | | |
CURRENT ASSETS: | CURRENT ASSETS: | | CURRENT ASSETS: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 763,653 | | | $ | 97,068 | | Cash and cash equivalents | $ | 661,504 | | | $ | 719,370 | |
| Trade receivables, less allowance for credit losses of $35,560 and $37,666 | 553,785 | | | 517,006 | | |
Trade receivables, less allowance for credit losses of $37,871 and $32,501 | | Trade receivables, less allowance for credit losses of $37,871 and $32,501 | 657,056 | | | 638,700 | |
Inventories, net | Inventories, net | 606,208 | | | 564,822 | | Inventories, net | 852,814 | | | 776,295 | |
Prepaid expenses | Prepaid expenses | 75,205 | | | 69,515 | | Prepaid expenses | 84,816 | | | 78,186 | |
Other current assets | Other current assets | 79,114 | | | 113,418 | | Other current assets | 91,547 | | | 90,728 | |
| Total current assets | Total current assets | 2,077,965 | | | 1,361,829 | | Total current assets | 2,347,737 | | | 2,303,279 | |
Property, plant and equipment, net | Property, plant and equipment, net | 479,240 | | | 486,960 | | Property, plant and equipment, net | 504,583 | | | 521,391 | |
Goodwill | Goodwill | 3,331,531 | | | 3,314,541 | | Goodwill | 3,440,615 | | | 3,467,295 | |
Intangible assets, net | Intangible assets, net | 1,652,957 | | | 1,663,446 | | Intangible assets, net | 1,637,257 | | | 1,675,462 | |
Lease asset - right of use | Lease asset - right of use | 170,620 | | | 173,942 | | Lease asset - right of use | 178,643 | | | 184,429 | |
Other assets | Other assets | 354,301 | | | 350,831 | | Other assets | 374,816 | | | 363,489 | |
| Total assets | Total assets | $ | 8,066,614 | | | $ | 7,351,549 | | Total assets | $ | 8,483,651 | | | $ | 8,515,345 | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | LIABILITIES AND EQUITY | |
CURRENT LIABILITIES: | CURRENT LIABILITIES: | | CURRENT LIABILITIES: | |
Current portion of long-term debt | Current portion of long-term debt | $ | 727,369 | | | $ | 27,074 | | Current portion of long-term debt | $ | 422,289 | | | $ | 8,314 | |
Accounts payable | Accounts payable | 406,744 | | | 330,251 | | Accounts payable | 537,676 | | | 504,173 | |
| Accrued liabilities | Accrued liabilities | 424,298 | | | 454,333 | | Accrued liabilities | 490,050 | | | 511,097 | |
| Total current liabilities | Total current liabilities | 1,558,411 | | | 811,658 | | Total current liabilities | 1,450,015 | | | 1,023,584 | |
Long-term debt, less current portion | Long-term debt, less current portion | 1,481,997 | | | 2,204,169 | | Long-term debt, less current portion | 1,647,870 | | | 2,078,679 | |
Non-current lease liability | Non-current lease liability | 137,329 | | | 139,230 | | Non-current lease liability | 140,704 | | | 145,326 | |
Other liabilities | Other liabilities | 597,808 | | | 608,618 | | Other liabilities | 601,017 | | | 606,323 | |
| Total liabilities | Total liabilities | 3,775,545 | | | 3,763,675 | | Total liabilities | 3,839,606 | | | 3,853,912 | |
Equity: | Equity: | | | | Equity: | | | |
Common stock, $0.001 par value; 400,000,000 shares authorized; 135,597,331 and 118,496,687 issued and outstanding as of April 2, 2021 and December 31, 2020, respectively | 135 | | | 118 | | |
Common stock, $0.001 par value; 133,333,333 shares authorized; 54,030,880 and 52,083,078 shares issued and outstanding as of April 1, 2022 and December 31, 2021, respectively | | Common stock, $0.001 par value; 133,333,333 shares authorized; 54,030,880 and 52,083,078 shares issued and outstanding as of April 1, 2022 and December 31, 2021, respectively | 54 | | | 52 | |
Additional paid-in capital | Additional paid-in capital | 4,201,745 | | | 3,478,008 | | Additional paid-in capital | 4,555,369 | | | 4,544,315 | |
Retained earnings | Retained earnings | 536,441 | | | 517,367 | | Retained earnings | 604,092 | | | 589,024 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (491,727) | | | (452,106) | | Accumulated other comprehensive loss | (559,479) | | | (516,013) | |
Total Colfax Corporation equity | 4,246,594 | | | 3,543,387 | | |
Total Enovis Corporation equity | | Total Enovis Corporation equity | 4,600,036 | | | 4,617,378 | |
Noncontrolling interest | Noncontrolling interest | 44,475 | | | 44,487 | | Noncontrolling interest | 44,009 | | | 44,055 | |
Total equity | Total equity | 4,291,069 | | | 3,587,874 | | Total equity | 4,644,045 | | | 4,661,433 | |
Total liabilities and equity | Total liabilities and equity | $ | 8,066,614 | | | $ | 7,351,549 | | Total liabilities and equity | $ | 8,483,651 | | | $ | 8,515,345 | |
See Notes to Condensed Consolidated Financial Statements.
COLFAXENOVIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Dollars in thousands, except share amounts and as noted
(Unaudited)
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| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total |
| Shares | Amount |
Balance at December 31, 2020 | 118,496,687 | | $ | 118 | | $ | 3,478,008 | | $ | 517,367 | | $ | (452,106) | | $ | 44,487 | | $ | 3,587,874 | |
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Net income | — | | — | | — | | 19,074 | | — | | 1,166 | | 20,240 | |
Distributions to noncontrolling owners | — | | — | | — | | — | | — | | (1,054) | | (1,054) | |
Other comprehensive loss, net of tax expense of $6,840 | — | | — | | — | | — | | (39,621) | | (124) | | (39,745) | |
Conversion of tangible equity units into common stock | 344,412 | | — | | — | | — | | — | | — | | — | |
Common stock repurchases | (21,082) | | — | | (971) | | — | | — | | — | | (971) | |
Common stock offering, net of issuance costs | 16,100,000 | | 16 | | 711,305 | | — | | — | | — | | 711,321 | |
Common stock-based award activity | 677,314 | | 1 | | 13,403 | | — | | — | | — | | 13,404 | |
Balance at April 2, 2021 | 135,597,331 | | $ | 135 | | $ | 4,201,745 | | $ | 536,441 | | $ | (491,727) | | $ | 44,475 | | $ | 4,291,069 | |
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| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total |
| Shares | Amount |
Balance at December 31, 2021 | 52,083,078 | | $ | 52 | | $ | 4,544,315 | | $ | 589,024 | | $ | (516,013) | | $ | 44,055 | | $ | 4,661,433 | |
Net income | — | | — | | — | | 15,068 | | — | | 1,233 | | 16,301 | |
Distributions to noncontrolling owners | — | | — | | — | | — | | — | | (941) | | (941) | |
Other comprehensive loss, net of tax of $3,248 | — | | — | | — | | — | | (43,466) | | (338) | | (43,804) | |
Conversion of tangible equity units into common stock | 1,691,845 | | 2 | | (2) | | — | | — | | — | | — | |
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Common stock-based award activity | 255,957 | | — | | 11,056 | | — | | — | | — | | 11,056 | |
Balance at April 1, 2022 | 54,030,880 | | $ | 54 | | $ | 4,555,369 | | $ | 604,092 | | $ | (559,479) | | $ | 44,009 | | $ | 4,644,045 | |
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| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total |
| Shares | Amount |
Balance at December 31, 2019 | 118,059,082 | | $ | 118 | | $ | 3,445,597 | | $ | 479,560 | | $ | (483,845) | | $ | 48,198 | | $ | 3,489,628 | |
Cumulative effect of accounting change | — | | — | | — | | (4,818) | | — | | — | | (4,818) | |
Net income | — | | — | | — | | 4,481 | | — | | 1,027 | | 5,508 | |
Distributions to noncontrolling owners | — | | — | | — | | — | | — | | (8) | | (8) | |
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Other comprehensive loss, net of tax expense of $4,644 | — | | — | | — | | — | | (158,297) | | (2,593) | | (160,890) | |
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Common stock-based award activity | 268,323 | | — | | 8,344 | | — | | — | | — | | 8,344 | |
Balance at April 3, 2020 | 118,327,405 | | $ | 118 | | $ | 3,453,941 | | $ | 479,223 | | $ | (642,142) | | $ | 46,624 | | $ | 3,337,764 | |
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| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total |
| Shares | Amount |
Balance at December 31, 2020 | 39,498,896 | | $ | 40 | | $ | 3,478,086 | | $ | 517,367 | | $ | (452,106) | | $ | 44,487 | | $ | 3,587,874 | |
Net income | — | | — | | — | | 19,074 | | — | | 1,166 | | 20,240 | |
Distributions to noncontrolling owners | — | | — | | — | | — | | — | | (1,054) | | (1,054) | |
Other comprehensive loss, net of tax of $6,840 | — | | — | | — | | — | | (39,621) | | (124) | | (39,745) | |
Conversion of tangible equity units into common stock | 114,804 | | — | | — | | — | | — | | — | | — | |
Common stock offering, net of issuance costs | 5,366,666 | | 5 | | 711,316 | | — | | — | | — | | 711,321 | |
Common stock-based award activity | 218,744 | | — | | 12,433 | | — | | — | | — | | 12,433 | |
Balance at April 2, 2021 | 45,199,110 | | $ | 45 | | $ | 4,201,835 | | $ | 536,441 | | $ | (491,727) | | $ | 44,475 | | $ | 4,291,069 | |
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See Notes to Condensed Consolidated Financial Statements.
COLFAXENOVIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(Unaudited)
| | | Three Months Ended | | Three Months Ended |
| | April 2, 2021 | | April 3, 2020 | | April 1, 2022 | | April 2, 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
Net income | Net income | $ | 20,240 | | | $ | 5,508 | | Net income | $ | 16,301 | | | $ | 20,240 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |
| Depreciation, amortization and other impairment charges | Depreciation, amortization and other impairment charges | 62,785 | | | 58,336 | | Depreciation, amortization and other impairment charges | 66,026 | | | 62,785 | |
Stock-based compensation expense | Stock-based compensation expense | 7,807 | | | 6,124 | | Stock-based compensation expense | 9,857 | | | 7,807 | |
Non-cash interest expense | Non-cash interest expense | 1,537 | | | 1,311 | | Non-cash interest expense | 978 | | | 1,537 | |
| Deferred income tax benefit | (3,614) | | | (567) | | |
Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 2,232 | | | (3,614) | |
Loss on sale of property, plant and equipment | Loss on sale of property, plant and equipment | 257 | | | 976 | | Loss on sale of property, plant and equipment | 352 | | | 257 | |
| | Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Trade receivables, net | Trade receivables, net | (39,950) | | | 29,445 | | Trade receivables, net | (20,690) | | | (39,950) | |
Inventories, net | Inventories, net | (32,743) | | | (16,431) | | Inventories, net | (70,830) | | | (32,743) | |
Accounts payable | Accounts payable | 83,442 | | | 30,592 | | Accounts payable | 24,713 | | | 83,442 | |
| Other operating assets and liabilities | Other operating assets and liabilities | (15,379) | | | (59,065) | | Other operating assets and liabilities | (43,362) | | | (15,379) | |
Net cash provided by operating activities | 84,382 | | | 56,229 | | |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (14,423) | | | 84,382 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchases of property, plant and equipment | (24,537) | | | (31,113) | | |
Purchases of property, plant and equipment and intangibles | | Purchases of property, plant and equipment and intangibles | (24,089) | | | (24,537) | |
Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 0 | | | 1,688 | | Proceeds from sale of property, plant and equipment | 2,746 | | | — | |
Acquisitions, net of cash received, and investments | Acquisitions, net of cash received, and investments | (103,475) | | | (7,830) | | Acquisitions, net of cash received, and investments | (13,823) | | | (103,475) | |
| Net cash used in investing activities | Net cash used in investing activities | (128,012) | | | (37,255) | | Net cash used in investing activities | (35,166) | | | (128,012) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
| Proceeds from borrowings on revolving credit facilities and other | Proceeds from borrowings on revolving credit facilities and other | 179,367 | | | 608,673 | | Proceeds from borrowings on revolving credit facilities and other | — | | | 179,367 | |
Repayments of borrowings on revolving credit facilities and other | Repayments of borrowings on revolving credit facilities and other | (185,643) | | | (364,403) | | Repayments of borrowings on revolving credit facilities and other | (7,428) | | | (185,643) | |
| | Proceeds from issuance of common stock, net | Proceeds from issuance of common stock, net | 716,632 | | | 2,220 | | Proceeds from issuance of common stock, net | 1,199 | | | 716,632 | |
| | Deferred consideration payments and other | Deferred consideration payments and other | (2,704) | | | (1,353) | | Deferred consideration payments and other | (4,590) | | | (2,704) | |
Net cash provided by financing activities | 707,652 | | | 245,137 | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (10,819) | | | 707,652 | |
| Effect of foreign exchange rates on Cash and cash equivalents and Restricted cash | (1,438) | | | (8,139) | | |
Effect of foreign exchange rates on Cash and cash equivalents and Restricted Cash | | Effect of foreign exchange rates on Cash and cash equivalents and Restricted Cash | 2,542 | | | (1,438) | |
| Increase in Cash and cash equivalents and Restricted cash | 662,584 | | | 255,972 | | |
(Decrease) increase in Cash and cash equivalents and Restricted cash | | (Decrease) increase in Cash and cash equivalents and Restricted cash | (57,866) | | | 662,584 | |
Cash and cash equivalents and Restricted Cash, beginning of period | Cash and cash equivalents and Restricted Cash, beginning of period | 101,069 | | | 109,632 | | Cash and cash equivalents and Restricted Cash, beginning of period | 719,370 | | | 101,069 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 763,653 | | | $ | 365,604 | | Cash and cash equivalents, end of period | $ | 661,504 | | | $ | 763,653 | |
|
See Notes to Condensed Consolidated Financial Statements.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
ColfaxEnovis Corporation (the “Company” or “Colfax”“Enovis”) iswas previously Colfax Corporation (“Colfax”) until its separation into 2 differentiated, independent, and publicly traded companies on April 4, 2022, as discussed further below. Colfax was a leading diversified technology company that providesprovided fabrication technology and medical device products and services to customers around the world, principally under the ESAB and DJO brands. The Company conductsconducted its operations through two2 operating segments, “Fabrication Technology”, which incorporatesincorporated the operations of ESAB and its related brands, and “Medical Technology”, which incorporatesincorporated the operations of DJO and its related brands.
On MarchApril 4, 2021,2022 (the “Distribution Date”), the Company announced its intention to separatecompleted the separation of its fabrication technology and specialty medical technology businesses into two differentiated, independent, and publicly traded companies.business (the “Separation”) through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corporation (“ESAB Corp”) to Colfax stockholders. To affect the Separation, Colfax distributed to its stockholders 1 share of ESAB Corp common stock for every three shares of Colfax common stock held at the close of business on March 22, 2022, with the Company retaining 10% of the shares of ESAB Corp common stock immediately following the Separation. The currentCompany intends to divest its 10% retained shares in ESAB Corp in a tax-efficient exchange for its outstanding debt no later than 12 months after the Distribution Date. Upon completion of the Separation, Colfax, entity will retainwhich retained the Company’s specialty medical technology business, changed its name to Enovis Corporation. On April 5, 2022, the Company began trading under the stock symbol “ENOV” on the New York Stock Exchange. For further information on the Separation, refer to Note 15, “Subsequent Events”.
In connection with the Separation, ESAB Corp issued $1.2 billion of new debt securities, the proceeds from which were used to fund a $1.2 billion cash distribution to Enovis upon Separation. The distribution proceeds were used by Enovis in conjunction with $450 million of borrowings on a term loan under the new name, whileEnovis credit facility, as discussed below, and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest on its Credit Facility, $302.8 million of outstanding debt and accrued interest on its 2026 Notes, as well as a redemption premium at 103.188% of the principal amount of the 2026 Notes, and other fees and expenses due at closing. Additionally, on April 7, 2022, the Company also completed the redemption of its Euro Senior Notes representing all of its outstanding €350 million principal 3.250% Senior Notes due 2025 at a redemption price of 100.813% of the principal amount. For further information on the Separation, refer to Note 15, “Subsequent Events”.
Immediately following the Separation, the Company effected a one-for-three reverse stock split of all issued and outstanding shares of Enovis common stock. As a result of the reverse stock split, all share and per share figures contained in the accompanying Condensed Consolidated Financial Statements have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.
Since the disposition occurred in the second quarter of 2022, Enovis will classify its fabrication technology business will operate independently under the existing ESAB brand name. The separation is intended to be structuredas a discontinued operation in a tax-free manner and is targeted to be completedits historical financial statements beginning in the firstsecond quarter of 2022. The assets, liabilities, revenues and expenses of the fabrication technology businesses are included in continuing operations of the Company in the accompanying Condensed Consolidated Financial Statements.
The Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements. Certain prior period amounts have been reclassified to conform to the current period presentation. The Condensed Consolidated Balance Sheet as of December 31, 20202021 is derived from the Company’s audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim financial statements. The Condensed Consolidated Financial Statements included herein should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 (the “2020“2021 Form 10-K”), filed with the SEC on February 18, 2021.22, 2022.
The Condensed Consolidated Financial Statements reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. Intercompany transactions and accounts are eliminated in consolidation.
The Company makes certain estimates and assumptions in preparing its Condensed Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.
ENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
In the normal course of business, the Company incurs research and development costs related to new product development which are expensed as incurred and included in Selling, general and administrative expensesexpense on the Company’s Condensed Consolidated Statements of Operations. Research and development costs were $24.4 million and $19.9 million during the three months ended April 1, 2022 and April 2, 2021, and $18.5 million during the three months ended April 3, 2020.respectively.
The results of operations for the three months ended April 2, 20211, 2022 are not necessarily indicative of the results of operations that may be achieved for the full year. Quarterly results are affected by seasonal variations in the Company’s businesses and European operations typically experience a slowdown during the July, August and December holiday seasons.as Medical Technology sales typically peak in the fourth quarter. General economic conditions may, however, impact future seasonal variations.
In December 2019, a novel coronavirus disease (“COVID-19”) was first reported in China. On March 11, 2020, due to worldwide spread of the virus, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 global pandemic has resulted in a widespread health crisis, and the resulting impact on governments, businesses and individuals and actions taken by them in response to the situation have resulted in widespread economic disruptions, significantly affecting broader economies, financial markets, and overall demand for the Company’s products. InThese impacts lessened in 2021 these impacts continuedue to be observed, though to a lesser extent than 2020, primarily as a result of broadening access to COVID-19 vaccines and gradual relaxing of some government-mandated restrictions. However, a surge of COVID-19 cases due to the emergence of certain COVID-19 variants in the third quarter of 2021 led to the reinstatement of restrictions in certain jurisdictions, slowing the overall economic recovery. Some of these restrictions have been lifted as of the end of the first quarter of 2022. The COVID-19 outbreak has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities in the Condensed Consolidated Financial Statements as the extent and period of recovery from the COVID-19 outbreak and related economic disruption are difficult to forecast.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Furthermore, the historical seasonality trends have been disrupted by the commercial impacts caused by the COVID-19 pandemic.
2. Recently Issued Accounting Pronouncements
Accounting Guidance Implemented in 2021
| | | | | | | | | | | | | | |
Standard | | Description | | Effective Date |
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans | | The ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The adoption of this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
| | January 1, 2021
|
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes | | The ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of accounting for income taxes. The Company adopted this ASU as of January 1, 2021 on a prospective basis, and the adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements. | | January 1, 2021 |
The Company has not adopted any new accounting standards during the three months ended April 1, 2022. There are no recently issued accounting pronouncements that are expected to have a material effect on the Company’s financial position, results of operations or cash flows.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
3. Discontinued Operations
The Company retained certain asbestos-related contingencies and insurance coverages from divested businesses for which it did not retain an interest in the ongoing operations subject to the contingencies. In conjunction with the Separation, all asbestos-related contingencies and insurance coverages from its industrial businesses were transferred fully to ESAB Corp. The Company has classified asbestos-related selling, general and administrative activity in its Condensed Consolidated Statements of Operations as part of Loss from discontinued operations, net of taxes. DuringAsbestos-related costs, net of taxes were $2.5 million and $0.9 million during the three months ended April 1, 2022 and April 2, 2021, and April 3, 2020, the Company recorded $0.9 million and $1.4 million, respectively, of asbestos-related costs, net of tax.respectively. See Note 13, “Commitments and Contingencies” for further information.
The Company also recorded Loss from discontinued operations, net of taxtaxes of $0.6 million and $6.6 million and $2.0 million forduring the three months ended April 2, 20211, 2022 and April 3, 2020,2, 2021, respectively, related to its divested air and gas handling business, including a settlement executed in 2021, as well as certain professional, legal, and consulting fees in 2020.the first quarter of 2021.
Cash used in operating activities related to discontinued operations for the three months ended April 1, 2022 and April 2, 2021 was $5.8 million and $7.3 million. Cash provided by operating activities related to discontinued operations formillion, respectively.
4. Acquisitions and Investments
The Medical Technology segment completed 3 transactions during the three months ended April 1, 2022 for $13.8 million, 1 of which is carried at cost as the investment does not have a readily determinable fair value, while the other 2 are accounted for as asset purchases. The 3 2020 was $0.8 million.investments broaden the platform’s product offering and distribution network.
4. Acquisitions
TheDuring the three months ended April 2, 2021, the Company completed one1 acquisition in its Fabrication Technology segment and two2 acquisitions in its Medical Technology segment during the three months ended April 2, 2021 for totalaggregate net cash consideration net of cash received, of $88.7 million. The
ENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
acquisitions are accounted for under the acquisition method of accounting, and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the respective acquisition date. The Medical Technology segment’s acquisitions in the first quarter of 2021 included Trilliant Surgical (“Trilliant”), a national provider of foot and ankle orthopedic implants, which was acquired for net cash consideration of $79.6 million. The purchase accounting for all acquisitions made in the first quarter of 2021 has been completed. The Company also made two investments in medical technology businesses during the three months ended April 2, 2021 for a total of $14.8 million. Both investments are carried at cost, as they do not have a readily determinable fair value.
AcquisitionsDuring the year ended December 31, 2021, the Company completed 1 acquisition in theits Fabrication Technology segment and 5 acquisitions in its Medical Technology segment included Trilliant Surgical (“Trilliant”), a national providerfor aggregate net cash consideration of foot$206.5 million and ankle orthopedics implants.equity consideration of $285.7 million. The product technologiesacquisitions are accounted for under the acquisition method of Trilliant supportaccounting, and accordingly, the Medical Technology segment’s focused expansion intoCondensed Consolidated Financial Statements include the adjacent footfinancial position and ankle market. Trilliant has a broad product portfolio that coversresults of operations from the full universe of foot reconstructive and fixation procedures, and includesrespective acquisition date. The purchase accounting for the novel Arsenal Foot Plating System, designed for greater flexibility and speed of implant placement. TheMathys AG Bettlach acquisition which was completed in the third quarter of 2021 has yet to be finalized.
For further information on prior year acquisitions and investments, refer to Note 5. “Acquisitions” in the Notes to the Consolidated Financial Statements in the Company’s 2021 Form 10-K. There have been no material changes to purchase accounting estimates for $82.3 million cash consideration, subject to certain adjustments. Net working capital and intangible assets acquired represent 18% and 46%the prior year acquisitions since the issuance of the total consideration paid, respectively, with the residual amount primarily attributable to Goodwill. All of the Goodwill acquired is expected to be deductible for income tax purposes. The estimated proforma annual revenues of the Trilliant acquisition are approximately 1% of Colfax consolidated revenues.Company’s 2021 Form 10-K.
5. Revenue
The Company’s Fabrication Technology segment formulates, develops, manufactures and supplies consumable welding and cutting products and equipment, as well as gas control equipment. Substantially all revenue from the Fabrication Technology business is recognized at a point in time. The Company disaggregates its Fabrication Technology revenue into the following product groups:
| | | | Three Months Ended | | | Three Months Ended |
| | | April 2, 2021 | | April 3, 2020 | | | April 1, 2022 | | April 2, 2021 |
| | | (In thousands) | | | (In thousands) |
Equipment | Equipment | | $ | 173,750 | | | $ | 156,800 | | Equipment | | $ | 188,348 | | | $ | 173,750 | |
Consumables | Consumables | | 394,378 | | | 368,737 | | Consumables | | 459,563 | | | 394,378 | |
Total | Total | | $ | 568,128 | | | $ | 525,537 | | Total | | $ | 647,911 | | | $ | 568,128 | |
Contracts with customers in theThe consumables product grouping generally have ahas less production complexity and shorter fulfillment periodproduction cycles than equipment contracts.products.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The Company’s Medical Technology segment provides orthopedic solutions, including products and services spanning the full continuum of patient care, from injury prevention to rehabilitation. While the Company’s Medical Technology sales are primarily derived from 3 sales channels including dealers and distributors, insurance, and direct to consumers and hospitals, substantially all its revenue is recognized at a point in time.
The Company disaggregates its Medical Technology revenue into the following product groups:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | April 2, 2021 | | April 3, 2020 |
| | | | | (In thousands) |
Prevention & Recovery(1) | | | | | $ | 235,238 | | | $ | 223,785 | |
Reconstructive | | | | | 75,845 | | | 67,034 | |
Total | | | | | $ | 311,083 | | | $ | 290,819 | |
(1) For the periods presented, the Prevention & Recovery product group includes bone growth stimulation products, which were previously classified as part of the Reconstructive product group. | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | April 1, 2022 | | April 2, 2021 |
| | | | | (In thousands) |
Prevention & Recovery | | | | | $ | 244,835 | | | $ | 235,238 | |
Reconstructive | | | | | 130,622 | | | 75,845 | |
Total | | | | | $ | 375,457 | | | $ | 311,083 | |
Given the nature of the Fabrication Technology and Medical Technology businesses, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of April 2, 20211, 2022 is immaterial.
ENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The nature of the Company’s contracts gives rise to certain types of variable consideration, including rebates, implicit price concessions, and other discounts. The Company includes estimated amounts of variable consideration in the transaction price to the extent that it is probable there will not be a significant reversal of revenue.
In some circumstances, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 20202021 and 2019,2020, total contract liabilities were $36.6$31.5 million and $14.8$36.6 million, respectively. During the three months ended April 2, 20211, 2022 and April 3, 2020,2, 2021, revenue recognized that was included in the contract liability balance at the beginning of the year was $14.3$12.8 million and $4.9$14.3 million, respectively. As of April 2, 20211, 2022 and April 3, 2020,2, 2021, total contract liabilities were $40.0$31.4 million and $17.0$40.0 million, respectively, and were included in Accrued liabilities on the Company’s Condensed Consolidated Balance Sheets. The contract liabilities as of April 2, 20211, 2022 and December 31, 2020 include $11.82021 included $2.0 million and $4.9 million, respectively, of certain one-time advance payments in the Medical Technology business.
Allowance for Credit Losses
The Company’s estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. In calculating and applying its current expected credit losses, the Company disaggregates trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. The business segments are further disaggregated based on either geography or product type.
The Company uses a loss rate methodology in calculating its current expected credit losses, leveraging historical write-offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts using an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses considering the location and risks associated with the Company.
A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Condensed Consolidated Balance Sheets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended April 2, 2021 |
| Balance at Beginning of Period | | Charged to Expense, net | | Write-Offs and Deductions | | Foreign Currency Translation | | Balance at End of Period |
| (In thousands) |
Allowance for credit losses | $ | 37,666 | | | $ | 239 | | | $ | (1,062) | | | $ | (1,283) | | | $ | 35,560 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended April 1, 2022 |
| Balance at Beginning of Period | | Charged to Expense, net | | Write-Offs, Deductions and Other, net | | Foreign Currency Translation | | Balance at End of Period |
| (In thousands) |
Allowance for credit losses | $ | 32,501 | | | $ | 5,206 | | | $ | 141 | | | $ | 23 | | | $ | 37,871 | |
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
6. Net Income Per Share from Continuing Operations
Net income per share from continuing operations was computed as follows:
| | | Three Months Ended | | | | Three Months Ended |
| | April 2, 2021 | | April 3, 2020 | | | | April 1, 2022 | | April 2, 2021 |
| | (In thousands, except share and per share data) | | | (In thousands, except share and per share data) |
Computation of Net income per share from continuing operations - basic: | Computation of Net income per share from continuing operations - basic: | | | Computation of Net income per share from continuing operations - basic: | | |
Net income from continuing operations attributable to Colfax Corporation (1) | $ | 26,564 | | | $ | 7,841 | | | |
Net income from continuing operations attributable to Enovis Corporation(1) | | Net income from continuing operations attributable to Enovis Corporation(1) | | $ | 18,126 | | | $ | 26,564 | |
Weighted-average shares of Common stock outstanding – basic | Weighted-average shares of Common stock outstanding – basic | 139,603,389 | | | 136,601,111 | | | Weighted-average shares of Common stock outstanding – basic | | 53,872,007 | | | 46,534,463 | |
Net income per share from continuing operations – basic | Net income per share from continuing operations – basic | $ | 0.19 | | | $ | 0.06 | | | Net income per share from continuing operations – basic | | $ | 0.34 | | | $ | 0.57 | |
| Computation of Net income per share from continuing operations - diluted: | Computation of Net income per share from continuing operations - diluted: | | | Computation of Net income per share from continuing operations - diluted: | | |
Net income from continuing operations attributable to Colfax Corporation (1) | $ | 26,564 | | | $ | 7,841 | | | |
Net income from continuing operations attributable to Enovis Corporation(1) | | Net income from continuing operations attributable to Enovis Corporation(1) | | $ | 18,126 | | | $ | 26,564 | |
Weighted-average shares of Common stock outstanding – basic | Weighted-average shares of Common stock outstanding – basic | 139,603,389 | | | 136,601,111 | | | Weighted-average shares of Common stock outstanding – basic | | 53,872,007 | | | 46,534,463 | |
Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units | Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units | 2,167,918 | | | 4,868,927 | | | Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units | | 536,967 | | | 722,639 | |
Weighted-average shares of Common stock outstanding – diluted | Weighted-average shares of Common stock outstanding – diluted | 141,771,307 | | | 141,470,038 | | | Weighted-average shares of Common stock outstanding – diluted | | 54,408,974 | | | 47,257,102 | |
Net income per share from continuing operations – diluted | Net income per share from continuing operations – diluted | $ | 0.19 | | | $ | 0.06 | | | Net income per share from continuing operations – diluted | | $ | 0.33 | | | $ | 0.56 | |
(1) Net income from continuing operations attributable to ColfaxEnovis Corporation for the respective periods is calculated using Net income from continuing operations less the income attributable to noncontrolling interest, net of taxes, of $1.2 million for the three months ended April 1, 2022 and April 2, 2021,2021.
ENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
As a result of the reverse stock split, all share and $1.0 million forper share figures contained in the three months ended April 3, 2020, respectively.Condensed Consolidated Financial Statements have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.
For three months ended April 2, 2021 and April 3, 2020,all periods presented, the weighted-average shares of Common stock outstanding - basic includes the impact of 18.4 millionthe shares related to the issuance of Colfax’sthe tangible equity units. ForDuring the three months ended April 3, 2020,1, 2022, conversions of the weighted-averageCompany’s tangible equity units resulted in the issuance of approximately 1.7 million shares of CommonCompany common stock. All issuances of Company common stock outstanding - diluted includes the impact of an additional 3.7 million potentially issuable dilutive shares related to Colfax’sthe tangible equity units were converted at the minimum settlement rate of 1.33 shares of common stock for each purchase contract as a result of the Company’s share priceprice. The issued shares are included in March 2020.the Common stock issued and outstanding as of April 1, 2022. See Note 8, “Equity” for details.
The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three months ended April 1, 2022 and April 2, 2021 and April 3, 2020 excludes 1.40.5 million and 3.9 million, respectively, of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)7. Income Taxes
7.During the three months ended April 1, 2022, Income Taxesfrom continuing operations before income taxes was $38.0 million, while income tax expense was $18.7 million. The effective tax rate was 49.1% for the three months ended April 1, 2022. The effective tax rate for the three months ended April 1, 2022 differed from the 2021 U.S. federal statutory rate of 21% mainly due to withholding taxes, taxable foreign exchange gains, U.S. taxation of international operations, other non-deductible expenses, and various items expensed discretely to the quarter.
During the three months ended April 2, 2021, Income from continuing operations before income taxes was $35.6 million, while the income tax expense was $7.9 million. The effective tax rate was 22.2% for the three months ended April 2, 2021. The effective tax rate for the three months ended April 2, 2021 differed from the 2021 U.S. federal statutory rate of 21% mainly due to withholding taxes, taxable foreign exchange gains and other non-deductible expenses partially offset by the benefit of U.S. tax credits.
During the three months ended April 3, 2020, Income from continuing operations before income taxes was $22.0 million, while the income tax expense was $13.2 million. The effective tax rate was 59.8% for the three months ended April 3, 2020. The effective tax rate for the three months ended April 3, 2020 differed from the 2020 U.S. federal statutory rate of 21% mainly due to the impact of additional U.S. tax on international operations and taxable foreign exchange gains offset in part by a discrete tax benefit associated with the enactment of a tax law change in India. Income taxes for the three months ended April 3, 2020 were calculated using the actual year-to-date effective tax rate, also known as the discrete method. The discrete method was used because of the high degree of uncertainty in estimating annual pretax earnings at that time caused by the COVID-19 pandemic market conditions.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
8. Equity
Common Stock
On March 19, 2021, the Company completed the underwritten public offering of 16.1 million shares of Colfax Common stock at a price to the public of $46.00 per share, resulting in net proceeds of approximately $711.3 million, after deducting offering expenses and underwriters’ discount and commissions.8. Equity
Share Repurchase Program
In 2018, the Company’s Board of Directors authorized the repurchase of shares of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. No repurchases of the Company’s Common stock have been made under this plan since the third quarter of 2018. As of April 2, 2021,1, 2022, the remaining stock repurchase authorization provided by the Board of Directors was $100 million. The timing, amount and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors. There is no term associated with the remaining repurchase authorization.
Accumulated Other Comprehensive Loss
The following tables present the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the three months ended April 2, 20211, 2022 and April 3, 2020.2, 2021. All amounts are net of tax and noncontrolling interest, if any.
| | | Accumulated Other Comprehensive Loss Components | | Accumulated Other Comprehensive Loss Components |
| | Net Unrecognized Pension and Other Post-Retirement Benefit Cost | | Foreign Currency Translation Adjustment | | Unrealized Gain on Hedging Activities | | Total | | Net Unrecognized Pension and Other Post-Retirement Benefit Cost | | Foreign Currency Translation Adjustment | | Unrealized Gain on Hedging Activities | | Total |
| | (In thousands) | | (In thousands) |
| Balance at January 1, 2021 | $ | (112,783) | | | $ | (360,977) | | | $ | 21,654 | | | $ | (452,106) | | |
Balance at January 1, 2022 | | Balance at January 1, 2022 | $ | (85,559) | | | $ | (475,125) | | | $ | 44,671 | | | $ | (516,013) | |
| Other comprehensive income (loss) before reclassifications: | Other comprehensive income (loss) before reclassifications: | | Other comprehensive income (loss) before reclassifications: | | | | | | | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | 709 | | | (82,663) | | | (2,201) | | | (84,155) | | Foreign currency translation adjustment | 470 | | | (38,333) | | | — | | | (37,863) | |
Gain on long-term intra-entity foreign currency transactions | 0 | | | 31,098 | | | 0 | | | 31,098 | | |
Loss on long-term intra-entity foreign currency transactions | | Loss on long-term intra-entity foreign currency transactions | — | | | (15,260) | | | 0 | | (15,260) | |
Gain on net investment hedges | Gain on net investment hedges | 0 | | | 0 | | | 12,381 | | | 12,381 | | Gain on net investment hedges | — | | | — | | | 9,028 | | | 9,028 | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | 709 | | | (51,565) | | | 10,180 | | | (40,676) | | Other comprehensive income (loss) before reclassifications | 470 | | | (53,593) | | | 9,028 | | | (44,095) | |
Amounts reclassified from Accumulated other comprehensive loss | Amounts reclassified from Accumulated other comprehensive loss | 1,055 | | | 0 | | | 0 | | | 1,055 | | Amounts reclassified from Accumulated other comprehensive loss | 629 | | | — | | | — | | | 629 | |
| Net Other comprehensive income (loss) | Net Other comprehensive income (loss) | 1,764 | | | (51,565) | | | 10,180 | | | (39,621) | | Net Other comprehensive income (loss) | 1,099 | | | (53,593) | | | 9,028 | | | (43,466) | |
Balance at April 2, 2021 | $ | (111,019) | | | $ | (412,542) | | | $ | 31,834 | | | $ | (491,727) | | |
Balance at April 1, 2022 | | Balance at April 1, 2022 | $ | (84,460) | | | $ | (528,718) | | | $ | 53,699 | | | $ | (559,479) | |
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
| | | Accumulated Other Comprehensive Loss Components | | Accumulated Other Comprehensive Loss Components |
| | Net Unrecognized Pension and Other Post-Retirement Benefit Cost | | Foreign Currency Translation Adjustment | | Unrealized Gain on Hedging Activities | | Total | | Net Unrecognized Pension and Other Post-Retirement Benefit Cost | | Foreign Currency Translation Adjustment | | Unrealized Gain on Hedging Activities | | Total |
| | (In thousands) | | (In thousands) |
Balance at January 1, 2020 | $ | (106,500) | | | $ | (421,889) | | | $ | 44,544 | | | $ | (483,845) | | |
Balance at January 1, 2021 | | Balance at January 1, 2021 | $ | (112,783) | | | $ | (360,977) | | | $ | 21,654 | | | $ | (452,106) | |
| Other comprehensive income (loss) before reclassifications: | Other comprehensive income (loss) before reclassifications: | | Other comprehensive income (loss) before reclassifications: | | | | | | | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | 1,672 | | | (170,679) | | | (1,310) | | | (170,317) | | Foreign currency translation adjustment | 709 | | | (82,663) | | | (2,201) | | | (84,155) | |
Loss on long-term intra-entity foreign currency transactions | 0 | | | (1,027) | | | 0 | | | (1,027) | | |
Gain on long-term intra-entity foreign currency transactions | | Gain on long-term intra-entity foreign currency transactions | — | | | 31,098 | | | — | | | 31,098 | |
Gain on net investment hedges | Gain on net investment hedges | 0 | | | 0 | | | 12,180 | | | 12,180 | | Gain on net investment hedges | — | | | — | | | 12,381 | | | 12,381 | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | 1,672 | | | (171,706) | | | 10,870 | | | (159,164) | | Other comprehensive income (loss) before reclassifications | 709 | | | (51,565) | | | 10,180 | | | (40,676) | |
Amounts reclassified from Accumulated other comprehensive loss | Amounts reclassified from Accumulated other comprehensive loss | 867 | | | 0 | | | 0 | | | 867 | | Amounts reclassified from Accumulated other comprehensive loss | 1,055 | | | — | | | — | | | 1,055 | |
| Net Other comprehensive income (loss) | Net Other comprehensive income (loss) | 2,539 | | | (171,706) | | | 10,870 | | | (158,297) | | Net Other comprehensive income (loss) | 1,764 | | | (51,565) | | | 10,180 | | | (39,621) | |
Balance at April 3, 2020 | $ | (103,961) | | | $ | (593,595) | | | $ | 55,414 | | | $ | (642,142) | | |
Balance at April 2, 2021 | | Balance at April 2, 2021 | $ | (111,019) | | | $ | (412,542) | | | $ | 31,834 | | | $ | (491,727) | |
Tangible equity unit (“TEU”) offering
On January 11, 2019, the Company issued 4.6 million tangible equity unitsin Tangible Equity Units (“TEUs”) at the stated amount of $100 per unit. Net cash of $447.7 million was received upon closing. A portion of theThe gross proceeds and deferred finance costs from the issuance of the TEUs were allocated initially84.4% to equity (the “TEU prepaid stock purchase contract”contracts”) and 15.6% to debt (the “TEU amortizing notes”) based on the relative fair value of the respective components of each TEU. See Note 10, “Debt ”“Debt” for furtheradditional information regardingon the TEU amortizing notes.
The TEU prepaid stock purchase contracts
were mandatorily converted into shares of Company common stock
Unlesson January 15, 2022, unless previously settled at the holder’s option, for eachoption. All the TEU prepaid stock purchase contractcontracts converted at the Company will deliver to holders on January 15, 2022 (subject to postponement in certain limited circumstances, the “mandatoryminimum settlement date”) a number of shares of common stock. The number of shares of common stock issuable upon settlement of each purchase contract (the “settlement rate”) will be determined using the arithmetic average of the volume average weighted price for the 20 consecutive trading days beginning on,rate. Approximately 1.3 million and including, the 21st scheduled trading day immediately preceding January 15, 2022 (“the Applicable Market Value”) with reference to the following settlement rates:
•if the Applicable Market Value of the common stock is greater than the threshold appreciation price of $25.00, the holder will receive 4.0000 shares of common stock for each purchase contract (the “minimum settlement rate”);
•if the Applicable Market Value of the common stock is greater than or equal to the reference price of $20.81, but less than or equal to the threshold appreciation price of $25.00, the holder will receive a number of shares of common stock for each purchase contract having a value, based on the Applicable Market Value, equal to $100; and
•if the Applicable Market Value of the common stock is less than the reference price of $20.81, the holder will receive 4.8054 shares of common stock for each purchase contract (the “maximum settlement rate”).
Earnings per share
Unless the0.1 million TEU prepaid stock purchase contracts are redeemed bywere settled into approximately 1.7 million and 0.1 million shares of Company common stock as adjusted for the Company or settled earlier atreverse split, during the unit holder’s option, they arethree months ended April 1, 2022 and April 2, 2021, respectively. Since the 4.6 million TEU prepaid stock purchase contracts were mandatorily convertible into shares of ColfaxCompany common stock at not less than 4.0 shares per purchase contractthe minimum settlement rate or more than 4.8054 shares per purchase contract on January 15, 2022. This corresponds to not less than 18.4greater, 6.1 million shares, and not more than 22.1 million shares atas adjusted for the maximum. The 18.4 million minimum sharesreverse split, are included in basic net income per share calculations for all periods presented. See Note 6, “Net Income Per Share from Continuing Operations” for additional information.
9. Inventories, Net
Inventories, net consisted of the calculationfollowing:
| | | | | | | | | | | |
| April 1, 2022 | | December 31, 2021 |
| (In thousands) |
Raw materials | $ | 233,031 | | | $ | 215,200 | |
Work in process | 76,208 | | | 69,101 | |
Finished goods | 626,911 | | | 567,281 | |
| 936,150 | | | 851,582 | |
LIFO reserve | 797 | | | 1,129 | |
Less: allowance for excess, slow-moving and obsolete inventory | (84,133) | | | (76,416) | |
| $ | 852,814 | | | $ | 776,295 | |
The valuation of weighted-average sharesLIFO inventories is made at the end of Common stock outstanding - basic. The difference between the minimumyear based on inventory levels and maximum shares represents potentially dilutive securities. The Company includes them in its calculationcosts at the time. At April 1, 2022 and December 31, 2021, approximately 17.4% and 18.3% of weighted-average shares of Common stock outstanding - diluted on a pro rata basis tototal inventories, respectively, were valued using the extent the effect is not anti-dilutive and the average Applicable Market Value isLIFO method.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
higher than the reference price but is less than the threshold appreciation price. During the three months ended April 2, 2021, 0.1 million stock purchase contracts were converted into approximately 0.3 million shares of Colfax common stock at a conversion rate of 4.0 shares per contract.
9. Inventories, Net
Inventories, net consisted of the following:
| | | | | | | | | | | |
| April 2, 2021 | | December 31, 2020 |
| (In thousands) |
Raw materials | $ | 116,562 | | | $ | 110,848 | |
Work in process | 44,613 | | | 40,517 | |
Finished goods | 504,806 | | | 476,297 | |
| 665,981 | | | 627,662 | |
| | | |
Less: allowance for excess, slow-moving and obsolete inventory | (59,773) | | | (62,840) | |
Inventories, net | $ | 606,208 | | | $ | 564,822 | |
10. Debt
Long-term debt consisted of the following:
| | | April 2, 2021 | | December 31, 2020 | | April 1, 2022 | | December 31, 2021 |
| | (In thousands) | | (In thousands) |
Term loan | Term loan | $ | 781,767 | | | $ | 781,557 | | Term loan | $ | 782,653 | | | $ | 782,435 | |
Euro senior notes | Euro senior notes | 408,611 | | | 425,045 | | Euro senior notes | 383,997 | | | 395,552 | |
2024 and 2026 notes | 991,925 | | | 991,319 | | |
2026 notes | | 2026 notes | 298,034 | | | 297,906 | |
TEU amortizing notes | TEU amortizing notes | 25,241 | | | 31,251 | | TEU amortizing notes | — | | | 6,501 | |
| Revolving credit facilities and other | Revolving credit facilities and other | 1,822 | | | 2,071 | | Revolving credit facilities and other | 605,475 | | | 604,599 | |
Total debt | Total debt | 2,209,366 | | | 2,231,243 | | Total debt | 2,070,159 | | | 2,086,993 | |
Less: current portion | Less: current portion | (727,369) | | | (27,074) | | Less: current portion | (422,289) | | | (8,314) | |
Long-term debt | Long-term debt | $ | 1,481,997 | | | $ | 2,204,169 | | Long-term debt | $ | 1,647,870 | | | $ | 2,078,679 | |
Subsequent Event Debt Redemptions
In conjunction with the Separation which occurred on April 4, 2022, the Company repaid its Term loan and Revolver (each as defined below) and entered into a new credit agreement with its banking partners. Additionally, on March 7, 2022, the Company announced a conditional redemption of its 3.25% Euro Senior Notes due 2025 and its 6.375% Senior Notes due 2026. The Euro Senior Notes and 2026 Notes were redeemed on April 7, 2022 after the completion of the Separation. In accordance with the redemption notices and subsequent redemption of the debt described above, $421.3 million has been reclassified from long-term debt to current maturities. The amount reflects the debt retired that was not refinanced on a long-term basis. Refer to Note 15, “Subsequent Events” for further detail of ongoing financing arrangements.
Term Loan and Revolving Credit Facility
The Company’s credit agreement (the “Credit Facility”) by and among, which was legally extinguished in conjunction with the Company, as the borrower, certain U.S. subsidiaries of the Company, as guarantors, each of the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A., as syndication agent, and the co-documentation agents named therein consistsSeparation on April 4, 2022, consisted of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan with an initial aggregate principal amount of $825 million (the “Term Loan”), each with a maturity date of December 6, 2024. The Revolver containscontained a $50 million swing line loan sub-facility. Certain U.S. subsidiaries of the Company guarantee the obligations under the Credit Facility.
The Credit Facility containscontained customary covenants limiting the ability of Colfax and its subsidiariesthe Company to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends. In addition, the Credit Facility contains financial covenants requiring Colfax to maintain (subject to certain exceptions) (i) acontained maximum total leverage ratio calculated as the ratio of Consolidated Net Debt (as defined in the Credit Facility) to EBITDA (as defined in the Credit Facility) of 6.50:1.00 for the quarter ending March 31, 2021, 5.25:1.00 for the quarter ending June 30, 2021, 4.50:1.00 for the quarter ending September 30, 2021, 4.25:1.00 for the quarters ending December 31, 2021 and March 31, 2022, 4.00:1.00 for the quarters ending June 30, 2022 and September 30, 2022, and 3.50:1.00 as of December 31, 2022 and for each fiscal quarter ending thereafter, and (ii) a minimum interest coverage ratio financial covenants. For further description of 2.75:1.00 for each fiscal quarter until June 30, 2021, and then 3.00:1.00 for the quarters ending September 30, 2021 and thereafter. The Credit Facility also includes a “springing” collateral provision (based upon the Gross Leverage RatioCompany’s financial covenants as definedof April 1, 2022, refer to Note 13, “Debt” in the AmendmentNotes to the Credit Facility) which requires the obligations under the Amendment to the Credit Facility to be secured by substantially all personal property of Colfax and its U.S. subsidiaries and the equity of its first tier foreign subsidiaries, subject to customary exceptions,Consolidated Financial Statements in the event Colfax’s gross leverage ratio underCompany’s 2021 Form 10-K. As of April 1, 2022, the Credit Facility is greater than 5.00:1.00 as of the last day of any fiscal quarter. The Credit Facility contains various events of default (including failure to complyCompany was in compliance with the covenants under the Credit Facility.
As of April 1, 2022, the weighted-average interest rate of borrowings under the Credit Facility was 1.74%, excluding accretion of original issue discount and relateddeferred financing fees, and there was$375 million available on the Revolver.
Euro Senior Notes
The Company had senior unsecured notes with an aggregate principal amount of €350 million due in May 2025, with an interest rate of 3.25% (the “Euro Senior Notes”). The Euro Senior Notes were redeemed on April 7, 2022 after the completion of the Separation.
TEU Amortizing Notes
The Company had 6.50% TEU amortizing notes at an initial principal amount of $15.6099 per note with equal quarterly cash installments of $1.4375 per note representing a payment of interest and partial payment of principal. The final installment payment was made on January 15, 2022. The Company paid $6.5 million and $6.1 million of principal on the TEU amortizing notes in the three months ended April 1, 2022 and April 2, 2021, respectively.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Term Loan and the Revolver. As of April 2, 2021, the Company was in compliance with the covenants under the Credit Facility.
As of April 2, 2021, the weighted-average interest rate of borrowings under the Credit Facility was 1.86%, excluding accretion of original issue discount and deferred financing fees, and there was$975 million available on the Revolver.
Euro Senior Notes
The Company has senior unsecured notes with an aggregate principal amount of €350 million (the “Euro Notes”). The Euro Notes are due in April 2025, have an interest rate of 3.25% and are guaranteed by certain of our domestic subsidiaries (the “Guarantees”). The Euro Notes and the Guarantees have not been, and will not be, registered under the Securities Act of 1933, as amended, or the securities laws of any other jurisdiction.
TEU Amortizing Notes
Each TEU amortizing note has an initial principal amount of $15.6099, bears interest at a rate of 6.50% per annum, and has equal quarterly cash installments of $1.4375 per TEU amortizing note on each January 15, April 15, July 15 and October 15 with a final installment payment date of January 15, 2022. The quarterly cash installment constitutes a payment of interest and a partial repayment of principal. The Company paid $6.6 million on the TEU amortizing notes in both the three months ended April 2, 2021 and April 3, 2020, respectively. The TEU amortizing notes are the direct, unsecured and unsubordinated obligations of the Company and rank equally with all of the existing and future other unsecured and unsubordinated indebtedness of the Company. For more information on the Tangible equity units, refer to Note 8, “Equity.”
2024 Notes and 2026 Notes
The Company had senior notes with aggregatea remaining principal amountsamount of $600$300 million (the “2024“2026 Notes”), which were due on February 15, 20242026 and had an interest rate of 6.0%6.375%. The Company has senior notes with aggregate principal amounts of $400 million (the “2026 Notes”), which are due2026 Notes were redeemed on February 15, 2026 and have an interest rate of 6.375%. Each tranche of notes is guaranteed by certain domestic subsidiariesApril 7, 2022 after the completion of the Company. The Company redeemed all of its outstanding 2024 Notes and $100 million of the outstanding principal amount of its 2026 Notes on April 24, 2021. See Note 15, “Subsequent Events” for further information.Separation.
Other Indebtedness
In addition to the debt agreements discussed above, the Company is party to various bilateral credit facilities with a borrowing capacity of $192.1$168.2 million. As of April 2, 2021,1, 2022, there were no outstanding borrowings under these facilities. Subsequent to the end of the first quarter of 2022, the bilateral credit facilities are no longer available to Enovis due to the completion of the Separation as they relate to ESAB Corp or expired.
The Company is party to letter of credit facilities with an aggregate capacity of $338.6$211.9 million. Total letters of credit of $64.9$40.2 million were outstanding as of April 2, 2021.1, 2022. Subsequent to the end of the first quarter of 2022, substantially all of the letter of credit facilities are no longer available to Enovis due to the completion of the Separation as they relate to ESAB Corp.
Deferred Financing Fees
In total, the Company had deferred financing fees, including the original issue discount, of $21.0$11.3 million included in its Condensed Consolidated Balance Sheet as of April 2, 2021,1, 2022, which willwould be charged to Interest expense, net, primarily using the effective interest method, over the life of the applicable debt agreements. In conjunction with the Separation and debt redemptions in the second quarter of 2022, the Company expects a net loss on the early extinguishment of debt of approximately $17 million, including approximately $13 million of redemption premiums on the retired debt instruments and $4 million of noncash write-offs of original issue discount and deferred financing fees on the Euro Senior Notes and Senior Notes. The Company also expects additional charges of approximately $7 million in conjunction with entering into the new Enovis Credit Facility and the extinguishment of the prior Credit Facility, which is subject to finalization.
11. Accrued Liabilities
Accrued liabilities in the Condensed Consolidated Balance Sheets consisted of the following:
| | | | | | | | | | | |
| April 1, 2022 | | December 31, 2021 |
| (In thousands) |
Accrued compensation and related benefits | $ | 122,172 | | | $ | 142,203 | |
| | | |
Accrued taxes | 70,152 | | | 72,276 | |
Accrued asbestos-related liability | 34,494 | | | 30,572 | |
Warranty liability | 19,331 | | | 17,457 | |
Accrued restructuring liability - current portion | 9,546 | | | 10,221 | |
Accrued third-party commissions | 34,119 | | | 38,492 | |
Customer advances and billings in excess of costs incurred | 31,440 | | | 31,468 | |
Lease liability - current portion | 39,939 | | | 42,403 | |
Accrued interest | 9,586 | | | 11,065 | |
Other | 119,271 | | | 114,940 | |
| $ | 490,050 | | | $ | 511,097 | |
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
11. Accrued Liabilities
Accrued liabilities in the Condensed Consolidated Balance Sheets consisted of the following:
| | | | | | | | | | | |
| April 2, 2021 | | December 31, 2020 |
| (In thousands) |
Accrued compensation and related benefits | $ | 85,509 | | | $ | 98,455 | |
| | | |
Accrued taxes | 52,031 | | | 57,286 | |
Accrued asbestos-related liability | 42,411 | | | 41,626 | |
Warranty liability - current portion | 15,799 | | | 15,543 | |
Accrued restructuring liability - current portion | 7,385 | | | 7,889 | |
Accrued third-party commissions | 26,990 | | | 25,480 | |
Customer advances and billings in excess of costs incurred | 40,051 | | | 36,737 | |
Lease liability - current portion | 37,791 | | | 39,695 | |
Accrued interest | 14,653 | | | 27,153 | |
Other | 101,678 | | | 104,469 | |
Accrued liabilities | $ | 424,298 | | | $ | 454,333 | |
Warranty Liability
The activity in the Company’s warranty liability consisted of the following:
| | | | | | | | | | | |
| Three Months Ended |
| April 2, 2021 | | April 3, 2020 |
| (In thousands) |
Warranty liability, beginning of period | $ | 15,543 | | | $ | 15,528 | |
Accrued warranty expense | 2,042 | | | 1,121 | |
Changes in estimates related to pre-existing warranties | 589 | | | 318 | |
Cost of warranty service work performed | (2,472) | | | (1,910) | |
Acquisition-related liability | 321 | | | 0 | |
Foreign exchange translation effect | (224) | | | (1,309) | |
Warranty liability, end of period | $ | 15,799 | | | $ | 13,748 | |
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited) | | | | | | | | | | | |
| Three Months Ended |
| April 1, 2022 | | April 2, 2021 |
| (In thousands) |
Warranty liability, beginning of period | $ | 17,457 | | | $ | 15,543 | |
Accrued warranty expense | 2,129 | | | 2,042 | |
Changes in estimates related to pre-existing warranties | 836 | | | 589 | |
Cost of warranty service work performed | (1,112) | | | (2,472) | |
Acquisition-related liability | — | | | 321 | |
Foreign exchange translation effect | 21 | | | (224) | |
Warranty liability, end of period | $ | 19,331 | | | $ | 15,799 | |
Accrued Restructuring Liability
The Company’s restructuring programs include a series of actions to reduce the structural costs of the Company. A summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Condensed Consolidated Balance Sheets is as follows:
| | | Three Months Ended April 2, 2021 | | Three Months Ended April 1, 2022 |
| | Balance at Beginning of Period | | | Provisions | | Payments | | Foreign Currency Translation | | Balance at End of Period(3) | | Balance at Beginning of Period | | | Provisions | | Payments | | Foreign Currency Translation | | Balance at End of Period(3) |
| | (In thousands) | | (In thousands) |
Restructuring and other related charges: | Restructuring and other related charges: | | | | Restructuring and other related charges: | | | |
Fabrication Technology: | Fabrication Technology: | | | | Fabrication Technology: | | | |
Termination benefits(1) | Termination benefits(1) | $ | 5,336 | | | | $ | 248 | | | $ | (559) | | | $ | (13) | | | $ | 5,012 | | Termination benefits(1) | $ | 7,818 | | | | $ | 452 | | | $ | (1,861) | | | $ | (26) | | | $ | 6,383 | |
Facility closure costs(2) | 591 | | | | 2,827 | | | (2,831) | | | (4) | | | 583 | | |
Facility closure costs and other(2) | | Facility closure costs and other(2) | 291 | | | | 4,815 | | | (4,796) | | | (1) | | | 309 | |
| | 5,927 | | | | 3,075 | | | (3,390) | | | (17) | | | 5,595 | | | 8,109 | | | | 5,267 | | | (6,657) | | | (27) | | | 6,692 | |
Non-cash charges(2) | Non-cash charges(2) | | | | 0 | | | | | | | | Non-cash charges(2) | | | | 37 | | | | | | | |
| | | | 3,075 | | | | | | 5,304 | | |
Medical Technology: | Medical Technology: | | | | | | Medical Technology: | | | | | |
Termination benefits(1) | Termination benefits(1) | 1,884 | | | | 358 | | | (736) | | | 0 | | | 1,506 | | Termination benefits(1) | 2,470 | | | | 2,438 | | | (1,905) | | | (9) | | | 2,994 | |
Facility closure costs(2) | 297 | | | | 613 | | | (613) | | | 0 | | | 297 | | |
Facility closure costs and other(2) | | Facility closure costs and other(2) | 358 | | | | 233 | | | (575) | | | — | | | 16 | |
| | 2,181 | | | | 971 | | | (1,349) | | | 0 | | | 1,803 | | | 2,828 | | | | 2,671 | | | (2,480) | | | (9) | | | 3,010 | |
Non-cash charges(2) | Non-cash charges(2) | | | | — | | | | | | | | Non-cash charges(2) | | | | 282 | | | | | | | |
| | | | 971 | | | | | | 2,953 | | |
| Total Colfax Corporation: | | | | |
Total: | | Total: | | | | | |
Total restructuring liability activity | Total restructuring liability activity | $ | 8,108 | | | | $ | 4,046 | | | $ | (4,739) | | | $ | (17) | | | $ | 7,398 | | Total restructuring liability activity | $ | 10,937 | | | | 7,938 | | | $ | (9,137) | | | $ | (36) | | | $ | 9,702 | |
Total Non-cash charges | Total Non-cash charges | | | | 0 | | | | | | | | Total Non-cash charges | | | | 319 | | | | | | | |
| | | | $ | 4,046 | | | | | | $ | 8,257 | | |
(1) Includes severance and other termination benefits, including outplacement services.
(2) Includes the cost of relocating associates, relocating equipment, and lease termination expense and other costs in connection with the closure and optimization of facilities. facilities, site cost structures, and product lines. The Medical Technology segment charges include $0.5 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three months ended April 1, 2022.
(3) As of April 2, 2021, $7.41, 2022, $9.5 million and $0.2 million of the Company’s restructuring liability was included in Accrued liabilities whereas less than $0.1 million of the Company’s restructuring liability was included inand Other liabilities.liabilities, respectively.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
12. Financial Instruments and Fair Value Measurements
The carrying values of financial instruments, including Trade receivables, other receivables and Accounts payable, approximate their fair values due to their short-term maturities. The $2.3 billion estimated fair value of the Company’s debt, which was $2.1 billion as of both April 2, 20211, 2022 and December 31, 20202021, was based on current interest rates for similar types of borrowings and is in Level Two of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.
A summary of the Company’s assets and liabilities that are measured at fair value for each fair value hierarchy level for the periods presented is as follows:
| | | April 2, 2021 | | April 1, 2022 |
| | Level One | | Level Two | | Level Three | | Total | | Level One | | Level Two | | Level Three | | Total |
| | (In thousands) | | (In thousands) |
Assets: | Assets: | | Assets: | |
Cash equivalents | Cash equivalents | $ | 6,252 | | | $ | — | | | $ | — | | | $ | 6,252 | | Cash equivalents | $ | 5,875 | | | $ | — | | | $ | — | | | $ | 5,875 | |
| Foreign currency contracts - not designated as hedges | Foreign currency contracts - not designated as hedges | — | | | 1,581 | | | — | | | 1,581 | | Foreign currency contracts - not designated as hedges | — | | | 1,628 | | | — | | | 1,628 | |
| Deferred compensation plans | Deferred compensation plans | — | | | 11,802 | | | — | | | 11,802 | | Deferred compensation plans | — | | | 13,811 | | | — | | | 13,811 | |
| | $ | 6,252 | | | $ | 13,383 | | | $ | — | | | $ | 19,635 | | | $ | 5,875 | | | $ | 15,439 | | | $ | — | | | $ | 21,314 | |
| Liabilities: | Liabilities: | | Liabilities: | |
| Foreign currency contracts - not designated as hedges | Foreign currency contracts - not designated as hedges | $ | — | | | $ | 4,191 | | | $ | — | | | $ | 4,191 | | Foreign currency contracts - not designated as hedges | $ | — | | | $ | 2,984 | | | $ | — | | | $ | 2,984 | |
| Deferred compensation plans | Deferred compensation plans | — | | | 11,802 | | | — | | | 11,802 | | Deferred compensation plans | — | | | 13,811 | | | — | | | 13,811 | |
| | $ | — | | | $ | 15,993 | | | $ | — | | | $ | 15,993 | | | $ | — | | | $ | 16,795 | | | $ | — | | | $ | 16,795 | |
| | | December 31, 2020 | | December 31, 2021 |
| | Level One | | Level Two | | Level Three | | Total | | Level One | | Level Two | | Level Three | | Total |
| | (In thousands) | | (In thousands) |
Assets: | Assets: | | Assets: | |
Cash equivalents | Cash equivalents | $ | 7,420 | | | $ | — | | | $ | — | | | $ | 7,420 | | Cash equivalents | $ | 8,133 | | | $ | — | | | $ | — | | | $ | 8,133 | |
| Foreign currency contracts - not designated as hedges | Foreign currency contracts - not designated as hedges | — | | | 2,194 | | | — | | | 2,194 | | Foreign currency contracts - not designated as hedges | — | | | 2,607 | | | — | | | 2,607 | |
| Deferred compensation plans | Deferred compensation plans | — | | | 10,881 | | | — | | | 10,881 | | Deferred compensation plans | — | | | 11,213 | | | — | | | 11,213 | |
| | $ | 7,420 | | | $ | 13,075 | | | $ | — | | | $ | 20,495 | | | $ | 8,133 | | | $ | 13,820 | | | $ | — | | | $ | 21,953 | |
| Liabilities: | Liabilities: | | Liabilities: | |
| Foreign currency contracts - not designated as hedges | Foreign currency contracts - not designated as hedges | $ | — | | | $ | 1,781 | | | $ | — | | | $ | 1,781 | | Foreign currency contracts - not designated as hedges | $ | — | | | $ | 3,044 | | | $ | — | | | $ | 3,044 | |
| Deferred compensation plans | Deferred compensation plans | — | | | 10,881 | | | — | | | 10,881 | | Deferred compensation plans | — | | | 11,213 | | | — | | | 11,213 | |
| | $ | — | | | $ | 12,662 | | | $ | — | | | $ | 12,662 | | | $ | — | | | $ | 14,257 | | | $ | — | | | $ | 14,257 | |
There were no transfers in or out of Level One, Two or Three during the three months ended April 2, 2021.1, 2022.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Foreign Currency Contracts
As of April 2, 20211, 2022 and December 31, 2020,2021, the Company had foreign currency contracts related to purchases and sales with notional values of $309.4$203.6 million and $250.4$273.2 million, respectively.
The Company recognized the following in its Condensed Consolidated Financial Statements related to its derivative instruments:
| | | | Three Months Ended | | | Three Months Ended |
| | | April 2, 2021 | | April 3, 2020 | | | April 1, 2022 | | April 2, 2021 |
| | | (In thousands) | | | (In thousands) |
Contracts Designated as Hedges: | Contracts Designated as Hedges: | | | Contracts Designated as Hedges: | | |
| Unrealized gain on net investment hedges(1) | | $ | 12,381 | | | $ | 12,180 | | |
Unrealized gain (loss) on net investment hedges(1) | | Unrealized gain (loss) on net investment hedges(1) | | $ | 9,028 | | | $ | 12,381 | |
Contracts Not Designated in a Hedge Relationship: | Contracts Not Designated in a Hedge Relationship: | | | Contracts Not Designated in a Hedge Relationship: | | |
Foreign Currency Contracts | | | |
Foreign Currency Contracts: | | Foreign Currency Contracts: | | |
Unrealized gain (loss) | Unrealized gain (loss) | | (2,611) | | | 2,417 | | Unrealized gain (loss) | | (1,356) | | | (2,611) | |
Realized gain (loss) | Realized gain (loss) | | 51 | | | (197) | | Realized gain (loss) | | (14,582) | | | 51 | |
|
(1) The unrealized gain (loss) on net investment hedges is attributable to the change in valuation of Euro denominated debt.
Restricted Cash
Financial instruments also include Restricted cash. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are excluded from Cash and cash equivalents in the Condensed Consolidated Balance Sheets. Restricted cash is recorded as a component of Other current assets on the Condensed Consolidated Balance Sheets. The Restricted cash as of December 31, 2020 is related to an acquisition which closed in the first quarter of 2021.
The following table summarizes the Company’s Cash and cash equivalents and Restricted cash:
| | | | | | | | | | | |
| April 2, 2021 | | December 31, 2020 |
| (In thousands) |
Cash and cash equivalents | $ | 763,653 | | | $ | 97,068 | |
Restricted cash | 0 | | | 4,001 | |
Cash and cash equivalents and Restricted cash | $ | 763,653 | | | $ | 101,069 | |
13. Commitments and Contingencies
For further description of the Company’s litigation and contingencies, reference is made to Note 18, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements in the Company’s 20202021 Form 10-K. Since the Company did not retain an interest in the ongoing operations of its divested businesses, the retained asbestos-related activity has been classified in its Condensed Consolidated Statements of Operations as a component of Loss from discontinued operations, net of taxes. In conjunction with the Separation, all asbestos-related contingencies and insurance coverages from the divested industrial businesses were transferred fully to ESAB Corp.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Asbestos Contingencies
Asbestos-related claims activity since December 31 is as follows:
| | | Three Months Ended | | Three Months Ended |
| | April 2, 2021 | | April 3, 2020 | | April 1, 2022 | | April 2, 2021 |
| | (Number of claims) | | (Number of claims) |
Claims unresolved, beginning of period | Claims unresolved, beginning of period | 14,809 | | | 16,299 | | Claims unresolved, beginning of period | 14,559 | | | 14,809 | |
Claims filed(1) | Claims filed(1) | 1,067 | | | 1,043 | | Claims filed(1) | 1,065 | | | 1,067 | |
Claims resolved(2) | Claims resolved(2) | (581) | | | (600) | | Claims resolved(2) | (779) | | | (581) | |
Claims unresolved, end of period | Claims unresolved, end of period | 15,295 | | | 16,742 | | Claims unresolved, end of period | 14,845 | | | 15,295 | |
(1) Claims filed include all asbestos claims for which notification has been received or a file has been opened.
(2) Claims resolved include all asbestos claims that have been settled, dismissed or that are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants.
ENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The Company’s Condensed Consolidated Balance Sheets included the following amounts related to asbestos-related litigation:
| | | April 2, 2021 | | December 31, 2020 | | April 1, 2022 | | December 31, 2021 |
| | (In thousands) | | (In thousands) |
| Long-term asbestos insurance asset(1) | Long-term asbestos insurance asset(1) | $ | 229,879 | | | $ | 232,712 | | Long-term asbestos insurance asset(1) | $ | 229,215 | | | $ | 231,900 | |
Long-term asbestos insurance receivable(1) | Long-term asbestos insurance receivable(1) | 27,868 | | | 31,815 | | Long-term asbestos insurance receivable(1) | 17,002 | | | 15,421 | |
Accrued asbestos liability(2) | Accrued asbestos liability(2) | 42,411 | | | 41,626 | | Accrued asbestos liability(2) | 34,494 | | | 30,572 | |
Long-term asbestos liability(3) | Long-term asbestos liability(3) | 248,669 | | | 253,144 | | Long-term asbestos liability(3) | 254,106 | | | 261,779 | |
(1) Included in Other assets in the Condensed Consolidated Balance Sheets.
(2) Represents current accruals for probable and reasonably estimable asbestos-related liability costs that the Company believes the subsidiaries will pay, 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 Condensed Consolidated Balance Sheets.
(3) Included in Other liabilities in the Condensed Consolidated Balance Sheets.
Management’s analyses are based on currently known facts and assumptions. 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 the Company’s financial condition, results of operations or cash flow.
General Litigation
The Company is 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 accruals to cover potential liabilities. AnyLegal costs related to proceedings or claims are recorded as incurred. Other costs that management estimates may be paid related to these proceedings orthe 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 adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
14. Segment Information
The Company conducts its continuing operations through the Fabrication Technology and Medical Technology operating segments, which also represent the Company’s reportable segments.
▪Fabrication Technology - a leading global supplier of consumable products and equipment for use in the cutting, joining and automated welding, as well as gas control equipment, providing a wide range of products with innovative technologies to solve challenges in a wide range of industries.
•Medical Technology - a leader in orthopedic solutions, providing devices, software and services spanning the full continuum of patient care, from injury prevention to joint replacement to rehabilitation.
Certain amounts not allocated to the 2 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 (loss) before Restructuring and certain other related charges and European Union Medical Devices Regulation (“MDR”) and other costs.charges.
The Company’s segment results were as follows:
| | | Three Months Ended | | | | Three Months Ended | |
| | April 2, 2021 | | April 3, 2020 | | | | April 1, 2022 | | April 2, 2021 | |
| | (In thousands) | | | (In thousands) |
Net sales: | Net sales: | | | Net sales: | | | |
Fabrication Technology | Fabrication Technology | $ | 568,128 | | | $ | 525,537 | | | Fabrication Technology | | $ | 647,911 | | | $ | 568,128 | | |
Medical Technology | Medical Technology | 311,083 | | | 290,819 | | | Medical Technology | | 375,457 | | | 311,083 | | |
| | $ | 879,211 | | | $ | 816,356 | | | | | $ | 1,023,368 | | | $ | 879,211 | | |
Segment operating income (loss)(1): | Segment operating income (loss)(1): | | | | | Segment operating income (loss)(1): | | | | | |
Fabrication Technology | Fabrication Technology | $ | 82,305 | | | $ | 69,036 | | | Fabrication Technology | | $ | 95,545 | | | $ | 82,305 | | |
Medical Technology | Medical Technology | 2,162 | | | 3,804 | | | Medical Technology | | (147) | | | 2,162 | | |
Corporate and other | Corporate and other | (17,361) | | | (14,078) | | | Corporate and other | | (31,396) | | | (17,361) | | |
| | $ | 67,106 | | | $ | 58,762 | | | | | $ | 64,002 | | | $ | 67,106 | | |
(1) FollowingThe following is a reconciliation of Income from continuing operations before income taxes to segment operating income:
| | | Three Months Ended | | | | Three Months Ended | |
| | April 2, 2021 | | April 3, 2020 | | | | April 1, 2022 | | April 2, 2021 | |
| | (In thousands) | | | | (In thousands) | |
Income from continuing operations before income taxes | Income from continuing operations before income taxes | $ | 35,647 | | | $ | 22,041 | | | Income from continuing operations before income taxes | | $ | 38,019 | | | $ | 35,647 | | |
| Interest expense, net | Interest expense, net | 25,660 | | | 24,796 | | | Interest expense, net | | 15,099 | | | 25,660 | | |
| Restructuring and other related charges(1) | Restructuring and other related charges(1) | 4,046 | | | 11,025 | | | Restructuring and other related charges(1) | | 8,257 | | | 4,046 | | |
MDR and other costs(2) | 1,753 | | | 900 | | | |
MDR and related costs(2) | | MDR and related costs(2) | | 2,627 | | | 1,753 | | |
Segment operating income | Segment operating income | $ | 67,106 | | | $ | 58,762 | | | Segment operating income | | $ | 64,002 | | | $ | 67,106 | | |
(1)Restructuring and other related charges includes $1.8$0.5 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three months ended April 3, 2020, only.1, 2022.
(2) Primarily related to costs specific to compliance with medical device reporting regulations and other requirements of the European Union Medical Device RegulationDevices Regulation. These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of 2017.Operations.
COLFAXENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
15. Subsequent Events
On April 24, 2021,As discussed in Note 1, “General”, the Company redeemedcompleted the separation of its fabrication technology business on April 4, 2022 through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corp to the Company’s stockholders. In connection with the Separation, ESAB Corp and Enovis entered into various agreements to affect the Separation and provide a framework for Enovis’ relationship with ESAB Corp after the Separation, including a separation and distribution agreement, stockholders’ and registration rights agreement, employee matters agreement, tax matters agreement, transition services agreement, ESAB Business Excellence System (“EBS”) license agreement, and intellectual property matters agreement. These agreements will govern the Separation between Enovis and ESAB Corp of the assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) of Enovis and its subsidiaries attributable to periods prior to, at and after the Separation and will govern certain relationships between Enovis and ESAB Corp after the Separation.
In connection with the Separation, ESAB Corp issued $1.2 billion of new debt securities, the proceeds from which were used to fund a $1.2 billion cash distribution to Enovis upon Separation. The distribution proceeds were used by Enovis in conjunction with $450 million of borrowings on a term loan under the new Enovis credit facility, as discussed below, and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest on its Credit Facility, $302.8 million of outstanding debt and accrued interest on its 2026 Notes, as well as a redemption premium at 103.188% of the principal amount of the 2026 Notes, and other fees and expenses due at closing. Additionally, on April 7, 2022, the Company completed the redemption of its Euro Senior Notes representing all of its outstanding 2024€350 million principal 3.250% Senior Notes due 2025 consisting of $392.1 million outstanding debt and $100 millionaccrued interest as well as a redemption premium of 100.813% of the outstanding principal amount of its 2026 Notes for $724.4 million in aggregate. The 2024 Notes were redeemed at a redemption price of 103.000% of its principal amount, and the 2026 Notes were redeemed at a redemption price of 106.375% of its principal amount, plus, in each case, accrued and unpaid interest through the date of redemption.amount. In the second quarter of 2021,2022, the Company expects a net loss on the early extinguishment of debt of approximately $29.9$17 million, will be recorded and will include $24.4including approximately $13 million of call premiumredemption premiums on the retired debt.debt instruments and $4 million of noncash write-offs of original issue discount and deferred financing fees on the Euro Senior Notes and Senior Notes. The Company also expects additional charges of approximately $7 million in conjunction with entering into the new Enovis Credit Facility and the extinguishment of the prior Credit Facility, which is subject to finalization.
In accordance with the redemption notices and subsequent redemption of the debt described above, $421.3 million has been reclassified from long-term debt to current maturities. The amount reflects the debt retired that was not refinanced on a long-term basis.
The Company retained 10% of the shares of ESAB Corp common stock as part of the Separation. The Company intends to divest its 10% retained shares in ESAB Corp in a tax-efficient exchange for its outstanding debt under the new Enovis credit facility no later than 12 months after the Distribution Date. The retained stake in ESAB Corp, based on the initial opening share price, is approximately $300 million on a fair value basis and will be marked-to-market each reporting period.
Immediately following the Separation, the Company effected a one-for-three reverse stock split of all issued and outstanding shares of Enovis common stock. As a result of the reverse stock split, all share and per share figures contained in the accompanying Condensed Consolidated Financial Statements have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.
On April 23, 2021,4, 2022, the Company completedentered into a new credit agreement (the “Enovis Credit Agreement”) which replaces the acquisitionCompany’s prior credit agreement and concurrently terminated all indebtedness of MedShape, Inc.the Company outstanding thereunder being repaid on such date with proceeds of the Enovis Credit Agreement and other funds of the Company.
The Enovis Credit Agreement consists of a revolving credit facility that totals $900 million in commitments with a maturity date of April 4, 2027 (the “Enovis Revolver”) and a term loan in an aggregate amount of $450 million with a maturity date of April 4, 2023 (the “Enovis Term Loan”, and together with the Enovis Revolver, the “Enovis Credit Facilities”). The Enovis Revolver includes a $50 million swingline loan sub-facility. The Enovis Revolver will be used to provide funds for the Company’s ongoing working capital requirements and for general corporate purposes.
The Enovis Term Loan bears interest, at the election of the Company, at either the base rate (as defined in the Enovis Credit Agreement) or at the term Secured overnight financing rate (“MedShape)SOFR”) plus an adjustment (as defined in the Enovis Credit Agreement), in each case, plus the applicable interest rate margin. The Enovis Revolver bears interest, at the election of the Company, at either the base rate or, in the case of loans denominated in dollars, the term SOFR rate plus an adjustment or the daily simple SOFR plus an adjustment, in the case of loans denominated in euros, the adjusted EURIBOR rate and, in the case of loans denominated in sterling, SONIA plus an adjustment (as all such rates are defined in the Enovis Credit Agreement), in each case, plus the applicable interest rate margin. Initially, the applicable interest rate margin will be 1.500% or, in the case
ENOVIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
of base rate loans, 0.500%, and in future quarters it may change based upon the Company’s total leverage ratio (ranging from 1.125% to 1.750% or in the case of the base rate margin, 0.125% to 0.750%). Each swing line loan denominated in dollars will bear interest at the base rate plus the applicable interest rate margin.
Certain U.S. subsidiaries of the Company have agreed to guarantee the obligations of the Company under the Enovis Credit Agreement.
The Enovis Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends. In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a providermaximum total leverage ratio of innovative surgical solutions for footnot more than 4.50:1.00, with a step-down to, on the date on which the Company and ankle surgeons using its patented superelastic nickel titanium (NiTiNOL)subsidiaries have transferred any retained shares of ESAB common stock to one or more unaffiliated third parties, 4.00:1.00, commencing with the fiscal quarter ending June 30, 2023, 3.75:1.00 and shape memory polymer technologies.commencing with the fiscal quarter ending June 30, 2024, 3.50:1.00, and (ii) a minimum interest coverage ratio of 3.00:1:00. The acquisition, which expands Company’s footEnovis Credit Agreement contains various events of default (including failure to comply with the covenants under the Enovis Credit Agreement and ankle platform, was completed for cash considerationrelated agreements) and upon an event of $125 million,default the lenders may, subject to certain adjustments. The estimated proforma annual revenuesvarious customary cure rights, require the immediate payment of all amounts outstanding under the MedShape acquisition are less than 1% of Colfax consolidated revenues.Enovis Term Loan and the Enovis Revolver.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of ColfaxEnovis Corporation (“Colfax,Enovis,” “the Company,” “we,” “our,” and “us”) should be read in conjunction with the Condensed Consolidated Financial Statements and related footnotes included in Part I. Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended April 2, 20211, 2022 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in Part II. Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 20202021 (the “2020“2021 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 18, 2021.22, 2022.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-Q 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 Form 10-Q 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 to be forward-looking statements, including statements regarding: the intended separation of our fabrication and medical technology businesses into two differentiated, independent publicly traded companies (the “Separation”); the timing and method of the Separation; the anticipated benefits of the Separation; the expected financial and operating performance of, and future opportunities for, each company following the Separation; the tax treatment of the Separation; the leadership of each company following the Separation; the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, the actions by governments, businesses and individuals in response to the situation, on the global and regional economies, financial markets, and overall demand for our products; 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 our 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;proceedings; 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 but not always, 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 as of the filing date of this Form 10-Q 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 and actual results could differ materially due to numerous factors, including but not limited to the following:
•risks related to the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, actions by governments, businesses and individuals in response to the situation, such as the scope and duration of the outbreak, the nature and effectiveness of government actions and restrictive measures implemented in response, delays and cancellations of medical procedures, supply chain disruptions, the impact on creditworthiness and financial viability of customers, and other impacts on ourthe Company’s business and ability to execute business continuity plans;
•risks related to the proposed Separation, targeted for the first quarter of 2022, including the final approval of the Separation by our board of directors, the uncertainty of obtaining regulatory approvals, including U.S. Internal Revenue Service rulings, if sought, our ability to satisfactorily complete steps necessary for the Separation and related transactions for the Separation to be generally tax-free for U.S. federal income tax purposes, the ability to satisfy the necessary conditions to complete the Separation on a timely basis, or at all, our ability to realize the anticipated benefits of the Separation,Separation; the potential to incur significant liability if the separation and distribution of ESAB Corp is determined to be a taxable transaction; potential indemnification liabilities to ESAB Corp pursuant to the separation and distribution agreement and related agreements entered into in connection with the Separation; developments related to the impact of the COVID-19 pandemic on the Separation, and the financial and operating performance of each company following the Separation;
•volatility in the commodity markets and certain commodity prices due to economic disruptions from the COVID-19 pandemic and various geopolitical events;
•changes in the general economy, as well as the cyclical nature of the markets we serve;
•volatilitysupply chain constraints and backlogs, including risks affecting raw material, part and component availability, labor shortages and inefficiencies, freight and logistical challenges, and inflation in the commodity marketsraw material, part, component, freight and certain commodity prices, including oil and steel, due to economic disruptions from the COVID-19 pandemic and various geopolitical events;delivery costs;
•our ability to identify, finance, acquire and successfully integrate attractive acquisition targets;
•our exposure to unanticipated liabilities resulting from acquisitions;
•our ability and the ability of our customers to access required capital at a reasonable cost;
•our ability to accurately estimate the cost of or realize savings from our restructuring programs;
•disruptions in the amount ofglobal economy caused by the ongoing conflict between Russia and our ability to estimate our asbestos-related liabilities;
•the solvency of our insurersUkraine (including any political or economic responses and the likelihood of their payment for asbestos-related costs;counter-responses);
•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 sanctions and embargoes;
•risks associated with our international operations, including risks from trade protection measures and other changes in trade relations;
•risks associated with the representation of our employees by trade unions and work councils;
•our exposure to product liability claims;
•potential costs and liabilities associated with environmental, health and safety laws and regulations;
•failure to maintain, protect and defend our intellectual property rights;
•the loss of key members of our leadership team;team, or the inability to attract, develop, engage, and retain qualified employees;
•restrictions in our principal credit facility 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 postretirement benefit plans;
•significant movements in foreign currency exchange rates;
•availability and cost of raw materials, parts and components used in our products;
•new regulations and customer preferences reflecting an increased focus on environmental, social and governance issues, including new regulations related to the use of conflict minerals;
•service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure;
•risks arising from changes in technology;
•the competitive environment in our industries;industry;
•changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the COVID-19 global pandemic and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”);pandemic;
•our ability to manage and grow our business and execution of our business and growth strategies;
•the level of capital investment and expenditures by our customers in our strategic markets;
•our financial performance;
•difficulties and delays in integrating or fully realizing projected cost savings and benefits of our acquisition;acquisitions; and
•other risks and factors, listed in Item 1A. “Risk Factors” in Part I of our 20202021 Form 10-K and Part II. Item 1A. “Risk Factors” in this Form 10-Q.
The effects of the COVID-19 pandemic, including the rise, prevalence and severity of variants of the virus and actions by governments, businesses and individuals in response to the situation, may give rise or contribute to or amplify the risks associated with many of these factors.
Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. These forward-looking statements speak only as of the date this Form 10-Q is filed with the SEC. We do not assume any obligation and do not intend to update any forward-looking statement except as required by law. See Part I. Item 1A. “Risk Factors” in our 20202021 Form 10-K and Part II. Item 1A. “Risk Factors” in this Form 10-Q for a further discussion regarding some of the reasons that actual results may be materially different from those that we anticipate.
Overview
Please see Part I, Item 1. “Business” in our 20202021 Form 10-K for a discussion of Colfax’sthe Company’s objectives and methodologies for delivering shareholder value.
Colfax conductsPrior to the Separation on April 4, 2022, the Company conducted its operations through two operating segments: Fabrication Technology and Medical Technology.
•Fabrication Technology - a leading global supplier of consumable products and equipment for use in the cutting, joining and automated welding, as well as gas control equipment, providing a wide range of products with innovative technologies to solve challenges in a wide range of industries.
•Medical Technology - a leader in orthopedic solutions, providing devices, software and services spanning the full continuum of patient care, from injury prevention to joint replacement to rehabilitation.
Certain amounts not allocated to the two reportable segments and intersegment eliminations are reported under the heading “Corporate and other.”
We havePrior to the Separation, we had a global footprint, with production facilities in Europe, North America, South America, Asia, Australia and Africa. We serveAfrica, serving a global customer base across multiple markets through a combination of direct sales and third-party distribution channels. OurPrior to our Separation, our customer base iswas highly diversified in the medical and industrial end markets. Enovis, after the Separation, now serves two primary end markets in medical devices, prevention & recovery products and reconstructive surgical products, and it generates approximately 68% of its revenues in the United States and the majority of the remaining balance in Europe.
IntegralIn conjunction with the Separation, we rebranded our business management system as Enovis Growth Excellence (“EGX”). EGX is integral to our operations is Colfax Business System (“CBS”), our business management system. CBS is our culture and includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders and associates. EGX leverages our culture of continuous improvement to rapidly uncover and execute growth opportunities. We believe that our management team’s access to, and experience in, the application of the CBSEGX methodology is one of our primary competitive strengths.
Results of Operations
The following discussion of Results of Operations addresses the comparison of the periods presented. Our management evaluates the operating results of each of its reportable segments based upon Net sales, Segment operating income, which represents Operating income before Restructuring and other related charges and European Union Medical Devices Regulation (“MDR”) costs, and Adjusted EBITA as defined in the “Non-GAAP Measures” section.
Items Affecting Comparability of Reported Results
The comparability of our operating results for the three months ended April 2, 20211, 2022 to the three months ended April 3, 2020comparable period in 2021 is affected by the following additional significant items:
Recent Events
The Separation
On April 4, 2022 (the “Distribution Date”), we completed the Separation through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corp to Enovis stockholders. We currently report our operations through our Fabrication Technology and Medical Technology segments. These businesses operateretained 10% of the shares of ESAB Corp common stock immediately following the Separation. We intend to divest the 10% retained shares in distinct markets, with unique business opportunities and investment requirements. On March 4, 2021, we announcedESAB Corp in a tax-efficient exchange for outstanding debt no later than 12 months after the intention to separate these businesses into two differentiated, independent publicly traded companies (the “Separation”).Distribution Date. The Chairman of our board of directors and co-founder of Colfax, Mitchell P. Rales, is expected to serve onalso serving as Chairman of the boardsboard of directors of both companies.ESAB Corp.
Since the disposition occurred in the second quarter of 2022, we will classify our fabrication technology business as a discontinued operation in our financial statements beginning in the second quarter of 2022; the results of our fabrication technology businesses are included in continuing operations in the accompanying financials for the three months ended April 1, 2022 and April 2, 2021.
We expect that the Separation will allow each company to: (1) optimize capital allocation for internal investment, M&Amergers and acquisitions, and return of capital to shareholders; (2) tailor investment to its specific business profile and strategic priorities in the most efficient manner possible; (3) increase operating flexibility and resources to capitalize on growth opportunities in its respective markets; and (4) improve both investor alignment with its clear value proposition and the ability for investors to value it based on its distinct strategic, operational and financial characteristics. The Separation would also provideprovides each company with an appropriately valued acquisition currency that could be used for larger, transformational transactions.
We intendRefer to Note 10, “Debt” and Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for the Separation to be structured in a tax-free manner, and we are targeting completion of the Separation for the first quarter of 2022. Completion of the Separation is subject to, among other things, completion of financing and other transactions on satisfactory terms, other steps necessary to qualify the Separation as a tax-free transaction, receipt of other regulatory approvals and final approval from our board of directors. There can be no assurancemore information regarding the form and timing of the Separation or its completion. Details regarding the Separation will be included in our future filings with the SEC.
Please see Part II. Items 1A. “Risk Factors” in this Form 10-Q for further discussion of the Company’s risks relating to the Separation.
The COVID-19 Pandemic
In December 2019, a novel coronavirus disease (“COVID-19”) was first reported in China. On March 11, 2020, due to worldwide spread of the virus, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 global pandemic has resulted in a widespread health crisis, and the resulting impact on governments, businesses and individuals and actions taken by them in response to the situation have resulted in widespread economic disruptions, in 2020, significantly affecting broader economies, financial markets, and overall demand for our products.
In an effort to protect the health and safety of our employees, we have taken actions to adopt social distancing policies at our locations around the world, including working from home, reducing the number of people in our sites at any one time, and suspending or restricting employee travel. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted measures throughout 2020 and into 2021, including periodically closing businesses not deemed “essential,” isolating residents to their homes, limiting access to healthcare, curtailing activities including sporting events, and practicing social distancing.
During 2020, we implemented Increased access to vaccinations subsequently contributed to slowing the spread of COVID-19, resulting in some or all restrictions being lifted in a broad rangenumber of temporary actions to mitigatejurisdictions around the effects of lower sales levels including temporarily reducing salaries, furloughing and laying-off employees, significantly curtailing discretionary expenses, re-phasing
of capital expenditures, reducing supplier purchase levels and / or prices, adjusting working capital practices and other measures. Based on theworld, allowing a return to more normal sales volumesactivity and operational levels during the first half of 2021. However, the emergence and subsequent spread of COVID-19 variants in the second half of 2021 led to the reinstatement of certain restrictions, which slowed the pace of recovery into the beginning of the first quarter of 2021, these measures have been removed.2022.
As reflected in the discussions that follow, the pandemic and actions taken in response to it have had a variety of impacts on our results of operations during 20202021 and 2021. In 2020, the pandemic began to impact our financial results in March, with the most severe financial impact occurring in the second quarter. Subsequently, we observed a partial recovery in the second half of 2020. The surge in COVID-19 cases in the fourth quarter of 2020 contributed to certain jurisdictions putting further restrictions into place, which slowed recovery in the fourth quarter of 2020,2022, including sales levels, inflation and the impact continued into the beginning of the first quarter of 2021.supply chain challenges.
We continue to monitor the evolving situation and guidance from international and domestic authorities, including national and local public health authorities, and may take additional actions based on their recommendations. In these circumstances, thereThere may be developments outside our control that require us to further adjust our operations. InGiven the first quarter of 2021, we observed a gradual normalization in the global economic landscape primarily as a result of increased access to COVID-19 vaccines and relaxing of some government-mandated restrictions. However, given the continuedpotential dynamic nature of this situation, including the rise, prevalence and severity of variants of the virus, we cannot reasonably estimate the full impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.
COVID-19 and other market dynamics have caused widespread supply chain challenges due to labor, raw material, and component shortages. As a result, we continue to experience supply constraints in our businesses, which have led to cost inflation and logistics delays. We are taking actions in an effort to mitigate impacts to our supply chain, however, we expect these pressures to continue.
Please see “PartPart I. Item 1A. Risk“Risk Factors” in our 20202021 Form 10-K for a further discussion of some of the risks related to the COVID-19 pandemic.
Strategic Acquisitions
We complement our organic growth plans with strategic acquisitions. Acquisitions can significantly affect our reported results, and we report the change in our Net sales between periods both from existing and acquired businesses. The change in Net sales due to acquisitions for the periodsthree months ended April 1, 2022 presented in this filing represents the incremental sales as a result of acquisitions closed subsequent to the first quarterbeginning of 2020.the prior year periods.
WeDuring 2021, we completed one acquisition in our Fabrication Technology segment and twofive acquisitions in our Medical Technology segment during the three months ended April 2, 2021 for totalnet cash consideration net of cash received,$206.5 million and equity consideration of $88.7$285.7 million. This includes the acquisitionThe largest of these acquisitions were in our Medical Technology segment, including Trilliant Surgical, a national provider of foot and ankle orthopedics implants,orthopedic implants; MedShape, Inc., a provider of innovative surgical solutions for $82.3 million cash consideration, within our Medical Technology segment.foot and ankle surgeons; and Mathys AG Bettlach, a Switzerland-based company that develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions and sports medicine.
Foreign Currency Fluctuations
A significant portion of our Net sales, approximately 61% for both the three months ended April 1, 2022 and April 2, 2021, were derived from operations outside the U.S., with the majority of those sales denominated in currencies other than the U.S. 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. For the first quarter of 2021three months ended April 1, 2022 compared to the first quarter of 2020,three months ended April 2, 2021, fluctuations in foreign currencies had a favorablean unfavorable impact on the change in Net sales and Gross profit of approximately 2%3% and affected Gross profit andreduced Selling, general and administrative expenses by less than 3%2%. The changes in foreign exchange rates since December 31, 20202021 also decreased net assets by less than 2%approximately 1% as of April 2, 2021.1, 2022.
Seasonality
Our European operations in our Fabrication Technology segment typically experience a slowdown during the July, August and December vacation seasons. Sales in our Medical Technology segment typically peak in the fourth quarter. However, the business impact caused by the COVID-19 pandemic may distorthas distorted the effects of historical seasonality patterns.
Non-GAAP Measures
Adjusted EBITA
Adjusted EBITA, a non-GAAP performance measure, is included in this report because it is a key metric used by our management to assess our operating performance. Adjusted EBITA excludes from Net income (loss) from continuing operations the effect of restructuring and other related charges, MDR and otherrelated costs, acquisition-related intangible asset amortization and other non-cash charges, and strategic transaction costs, as well as income tax expense, (benefit),pension settlement gain, debt extinguishment charges and interest expense, net. We also present Adjusted EBITA margin, which is subject to the same adjustments as Adjusted EBITA. Further, we present Adjusted EBITA (and Adjusted EBITA margin) on a segment basis, where we exclude the impact of restructuring and other related charges, MDR and otherrelated costs, acquisition-related intangible asset amortization and other non-cash charges, and strategic transaction costs from segment operating income. Adjusted EBITA assists ColfaxEnovis management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements. ColfaxEnovis management also believes that presenting these measures allows investors to view its performance using the same measure that we use in evaluating our financial and business performance and trends.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITA.
| | | Three Months Ended | | | | Three Months Ended |
| | April 2, 2021 | | April 3, 2020 | | | | April 1, 2022 | | April 2, 2021 |
| | (Dollars in millions) | | | (Dollars in millions) |
Net income from continuing operations (GAAP) | Net income from continuing operations (GAAP) | $ | 27.7 | | | $ | 8.9 | | | Net income from continuing operations (GAAP) | | $ | 19.4 | | | $ | 27.7 | |
Income tax expense | Income tax expense | 7.9 | | | 13.2 | | | Income tax expense | | 18.7 | | | 7.9 | |
| Interest expense, net | Interest expense, net | 25.7 | | | 24.8 | | | Interest expense, net | | 15.1 | | | 25.7 | |
| Restructuring and other related charges(1) | Restructuring and other related charges(1) | 4.0 | | | 11.0 | | | Restructuring and other related charges(1) | | 8.3 | | | 4.0 | |
MDR and other costs(2) | 1.8 | | | 0.9 | | | |
MDR and related costs(2) | | MDR and related costs(2) | | 2.6 | | | 1.8 | |
Strategic transaction costs(3) | Strategic transaction costs(3) | 1.4 | | | 0.9 | | | Strategic transaction costs(3) | | 21.4 | | | 1.4 | |
Acquisition-related amortization and other non-cash charges(4) | Acquisition-related amortization and other non-cash charges(4) | 38.5 | | | 35.8 | | | Acquisition-related amortization and other non-cash charges(4) | | 43.6 | | | 38.5 | |
Adjusted EBITA (non-GAAP) | Adjusted EBITA (non-GAAP) | $ | 107.1 | | | $ | 95.5 | | | Adjusted EBITA (non-GAAP) | | $ | 129.0 | | | $ | 107.1 | |
Net income margin from continuing operations (GAAP) | Net income margin from continuing operations (GAAP) | 3.2 | % | | 1.1 | % | | Net income margin from continuing operations (GAAP) | | 1.9 | % | | 3.2 | % |
Adjusted EBITA margin (non-GAAP) | Adjusted EBITA margin (non-GAAP) | 12.2 | % | | 11.7 | % | | Adjusted EBITA margin (non-GAAP) | | 12.6 | % | | 12.2 | % |
(1) Restructuring and other related charges includes $1.8$0.5 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations for the three months ended April 3, 2020, only.1, 2022.
(2) Primarily related to costs specific to compliance with medical device reporting regulations and other requirements of the European Union Medical Device RegulationMDR. These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of 2017.Operations.
(3) For the three months ended April 1, 2022, Strategic transaction costs includes costs related to the Separation and certain transaction and integration costs related to recent acquisitions. For the three months ended April 2, 2021, Strategic transaction costs includes costs related to the Separation. For the three months ended April 3, 2020, Strategic transaction costs includes costs incurred for the acquisition of DJO.
(4) Includes amortization of acquired intangibles and fair value charges on acquired inventory.
The following tables set forth a reconciliation of operating income (loss), the most directly comparable financial statement measure, to Adjusted EBITA by segment for the three months ended April 1, 2022 and April 2, 2021, and April 3, 2020.respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended April 2, 2021 | | |
| Fabrication Technology | | Medical Technology | | Corporate and other | | Total | | | | | | | | |
| (Dollars in millions) |
Operating income (loss) (GAAP) | $ | 79.2 | | | $ | (0.6) | | | $ | (17.4) | | | $ | 61.3 | | | | | | | | | |
Restructuring and other related charges | 3.1 | | | 1.0 | | | — | | | 4.0 | | | | | | | | | |
MDR and other costs | — | | | 1.8 | | | — | | | 1.8 | | | | | | | | | |
Segment operating income (loss) (non-GAAP) | 82.3 | | | 2.2 | | | (17.4) | | | 67.1 | | | | | | | | | |
Strategic transaction costs | — | | | — | | | 1.4 | | | 1.4 | | | | | | | | | |
Acquisition-related amortization and other non-cash charges | 9.1 | | | 29.4 | | | — | | | 38.5 | | | | | | | | | |
Adjusted EBITA (non-GAAP) | $ | 91.4 | | | $ | 31.6 | | | $ | (15.9) | | | $ | 107.1 | | | | | | | | | |
Segment operating income margin (non-GAAP) | 14.5 | % | | 0.7 | % | | — | % | | 7.6 | % | | | | | | | | |
Adjusted EBITA margin (non-GAAP) | 16.1 | % | | 10.2 | % | | — | % | | 12.2 | % | | | | | | | | |
| | | Three Months Ended April 3, 2020 | | | | Three Months Ended April 1, 2022 |
| | Fabrication Technology | | Medical Technology | | Corporate and other | | Total | | | | Fabrication Technology | | Medical Technology | | Corporate and other | | Total |
| | (Dollars in millions) | | | (Dollars in millions) |
Operating income (loss) (GAAP) | Operating income (loss) (GAAP) | $ | 66.2 | | | $ | (5.3) | | | $ | (14.1) | | | $ | 46.8 | | | Operating income (loss) (GAAP) | | $ | 90.2 | | | $ | (5.7) | | | $ | (31.4) | | | $ | 53.1 | |
Restructuring and other related charges(1) | 2.8 | | | 8.2 | | | — | | | 11.0 | | | |
Restructuring and other related charges | | Restructuring and other related charges | | 5.3 | | | 3.0 | | | — | | | 8.3 | |
MDR and other costs | MDR and other costs | — | | | 0.9 | | | — | | | 0.9 | | | MDR and other costs | | — | | | 2.6 | | | — | | | 2.6 | |
Segment operating income (loss) (non-GAAP) | Segment operating income (loss) (non-GAAP) | 69.0 | | | 3.8 | | | (14.1) | | | 58.8 | | | Segment operating income (loss) (non-GAAP) | | 95.5 | | | (0.1) | | | (31.4) | | | 64.0 | |
Strategic transaction costs | Strategic transaction costs | — | | | — | | | 0.9 | | | 0.9 | | | Strategic transaction costs | | 3.6 | | | 2.1 | | | 15.7 | | | 21.4 | |
Acquisition-related amortization and other non-cash charges | Acquisition-related amortization and other non-cash charges | 8.9 | | | 26.9 | | | — | | | 35.8 | | | Acquisition-related amortization and other non-cash charges | | 7.7 | | | 35.9 | | | — | | | 43.6 | |
Adjusted EBITA (non-GAAP) | Adjusted EBITA (non-GAAP) | $ | 77.9 | | | $ | 30.7 | | | $ | (13.2) | | | $ | 95.5 | | | Adjusted EBITA (non-GAAP) | | $ | 106.9 | | | $ | 37.8 | | | $ | (15.7) | | | $ | 129.0 | |
Segment operating income margin (non-GAAP) | Segment operating income margin (non-GAAP) | 13.1 | % | | 1.3 | % | | — | % | | 7.2 | % | | Segment operating income margin (non-GAAP) | | 14.7 | % | | — | % | | — | % | | 6.3 | % |
Adjusted EBITA margin (non-GAAP) | Adjusted EBITA margin (non-GAAP) | 14.8 | % | | 10.6 | % | | — | % | | 11.7 | % | | Adjusted EBITA margin (non-GAAP) | | 16.5 | % | | 10.1 | % | | — | % | | 12.6 | % |
(1) Restructuring and other related charges includes $1.8$0.5 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations.Operations for the three months ended April 1, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended April 2, 2021 |
| | | | | | | | | Fabrication Technology | | Medical Technology | | Corporate and other | | Total |
| | | | | | | | | (Dollars in millions) |
Operating income (loss) (GAAP) | | | | | | | | | $ | 79.2 | | | $ | (0.6) | | | $ | (17.4) | | | $ | 61.3 | |
Restructuring and other related charges(1) | | | | | | | | | 3.1 | | | 1.0 | | | — | | | 4.0 | |
MDR and other costs | | | | | | | | | — | | | 1.8 | | | — | | | 1.8 | |
Segment operating income (loss) (non-GAAP) | | | | | | | | | 82.3 | | | 2.2 | | | (17.4) | | | 67.1 | |
Strategic transaction costs | | | | | | | | | — | | | — | | | 1.4 | | | 1.4 | |
Acquisition-related amortization and other non-cash charges | | | | | | | | | 9.1 | | | 29.4 | | | — | | | 38.5 | |
Adjusted EBITA (non-GAAP) | | | | | | | | | $ | 91.4 | | | $ | 31.6 | | | $ | (15.9) | | | $ | 107.1 | |
Segment operating income margin (non-GAAP) | | | | | | | | | 14.5 | % | | 0.7 | % | | — | % | | 7.6 | % |
Adjusted EBITA margin (non-GAAP) | | | | | | | | | 16.1 | % | | 10.2 | % | | — | % | | 12.2 | % |
Total Company
Sales
Net sales increased for the three months ended April 2, 2021 as compared with1, 2022 increased from the three months ended April 3, 2020.2, 2021. The following table presents the components of changes in our consolidated Net sales.
| | | Three Months Ended | | | | Three Months Ended |
| | Net Sales | | % | | | | Net Sales | | Change % |
| | (Dollars in millions) | | | (Dollars in millions) |
For the three months ended April 3, 2020 | $ | 816.4 | | | | |
For the three months ended April 2, 2021 | | For the three months ended April 2, 2021 | | $ | 879.2 | | |
Components of Change: | Components of Change: | | | Components of Change: | | |
Existing Businesses(1) | Existing Businesses(1) | 34.3 | | | 4.2 | % | | Existing Businesses(1) | | 124.5 | | | 14.2 | % |
Acquisitions(2) | Acquisitions(2) | 14.4 | | | 1.8 | % | | Acquisitions(2) | | 45.6 | | | 5.2 | % |
Foreign Currency Translation(3) | Foreign Currency Translation(3) | 14.2 | | | 1.7 | % | | Foreign Currency Translation(3) | | (25.9) | | | (2.9) | % |
| | 62.9 | | | 7.7 | % | | | | 144.2 | | | 16.4 | % |
For the three months ended April 2, 2021 | $ | 879.2 | | | | | |
For the three months ended April 1, 2022 | | For the three months ended April 1, 2022 | | $ | 1,023.4 | | | |
(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to factors such as price, product mix and volume.
(2) Represents the incremental sales as a result of acquisitions closed subsequent to the first quarterbeginning of 2020.the prior year period.
(3) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates.
The increase in Net sales during the first quarter of 2021ended April 1, 2022 compared withto the prior year period was primarily attributable to growth in existing businesses due to the COVID-19 pandemic’s negative impact onacquisition-related sales, late in the first quarter of 2020. The existinginflation-related pricing increases and organic volume increases.Both current year and prior year periods sales volumes were negatively impacted by COVID-19. Existing business sales ofin our Fabrication Technology segment increased $34.8$101.2 million whilein the three months ended April 1, 2022 primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives and improved sales volume. During the three months ended April 1, 2022, existing business sales in our Medical Technology segment decreased $0.5 million. Netincreased $23.3 million due to higher sales from existing business were impacted byvolumes compared to the fewer selling days in the quarter, but were higher for both segments on a sales per day basis. Our Fabrication Technology segment benefited from new product initiatives.prior year period. Net sales from acquisitions increased primarilyfor the three months ended April 1, 2022 are due to acquisitions in our Medical Technology segment that closed insince the fourth quarter of 2020 and first quarterbeginning of 2021. The weakeningstrengthening of the U.S. dollar relative to other currencies, most notably the Euro, resulted in a $14.2$25.9 million favorableunfavorable foreign currency translation impact.
Operating Results
The following table summarizes our results of continuing operations for the comparable periods.
| | | Three Months Ended | | | | Three Months Ended |
| | April 2, 2021 | | April 3, 2020 | | | | April 1, 2022 | | April 2, 2021 |
| | (Dollars in millions) | | | (Dollars in millions) |
Gross profit | Gross profit | $ | 371.1 | | | $ | 348.2 | | | Gross profit | | $ | 430.2 | | | $ | 371.1 | |
Gross profit margin | Gross profit margin | 42.2 | % | | 42.7 | % | | Gross profit margin | | 42.0 | % | | 42.2 | % |
Selling, general and administrative expense | Selling, general and administrative expense | $ | 305.7 | | | $ | 292.2 | | | Selling, general and administrative expense | | $ | 369.4 | | | $ | 305.7 | |
Operating income | Operating income | $ | 61.3 | | | $ | 46.8 | | | Operating income | | $ | 53.1 | | | $ | 61.3 | |
Operating income margin | Operating income margin | 7.0 | % | | 5.7 | % | | Operating income margin | | 5.2 | % | | 7.0 | % |
Net income from continuing operations | Net income from continuing operations | $ | 27.7 | | | $ | 8.9 | | | Net income from continuing operations | | $ | 19.4 | | | $ | 27.7 | |
Net income margin from continuing operations | Net income margin from continuing operations | 3.2 | % | | 1.1 | % | | Net income margin from continuing operations | | 1.9 | % | | 3.2 | % |
Adjusted EBITA (non-GAAP) | Adjusted EBITA (non-GAAP) | $ | 107.1 | | | $ | 95.5 | | | Adjusted EBITA (non-GAAP) | | $ | 129.0 | | | $ | 107.1 | |
Adjusted EBITA Margin (non-GAAP) | 12.2 | % | | 11.7 | % | | |
Adjusted EBITA margin (non-GAAP) | | Adjusted EBITA margin (non-GAAP) | | 12.6 | % | | 12.2 | % |
Items excluded from Adjusted EBITA: | Items excluded from Adjusted EBITA: | | | Items excluded from Adjusted EBITA: | | |
Restructuring and other related charges(1) | Restructuring and other related charges(1) | $ | 4.0 | | | $ | 11.0 | | | Restructuring and other related charges(1) | | $ | 8.3 | | | $ | 4.0 | |
MDR and other costs | $ | 1.8 | | | $ | 0.9 | | | |
MDR and related costs | | MDR and related costs | | $ | 2.6 | | | $ | 1.8 | |
Strategic transaction costs | Strategic transaction costs | $ | 1.4 | | | $ | 0.9 | | | Strategic transaction costs | | $ | 21.4 | | | $ | 1.4 | |
Acquisition-related amortization and other non-cash charges | Acquisition-related amortization and other non-cash charges | $ | 38.5 | | | $ | 35.8 | | | Acquisition-related amortization and other non-cash charges | | $ | 43.6 | | | $ | 38.5 | |
| Interest expense, net | | Interest expense, net | | $ | 15.1 | | | $ | 25.7 | |
| Interest expense, net | $ | 25.7 | | | $ | 24.8 | | | |
Income tax expense | Income tax expense | $ | 7.9 | | | $ | 13.2 | | | Income tax expense | | $ | 18.7 | | | $ | 7.9 | |
(1) Restructuring and other related charges includes $1.8$0.5 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations for the three months ended April 3, 2020, only.1, 2022.
First Quarter of 20212022 Compared to First Quarter of 20202021
Gross profit increased $22.9 million in the first quarter of 20212022 compared with the prior year period due to a $11.0$24.5 million increase in our Fabrication Technology segment and a $11.9$34.6 million increase in our Medical Technology segment. The Gross profit increase was primarily attributable to business acquisition-related increases, favorable sales mix, and improved volumes. Increased Gross profit in our Medical Technology segment was also due to acquisition growth newprimarily in Reconstructive product initiativeslines. Improved Gross profit in both segments was partially offset by increased supply chain and favorable foreign currency impacts.logistic costs. Gross profit margin declined primarilywas impacted by the same drivers as a result ofGross profit, but decreased slightly due to inflation-related customer pricing and cost increases in our Fabrication Technology segment.
Selling, general and administrative expense increased $13.5$63.7 million in the first quarter of 20212022 compared to the prior year period due to business acquisition-related expenses and unfavorable foreign currency translation impacts. Restructuring and other related charges decreased due to the completionincreases of certain$26.7 million in our Medical Technology segment, restructuring programs.a $20.0 million increase in strategic transaction costs driven by higher Separation-related costs, and, to a lesser extent, increases in compensation and travel costs.
Interest expense, net increased slightly the first quarter of 2021 compared to the same period in the prior year, due primarily to foreign currency gains in the prior year first quarter, partially offset by lower interest ratesdecreased in the first quarter of 2021 and an overall2022 compared to the prior year period due to a reduction in debt balances.balances, primarily as a result of the redemption of senior notes in the second quarter of 2021.
The effective tax rate for Net income (loss) from continuing operations during the first quarter of 2022 was 49.1%, which was higher than the 2022 U.S. federal statutory tax rate of 21%, mainly due to withholding taxes, taxable foreign exchange gains, U.S. taxation of international operations, other non-deductible expenses, and various items expensed discretely to the quarter. The effective tax rate for the first quarter of 2021 was 22.2%, which was higher than the 2021 U.S. federal statutory tax rate of 21%, mainly due to withholding taxes, taxable foreign exchange gains and other non-deductible expenses partially offset by the benefit of U.S. tax credits. The effective tax rate for the first quarter of 2020 was 59.8%, which was higher than the 2020 U.S. federal statutory tax rate of 21% mainly due to the impact of additional U.S. tax on international operations and taxable foreign exchange gains offset in part by a discrete tax benefit associated with the enactment of a tax law change in India.
Net income from continuing operations increaseddecreased in the first quarter of 20212022 compared with the prior year period primarily due to improved salescosts associated with the Separation, increased income tax expense and lower tax expense,acquisition-related costs, partially offset by the increases in acquisition-related expenses.improved sales volumes. Net income margin from
continuing operations increaseddecreased by 210130 basis points due to the aforementioned factors. Adjusted EBITA and related margins increased primarily due to new product initiativesthe improved sales volumes, partially offset by higher supply chain and benefits from previously-completed restructuring programs.logistic costs. Adjusted EBITA margin increased 40 basis points for the same reasons Adjusted EBITA increased, partially offset by inflation-related customer pricing and cost increases in our Fabrication Technology segment, as well as recent acquisitions in our Medical Technology segment which were dilutive to the margin, but are expected to be accretive in future years.
Business Segments
As discussed further above, we report results in two reportable segments: Fabrication Technology and Medical Technology.
Fabrication Technology
We formulate, develop, manufactureOur fabrication technology business formulates, develops, manufactures and supplysupplies consumable products and equipment, including cutting, joining, and automated welding products, as well as gas control equipment. Our fabrication technology products are marketed under several brand names, most notably ESAB, providing a wide range of products with innovative technologies to solve challenges in virtually any industry. ESAB’s comprehensive range of welding consumables includes electrodes, cored and solid wires, and fluxes using a wide range of specialty and other materials, and cutting consumables including electrodes, nozzles, shields and tips. ESAB’s fabrication technology equipment ranges from portable welding machines to large customized automated cutting and welding systems. ESAB also offers a range of digital software and solutions to help its customers increase their productivity, remotely monitor their welding operations and digitize their documentation. Products are sold into a wide range of end markets, including general industry, construction, infrastructure, wind power, marine,transportation, energy, renewable energy, and medical /& life sciences, pipelines, mobile/off-highway equipment, oil, gas, and mining.sciences. As part of the Separation described elsewhere in this report, on April 4, 2022, we spun-off our fabrication technology business. Refer to Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information regarding the Separation.
The following table summarizes selected financial results for our Fabrication Technology segment:
| | | Three Months Ended | | | | Three Months Ended |
| | April 2, 2021 | | April 3, 2020 | | | | April 1, 2022 | | April 2, 2021 |
| | (Dollars in millions) | | | (Dollars in millions) |
Net sales | Net sales | $ | 568.1 | | | $ | 525.5 | | | Net sales | | $ | 647.9 | | | $ | 568.1 | |
Gross profit | Gross profit | $ | 199.8 | | | $ | 188.8 | | | Gross profit | | $ | 224.3 | | | $ | 199.8 | |
Gross profit margin | Gross profit margin | 35.2 | % | | 35.9 | % | | Gross profit margin | | 34.6 | % | | 35.2 | % |
Selling, general and administrative expense | Selling, general and administrative expense | $ | 117.5 | | | $ | 119.8 | | | Selling, general and administrative expense | | $ | 128.8 | | | $ | 117.5 | |
Segment operating income | $ | 82.3 | | | $ | 69.0 | | | |
Segment operating income margin | 14.5 | % | | 13.1 | % | | |
Segment operating income (non-GAAP) | | Segment operating income (non-GAAP) | | $ | 95.5 | | | $ | 82.3 | |
Segment operating income margin (non-GAAP) | | Segment operating income margin (non-GAAP) | | 14.7 | % | | 14.5 | % |
Adjusted EBITA (non-GAAP) | Adjusted EBITA (non-GAAP) | $ | 91.4 | | | $ | 77.9 | | | Adjusted EBITA (non-GAAP) | | $ | 106.9 | | | $ | 91.4 | |
Adjusted EBITA margin (non-GAAP) | Adjusted EBITA margin (non-GAAP) | 16.1 | % | | 14.8 | % | | Adjusted EBITA margin (non-GAAP) | | 16.5 | % | | 16.1 | % |
Items excluded from Adjusted EBITA: | Items excluded from Adjusted EBITA: | | | Items excluded from Adjusted EBITA: | | |
Restructuring and other related charges | Restructuring and other related charges | $ | 3.1 | | | $ | 2.8 | | | Restructuring and other related charges | | $ | 5.3 | | | $ | 3.1 | |
Strategic transaction costs | | Strategic transaction costs | | $ | 3.6 | | | $ | — | |
Acquisition-related amortization and other non-cash charges | Acquisition-related amortization and other non-cash charges | $ | 9.1 | | | $ | 8.9 | | | Acquisition-related amortization and other non-cash charges | | $ | 7.7 | | | $ | 9.1 | |
|
First Quarter of 20212022 Compared to First Quarter of 20202021
Net sales in our Fabrication Technology segment increased $42.6$79.8 million, or 14%, in the first quarter of 20212022 compared with the prior year period due todriven primarily by inflation-related customer pricing impacts, as well as new product initiatives inflation-related pricing impacts and a $7.4 million favorableimproved sales volumes, partially offset by unfavorable foreign currency impact, offset by fewer selling days.translation. Gross profit increased $24.5 million due to increases inthe improved sales whilevolumes, driven by new product initiatives, and favorable product mix. Gross profit margin decreased 7060 basis points due to inflation-related customer pricing and cost increases.increases, which compressed the margin. Selling, general and administrative expense decreased despite increased sales volumes and unfavorable foreign currency impacts primarily due to benefits from restructuring initiativesincreased costs related to reducethe Separation, as well as increased allowances on receivables in certain regions and increased compensation costs. Segment operating income Adjusted EBITA, and related marginsSegment operating income margin improved due to increased sales and reducedfavorable product mix, partially offset by increased Selling, general and
administrative expenses. Adjusted EBITA and Adjusted EBITA margin increased for the same reasons, partially offset by inflation-related customer pricing and cost increases during the first quarter of 2022.
Medical Technology
We develop, manufacture and distribute high-quality medical devices and services across the continuum of patient care from injury prevention to joint replacement to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion. Our products are used by orthopedic specialists, spine surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals. Our products primarily include orthopedic braces, rehabilitation devices, footwear, surgical implants, and bone growth stimulators.
The following table summarizes the selected financial results for our Medical Technology segment:
| | | Three Months Ended | | | | Three Months Ended | |
| | April 2, 2021 | | April 3, 2020 | | | | April 1, 2022 | | April 2, 2021 | |
| | (Dollars in millions) | | | | (Dollars in millions) | |
Net sales | Net sales | $ | 311.1 | | | $ | 290.8 | | | Net sales | | $ | 375.5 | | | $ | 311.1 | | |
Gross profit | Gross profit | $ | 171.3 | | | $ | 159.4 | | | Gross profit | | $ | 205.9 | | | $ | 171.3 | | |
Gross profit margin | Gross profit margin | 55.1 | % | | 54.8 | % | | Gross profit margin | | 54.8 | % | | 55.1 | % | |
Selling, general and administrative expense | Selling, general and administrative expense | $ | 170.9 | | | $ | 157.4 | | | Selling, general and administrative expense | | $ | 208.4 | | | $ | 170.9 | | |
Segment operating income | $ | 2.2 | | | $ | 3.8 | | | |
Segment operating income margin | 0.7 | % | | 1.3 | % | | |
Segment operating income (non-GAAP) | | Segment operating income (non-GAAP) | | $ | (0.1) | | | $ | 2.2 | | |
Segment operating income margin (non-GAAP) | | Segment operating income margin (non-GAAP) | | — | % | | 0.7 | % | |
Adjusted EBITA (non-GAAP) | Adjusted EBITA (non-GAAP) | $ | 31.6 | | | $ | 30.7 | | | Adjusted EBITA (non-GAAP) | | $ | 37.8 | | | $ | 31.6 | | |
Adjusted EBITA margin (non-GAAP) | Adjusted EBITA margin (non-GAAP) | 10.2 | % | | 10.6 | % | | Adjusted EBITA margin (non-GAAP) | | 10.1 | % | | 10.2 | % | |
Items excluded from Adjusted EBITA: | Items excluded from Adjusted EBITA: | | | Items excluded from Adjusted EBITA: | | | |
Restructuring and other related charges(1) | Restructuring and other related charges(1) | $ | 1.0 | | | $ | 8.2 | | | Restructuring and other related charges(1) | | $ | 3.0 | | | $ | 1.0 | | |
MDR and other costs | $ | 1.8 | | | $ | 0.9 | | | |
MDR and related costs(2) | | MDR and related costs(2) | | $ | 2.6 | | | $ | 1.8 | | |
Strategic transaction costs | | Strategic transaction costs | | $ | 2.1 | | | $ | — | | |
Acquisition-related amortization and other non-cash charges | Acquisition-related amortization and other non-cash charges | $ | 29.4 | | | $ | 26.9 | | | Acquisition-related amortization and other non-cash charges | | $ | 35.9 | | | $ | 29.4 | | |
(1) Restructuring and other related charges includes $1.8$0.5 million of expense classified as Cost of sales on the Company’sour Condensed Consolidated Statements of Operations for the three months ended April 3, 2020, only.1, 2022.
First Quarter of 20212022 Compared to First Quarter of 20202021
Net sales increased forin our Medical Technology segment in the first quarter of 20212022 compared with the prior year period primarily due to acquisition-related sales growth of $14.0$45.6 million a favorable foreign currency translation effect of $6.8in the current year period. Sales from existing business increased $23.3 million andprimarily due to higher sales per day volumes partially offset by fewer selling days. Sales volumes early in the first quarter of 2021 were negatively impacted by certain jurisdictions putting further COVID-19-related restrictions in place in response to the surge in COVID-19 cases late in 2020. Volumes began to normalize as the quarter progressed and resulted in organic growth on a sales per day basis in comparisoncurrent year period compared to the prior year period, both of which were impacted by COVID-19. The benefit from acquisition-related sales and increased existing business sales was negatively impacted from pandemic-related sales declines late in the quarter.partially offset by unfavorable foreign currency translation. Gross profit and gross profit margins increased in the first quarter of 20212022 compared to the first quarter of 20202021 primarily due primarily to acquisition-related growth.growth and favorable product mix, partially offset by increased supply chain and logistic costs and acquisition-related inventory valuation step-up charges, which also led to a slight decrease in Gross profit margin. Selling, general and administrative expense increased over the same period primarily due to costs associated with acquisitions, as well as the relatedincluding integration costs fromfor the newly acquirednewly-acquired businesses partially offset by reduced travel costs.and increased commissions as a result of improved sales volumes. Segment operating income and Segment operating income margin decreased primarily due to increased acquisition-related costs and costs related to the increase in Selling, general and administrative expenses.Separation, partially offset by improved sales volumes. Adjusted EBITA increased primarily due to higher gross profit,improved sales volumes in the current year, partially offset by increased supply chain and logistic costs and increased Selling, general and administrative costs, while adjusted EBITA margin declineddecreased slightly primarily due to the costs associated with increased acquisition activity.dilutive impact of recent acquisitions. Restructuring and other related charges decreasedincreased by $7.2$2.0 million due to the completionimplementation of certain projects in earlier periods.new restructuring initiatives.
Liquidity and Capital Resources
Overview
We finance our long-term capital and working capital requirements through a combination of cash flows from operating activities, various borrowings and the issuances of equity. We expect that our primary ongoing requirements for cash after the Separation will be for working capital, funding of acquisitions, near-term Separation costs, capital expenditures, restructuring, asbestos-related cash outflows, and debt service and required amortization of principal.principal repayments. We believe we could raise additional funds in the form of debt or equity if it was determined to be appropriate for strategic acquisitions or other corporate purposes.
On April 4, 2022, we completed the separation of our fabrication technology business through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corp to Enovis stockholders. We retained 10% of the shares of ESAB Corp common stock immediately following the Separation. We intend to divest the 10% retained shares in ESAB Corp in a tax-efficient exchange for our outstanding debt no later than 12 months after the Distribution date.
In connection with the Separation, ESAB Corp issued $1.2 billion of new debt securities, the proceeds from which were used to fund a $1.2 billion cash distribution to us upon Separation. We used the distribution proceeds in conjunction with $450 million of borrowings on a term loan under the new credit facility, and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest on our existing credit facility, $302.8 million of outstanding debt and accrued interest on our senior notes due February 15, 2026 (“2026 Notes”), as well as a redemption premium at 103.188% of the principal amount of our 2026 Notes, and other fees and expenses due at closing. Additionally, on April 7, 2022, we completed the redemption of our senior unsecured notes due April 2025 (“Euro Senior Notes”) representing all of its outstanding €350 million principal 3.250% Senior Notes due 2025 at a redemption price of 100.813% of the principal amount. Refer to Note 15, “Subsequent Events” for further information including detail of ongoing financing arrangements.
Equity Capital
On March 19, 2021, we completed the underwritten public offering of 16.15.4 million shares of our Common stock, at a price toas adjusted for the public of $46.00 per share,reverse split, resulting in net proceeds of approximately $711.3 million, after deducting offering expenses and underwriters’ discount and commissions. We used the proceeds to pay down certain of our senior notes, as discussed further below.
On July 28, 2021, the Company issued 2.2 million shares of Common stock, as adjusted for the reverse split, to the former shareholders of Mathys for acquisition consideration of $285.7 million.
In 2018, our Board of Directors authorized the repurchase of our Common stock from time-to-time on the open market or in privately negotiated transactions. No stock repurchases have been made under this plan since the third quarter of 2018. As of April 2, 2021,1, 2022, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million. The timing, amount, and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors. There is no term associated with the remaining repurchase authorization.
Term Loan and Revolving Credit Facility
Our credit agreement (the “Credit Facility”) by and among, which was legally extinguished in conjunction with the Company, as the borrower, certain U.S. subsidiaries of the Company, as guarantors, each of the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A., as syndication agent, and the co-documentation agents named therein consistsSeparation on April 4, 2022, consisted of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan in an initial aggregate principal amount of $825 million, (the “Term Loan”), each with a maturity date of December 6, 2024. The Revolver containscontained a $50 million swing line loan sub-facility. Refer to Note 10, “Debt” and Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information.
As of April 2, 2021, we are1, 2022, the Company was in compliance with the covenants under the Credit Facility.
As of April 2, 2021,1, 2022, the weighted-average interest rate of borrowings under the Credit Facility was 1.86%1.74%, excluding accretion of original issue discount and deferred financing fees, and there was $975375 million available on the Revolver.
Euro Senior Notes
Our senior unsecured notes with an aggregate principal amount of €350 million (the “Euro Notes”) arewere due in AprilMay 2025 haveand had an interest rate of 3.25%, and are guaranteed by certain of our domestic subsidiaries (the “Guarantees”). The Euro Senior Notes andwere redeemed on April 7, 2022 after the Guarantees have not been, and will not be, registered undercompletion of the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any other jurisdiction.Separation.
TEU Amortizing Notes
OurOn January 15, 2022, we made the final installment payment on our TEU amortizing notes, withwhich had an initial principal amount of $15.6099 per unit bearand an interest at a rate of 6.50% per annum, and have equal quarterly cash installments of $1.4375 per TEU amortizing note on each January 15, April 15, July 15 and October 15 with a final installment payment date of January 15, 2022. The quarterly cash installment constitutes a payment of interest and a partial repayment of principal.annum. We paid $6.6$6.5 million and $6.1 million of principal on the TEU amortizing notes in both the three months ended April 1, 2022 and April 2, 2021, and April 3, 2020, respectively. The TEU amortizing notes are the direct, unsecured and unsubordinated obligations of the Company and rank equally with all of the existing and future other unsecured and unsubordinated indebtedness of the Company. Refer to Note 8, “Equity” in the accompanying Notes to Condensed Consolidated Financial Statements for more information.
2024 Notes and 2026 Notes
We had senior notes with an initial aggregate principal amountsamount of $600$300 million, (the “2024 Notes”), which were due on February 15, 20242026 and had an interest rate of 6.0%. We have senior notes with aggregate principal amounts of $400 million (the “2026 Notes), which are due on February 15, 2026 and have an interest rate of 6.375%. Each tranche of notes is guaranteed by certain of our domestic subsidiaries. The Company2026 Notes were redeemed all of its outstanding 2024 Notes and $100 millionon April 7, 2022 after the completion of the outstanding principal amount of its 2026 Notes on April 24, 2021. Refer to Note 15, “Subsequent Events” in the accompanying Notes to Condensed Consolidated Financial Statements for more information.Separation.
Other Indebtedness
In addition, we are party to various bilateral credit facilities with a borrowing capacity of $192.1$168.2 million. As of April 2, 2021,1, 2022, there were no outstanding borrowings under these facilities. Subsequent to the end of the first quarter of 2022, the bilateral credit facilities are no longer available to Enovis due to the completion of the Separation as they relate to ESAB Corp or expired.
We are also party to letter of credit facilities with an aggregate capacity of $338.6$211.9 million. Total letters of credit of $64.9$40.2 million were outstanding as of April 2, 2021.1, 2022. Substantially all of the letter of credit facilities relate to central banking entities and operations of ESAB Corp which was spun-off with the fabrication technology business on April 4, 2022.
We believe that our sources of liquidity are adequate to fund our operations for the next twelve months.
Cash Flows
As of April 2, 2021,1, 2022, we had $763.7$661.5 million of Cash and cash equivalents, an increasea decrease of $662.6$57.9 million from the balance as of December 31, 20202021 of $101.1 million, which included $4.0 million of Restricted cash.$719.4 million. The following table summarizes the change in Cash and cash equivalents during the periods indicated:
| | | | | | | | | | | |
| Three Months Ended |
| April 2, 2021 | | April 3, 2020 |
| (Dollars in millions)
|
Net cash provided by operating activities | $ | 84.4 | | | $ | 56.2 | |
Purchases of property, plant and equipment | (24.5) | | | (31.1) | |
Proceeds from sale of property, plant and equipment | — | | | 1.7 | |
Acquisitions, net of cash received, and investments | (103.5) | | | (7.8) | |
| | | |
| | | |
Net cash used in investing activities | (128.0) | | | (37.3) | |
Proceeds (repayments) from borrowings, net | (6.3) | | | 244.3 | |
| | | |
| | | |
| | | |
Proceeds from issuance of common stock and other | 713.9 | | | 0.9 | |
Net cash provided by financing activities | 707.7 | | | 245.1 | |
Effect of foreign exchange rates on Cash and cash equivalents | (1.4) | | | (8.1) | |
Increase in Cash and cash equivalents | $ | 662.6 | | | $ | 256.0 | |
Cash used in operating activities related to discontinued operations for the three months ended April 2, 2021 was $7.3 million, primarily related to a settlement related to a disposed business. Cash provided by operating activities related to discontinued operations for the three months ended April 3, 2020 was $0.8 million. | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| April 1, 2022 | | April 2, 2021 | | | | |
| (Dollars in millions)
| | | | |
Net cash provided by (used in) operating activities | $ | (14.4) | | | $ | 84.4 | | | | | |
Purchases of property, plant and equipment | (24.1) | | | (24.5) | | | | | |
Proceeds from sale of property, plant and equipment | 2.7 | | | — | | | | | |
Acquisitions, net of cash received, and investments | (13.8) | | | (103.5) | | | | | |
| | | | | | | |
| | | | | | | |
Net cash used in investing activities | (35.2) | | | (128.0) | | | | | |
Repayments of borrowings, net | (7.4) | | | (6.3) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Proceeds from issuance of common stock, net | 1.2 | | | 716.6 | | | | | |
| | | | | | | |
Deferred consideration payments and other | (4.6) | | | (2.7) | | | | | |
Net cash provided by (used in) financing activities | (10.8) | | | 707.7 | | | | | |
Effect of foreign exchange rates on Cash and cash equivalents | 2.5 | | | (1.4) | | | | | |
Increase (decrease) in Cash and cash equivalents | $ | (57.9) | | | $ | 662.6 | | | | | |
Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as pension funding, asbestos-related costs, restructuring, and restructuring program funding.strategic transaction costs including Separation costs. Changes in significant operating cash flow items are discussed below.
•During the three months ended April 2, 20211, 2022 and April 3, 2020,2, 2021, cash payments of $4.7$9.1 million and $14.5$4.7 million, respectively, were made related to our restructuring initiatives.
•During the three months ended April 1, 2022, cash payments of $7.9 million were made related to the Separation.
•Year-to-date 20212022 results include $8.3$61.9 million of inflowsoutflows from working capital due tobusiness growth, which have caused certain increases in accounts receivable and inventory levels, offset by an increase in accounts payable. Results in the comparable prior year period provided cash of $46.5$8.3 million excluding the impact of foreign exchange, due to a decrease in receivables andan increase in accounts payable, partially offset by an increaseincreases in inventory.accounts receivable and inventory levels due to COVID-19 recovery.
•Year-to-date 2021Prior year net cash provided by operating activities also included a one-time cash inflow from a $36.0 million U.S. federal tax refund.refund received in the first quarter of 2021.
•Cash used in operating activities related to discontinued operations for the three months ended April 1, 2022 was $5.8 million. Cash used in operating activities related to discontinued operations for the three months ended April 2, 2021 was $7.3 million, primarily due to a settlement related to a disposed business.
Cash flows used in investing activities during the three months ended April 2, 2021 increased1, 2022 decreased due to cashlower acquisition and investment activity in the current year period. Cash paid for acquisitions and investments in our Medical Technology segment ofwas $13.8 million and $98.5 million as well asduring the three months ended April 1, 2022 and April 2, 2021, respectively. During the three months ended April 2, 2021, we also had an acquisition outlay in our Fabrication Technology segment of $5.0 million.
Cash flows used in financing activities during the three months ended April 1, 2022 include $7.4 million repayment of borrowings. Cash flows provided by financing activities for the three months ended April 2, 2021 included the $711.3 million net proceeds from the public offering of 16.1 million shares of Colfaxour Common stock on March 19, 2021. Cash flows provided by financing activitiesThe net proceeds were used for three months ended April 3, 2020 were impacted by a net increasethe $600 million full redemption of our 2024 Notes and the $100 million partial redemption of our 2026 Notes in borrowings from our Revolver for working capital, general corporate or other purposes.the second quarter of 2021.
Our Cash and cash equivalents as of April 2, 20211, 2022 include $43.2$59.9 million held in jurisdictions outside the U.S. We reduced these levels by $7.1 million in the first quarter of 2021. Cash repatriation of non-U.S. cash into the U.S. may be subject to taxes, other local statutory restrictions and minority owner distributions. The majority of the cash and cash equivalents held in jurisdictions outside the U.S. relate to central banking entities and operations of ESAB Corp which was spun-off with the Fabrication Technology business on April 4, 2022.
Critical Accounting Policies
The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial 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 have a material impact on our results of operations and financial position.
There have been no other significant additions or changes to the methods, estimates and judgments included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in our 20202021 Form 10-K.
Item 3. 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. We do not enter into derivative contracts for trading purposes.
Interest Rate Risk
We are subject to exposure from changes in short-term interest rates related to interest payments on our borrowing arrangements. A significant amount of our borrowings as of April 2, 20211, 2022 are variable-rate facilities based on LIBOR or EURIBOR.LIBOR. In order to mitigate our interest rate risk, we may enter into interest rate swap or collar agreements. A hypothetical increase in interest rates of 1% during the three months ended April 1, 2022 and April 2, 2021 would have increased Interest expense for our variable rate-based debt by approximately $3.5 million and $2.0 million.million, respectively.
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 both the three months ended April 1, 2022 and April 2, 2021, approximately 61% 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 are more highly weighted toward the Euro and U.S. dollar. We also have significant contractual obligations in U.S. dollars that are met with cash 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 currency swaps and forward contracts.
We also face exchange rate risk from our investments in subsidiaries owned and operated in foreign countries. Euro denominated borrowings under the Euro Senior Notes provide a natural hedge to a portion of our European 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 our Euro denominated borrowings, is reflected in the Accumulated other comprehensive loss component of Equity. A 10% depreciation in major currencies relative to the U.S. dollar as of April 2, 20211, 2022 (net of the translation effect of our Euro denominated borrowings) would result in a reduction in Equity of approximately $160$186 million.
We also face exchange rate risk 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. Similarly, tax costs may increase or decrease as local currencies strengthen or weaken against the U.S. dollar.
Commodity Price Risk
We are exposed to changes in the prices of raw materials used in our production processes. In order to manage commodity price risk, we periodically enter into fixed price contracts directly with suppliers.
See Note 12, “Financial Instruments and Fair Value Measurements” in our Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for additional information regarding our derivative instruments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of April 2, 2021.1, 2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed in this report on Form 10-Q has been recorded, processed, summarized and reported as of the end of the period covered by this report on Form 10-Q.
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 Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
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 Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Discussion of legal proceedings is incorporated by reference to Note 13, “Commitments and Contingencies,” in the Notes to Condensed Consolidated Financial Statements included in Part I. Item 1. “Financial Statements” of this Form 10-Q.
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. In addition to risk factors included in “Part I. Item 1A. Risk Factors” in our 20202021 Form 10-K, we face the following risks:
Risks Relating to the Separation
The separation of our fabrication technology and medical technology business into two, differentiated, independent publicly traded companies may not be completed on the currently contemplated timeline, or at all, andWe may not achieve the intended benefits.
In March 2021, we announced our intention to separate our fabrication technology and medical technology business into two, differentiated, independent publicly traded companies (the “Separation”). We are targeting completionsome or all of the Separation in the first quarter of 2022. Completion of the Separation is subject to, among other things, completion of financing and other transactions on satisfactory terms, other steps necessary to qualify the Separation as a generally tax-free transaction, receipt of other regulatory approvals, obtaining final approvals from our board of directors and market conditions. The Separation is complex in nature, and unanticipated developments or changes, including changes in the law, macroeconomic environment and competitive conditions of our markets, the need both to receive regulatory approvals or clearances and to satisfy the requirements to effectuate a generally tax-free transaction, the uncertainty of the financial markets and challenges in executing the Separation, could delay or prevent the completion of the Separation or cause the Separation to occur on terms or conditions that are different or less favorable than expected.
Whether or not we complete the Separation, our ongoing businesses may face material challenges in connection with the Separation, including, but not limited to:
•the diversion of our management’s attention from operating and growing our business as a result of the significant amount of time and effort required to execute the Separation;
•foreseen and unforeseen costs and expenses that will be incurred in connection with the Separation, including accounting, tax, legal and other professional services costs, and potential prepayment charges and write-offs of deferred costs related to establishing new capital structures;
•retaining existing business and operational relationships, including with customers, suppliers and employees, as well as cultivating new business relationships; and
•potential negative reactions from the financial markets if we fail to complete the Separation in its currently intended form, within the anticipated time frame or at all.
Additionally, volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. These conditions may adversely affect our anticipated timeline to complete the Separation and the expected benefits of the Separation, including by increasing the time and expense involved in the Separation. Other challenges associated with effectively executing the Separation include attracting, retaining and motivating key management and employees during the pendency of the Separation and following its completion, addressing any disruptions tomay adversely affect our supply chain, manufacturing, sales and distribution, and other operations resulting from separating our fabrication and specialty medical technology business into two, differentiated, independent publicly traded companies. Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or the price of our common stock. Furthermore, if the Separation is completed, we cannot provide assurance thatbusinesses.
the Separation willWe may not be able to achieve the full strategic and financial benefits expected to result from the Separation, nor can weor such benefits may be delayed or not occur at all. The Separation is expected to provide assurance that each independent company will be successful in meeting its objectives.the following benefits, among others:
If •the Separation occurs,will allow investors to value the Company based on its distinct investment identity, and enable investors to evaluate the merits, performance and future prospects of the Company’s businesses based on the distinct characteristics;
•the Separation will facilitate incentive compensation structures for employees more directly tied to the performance of the Company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives; and
•the Separation will allow us to more effectively pursue our financialoperating priorities and operational profile will change,strategies, and we will be a smaller, less diversified company than we are today.enable management to focus on unique opportunities for long-term growth and profitability.
If the Separation occurs, it will result in two smaller, less diversified companies, each withWe may not achieve these and other anticipated benefits for a more concentrated areavariety of focus. As a result, each company may be more vulnerable to changing market conditions and competitive pressures, which could have a material adverse effect on our business, financial condition and results of operations. The diversification of revenues,reasons, including, among others:
•certain costs and cash flows will diminish as a result ofliabilities that were otherwise less significant to the Separation, such that each company’s results of operations, cash flows, working capital, effective tax rate and financing requirements may be subjectCompany prior to increased volatility, and each company’s ability to fund capital expenditures, investments and service our debt may be diminished. There can be no assurance that the combined value of the common stock of the two independent publicly traded companies following the completion of the Separation will be equal to or greater than whatmore significant for us as a separate company after the valueSeparation; and
•we may not achieve the anticipated benefits of our common stock would have been had the Separation not occurred.for a variety of reasons, including, among others, (i) we may be more susceptible to market fluctuations and other adverse events than we were prior to the Separation and (ii) following the Separation, our businesses are less diversified than they were prior to the Separation.
If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, our businesses, operating results and financial condition could be adversely affected.
We could incur significant liability if the separation and distribution of ESAB Corp is determined to be a taxable transaction.
We have received an opinion from outside tax counsel to the effect that the separation and distribution of ESAB Corp qualifies as a transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code. The opinion relies on certain facts, assumptions, representations and undertakings from ESAB and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, our stockholders and we may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities. Notwithstanding the opinion of tax counsel we have received, the IRS could determine on audit that the separation and distribution are taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion. If the Separation and/or certain related transactions do not qualify as transactions thatseparation and distribution of ESAB are generally tax-freedetermined to be taxable for U.S. federal income tax purposes, we and our stockholders could bethat are subject to U.S. federal income tax and we could incur significant U.S. federal income tax liabilities.
Notwithstanding thatPotential indemnification liabilities to ESAB Corp pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations and cash flows.
We entered into a separation and distribution agreement and related agreements with ESAB Corp to govern the separation and distribution of ESAB Corp and the relationship between the two companies going forward. These agreements provide for specific indemnity and liability obligations of each party and could lead to disputes between us. If we intendare required to structureindemnify ESAB Corp under the Separationcircumstances set forth in these agreements, we may be subject to generally be a tax-free transaction,substantial liabilities. In addition, with
respect to the U.S. Internal Revenue Service (the “IRS”) could determine that the Separation and/or certain related transactions should be treated as taxable transactionsliabilities for U.S. federal income tax purposes. Accordingly,which ESAB Corp has agreed to indemnify us under these agreements, there can be no assurance that the IRSindemnity rights we have against ESAB Corp will not assert thatbe sufficient to protect us against the Separation and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposesfull amount of the liabilities, or that a court would not sustain such a challenge. In the event the IRS wereESAB Corp will be able to prevail with such challenge, wefully satisfy its indemnification obligations. Each of these risks could negatively affect our businesses, financial condition, results of operations and our stockholders could be subject to significant U.S. federal income tax liability.cash flows.
If the Separation, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355Our business, financial condition and 368(a)(1)(D)results of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), in general, for U.S. federal income tax purposes, we would recognize taxable gain as if we had sold the common stock of the separated entity in a taxable sale for its fair market value (unless we and the separated entity jointly make an election under Section 336(e) of the Code with respect to the Separation, in which case, in general, (a) we would recognize taxable gain as if the separated entity had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of its common stock and the assumption of all its liabilities and (b) the separated entity would obtain a related step-upoperations could be adversely affected by disruptions in the basis of its assets),global economy caused by the ongoing conflict between Russia and our stockholders who receive shares of common stock of the separated entity in the Separation would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.Ukraine.
The global economy has been negatively impacted by the military conflict between Russia and Ukraine. Furthermore, governments in the United States, United Kingdom and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia and Russia has imposed counter-sanctions in response. Although we have no direct operations in Russia or Ukraine or government-imposed sanctions on our products currently, we could experience sanctions in the future and/or shortages in materials, increased costs for raw material and other supply chain issues due in part to the negative impact of the Russia-Ukraine military conflict on the global economy. Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, additional supply disruptions, lower consumer demand and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain. In addition, the effects of the ongoing conflict could heighten many of our known risks described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit No. | Exhibit Description |
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| Certificate of Incorporation |
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| FormAmended and Restated Bylaws of Retention Restricted Stock Unit Agreement (2020 Plan) (incorporated by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No. 001-3405) as filed with the SEC on March 5, 2021).
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| Retention Agreement, dated March 5, 2021, by and between Colfax Corporation and Matthew Trerotola (incorporated by reference to Exhibit 10.2 to Colfax Corporation’s Form 8-K (File No. 001-3405) as filed with the SEC on March 5, 2021). |
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| Retention Agreement, dated March 5, 2021, by and between Colfax Corporation and Christopher Hix (incorporated by reference to Exhibit 10.3 to Colfax Corporation’s Form 8-K (File No. 001-3405) as filed with the SEC on March 5, 2021). |
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| Retention Agreement, dated March 5, 2021, by and between Colfax Corporation and Daniel Pryor (incorporated by reference to Exhibit 10.4 to Colfax Corporation’s Form 8-K (File No. 001-3405) as filed with the SEC on March 5, 2021). |
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| Retention Agreement, dated March 5, 2021, by and between Colfax Corporation and Shyam Kambeyanda (incorporated by reference to Exhibit 10.5 to Colfax Corporation’s Form 8-K (File No. 001-3405) as filed with the SEC on March 5, 2021). |
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| Retention Agreement, dated March 5, 2021, by and between Colfax Corporation and Brady Shirley (incorporated by reference to Exhibit 10.6 to Colfax Corporation’s Form 8-K (File No. 001-3405) as filed with the SEC on March 5, 2021). |
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| Change in Control Agreement, dated March 5, 2021, by and between Colfax Corporation and Shyam Kambeyanda (incorporated by reference to Exhibit 10.7 to Colfax Corporation’s Form 8-K (File No. 001-3405) as filed with the SEC on March 5, 2021).Enovis Corporation. |
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| Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 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. |
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| 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. |
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101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL | Inline XBRL Extension Calculation Linkbase Document. |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | Cover Page Interactive Data File - The cover page from this Quarterly Report on Form 10-Q for the quarter ended April 2, 20211, 2022 is formatted in Inline XBRL (included as Exhibit 101). |
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* | Incorporated by reference to Exhibit 3.01 to ColfaxEnovis (formerly Colfax) Corporation’s Form 8-K (File No. 001-34045) as filed with the SEC on January 30, 2012. |
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** | Incorporated by reference to Exhibit 3.023.1 to ColfaxEnovis Corporation’s Form 10-Q8-K (File No. 001-34045) as filed with the SEC on July 23, 2015.April 8, 2022. |
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#*** | Indicates management contract or compensatory plan, contract or arrangement.Incorporated by reference to Exhibit 3.2 to Enovis Corporation’s Form 8-K (File No. 001-34045) as filed with the SEC on April 8, 2022. |
SIGNATURES
Pursuant to the requirements 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.
Registrant: ColfaxEnovis Corporation
By:
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/s/ Matthew L. Trerotola | | President and Chief Executive Officer | | |
Matthew L. Trerotola | | (Principal Executive Officer) | | April 29, 2021May 10, 2022 |
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/s/ Christopher M. Hix | | Executive Vice President, Finance | | |
Christopher M. Hix | | Chief Financial Officer | | April 29, 2021May 10, 2022 |
| | (Principal Financial Officer) | | |
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/s/ Douglas J. Pitts | | Vice President | | |
Douglas J. Pitts | | Controller and Chief Accounting Officer | | April 29, 2021May 10, 2022 |
| | (Principal Accounting Officer) | | |