COLFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share amounts
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
ASSETS
|
|
|
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
127,065
|
|
|
$
|
77,153
|
|
Trade receivables, less allowance for doubtful accounts of $40,864 and $26,844
|
576,139
|
|
|
386,588
|
|
Inventories, net
|
584,351
|
|
|
359,655
|
|
Other current assets
|
198,232
|
|
|
137,801
|
|
Current portion of assets held for sale
|
2,013,345
|
|
|
997,244
|
|
Total current assets
|
3,499,132
|
|
|
1,958,441
|
|
Property, plant and equipment, net
|
478,806
|
|
|
327,155
|
|
Goodwill
|
2,784,249
|
|
|
1,497,832
|
|
Intangible assets, net
|
2,262,377
|
|
|
628,300
|
|
Lease asset - right of use
|
159,999
|
|
|
—
|
|
Other assets
|
406,709
|
|
|
463,525
|
|
Assets held for sale, less current portion
|
—
|
|
|
1,740,705
|
|
Total assets
|
$
|
9,591,272
|
|
|
$
|
6,615,958
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Current portion of long-term debt
|
$
|
29,654
|
|
|
$
|
5,020
|
|
Accounts payable
|
376,406
|
|
|
291,233
|
|
Customer advances and billings in excess of costs incurred
|
16,566
|
|
|
16,827
|
|
Accrued liabilities
|
431,333
|
|
|
274,017
|
|
Current portion of liabilities held for sale
|
651,718
|
|
|
612,248
|
|
Total current liabilities
|
1,505,677
|
|
|
1,199,345
|
|
Long-term debt, less current portion
|
4,002,365
|
|
|
1,192,408
|
|
Non-current lease liability
|
123,238
|
|
|
—
|
|
Other liabilities
|
827,054
|
|
|
651,864
|
|
Liabilities held for sale, less current portion
|
—
|
|
|
95,395
|
|
Total liabilities
|
6,458,334
|
|
|
3,139,012
|
|
Equity:
|
|
|
|
Common stock, $0.001 par value; 400,000,000 shares authorized; 117,756,730 and 117,275,217 issued and outstanding
|
118
|
|
|
117
|
|
Additional paid-in capital
|
3,434,617
|
|
|
3,057,982
|
|
Retained earnings
|
496,423
|
|
|
991,838
|
|
Accumulated other comprehensive loss
|
(949,150
|
)
|
|
(780,177
|
)
|
Total Colfax Corporation equity
|
2,982,008
|
|
|
3,269,760
|
|
Noncontrolling interest
|
150,930
|
|
|
207,186
|
|
Total equity
|
3,132,938
|
|
|
3,476,946
|
|
Total liabilities and equity
|
$
|
9,591,272
|
|
|
$
|
6,615,958
|
|
See Notes to Condensed Consolidated Financial Statements.
COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Dollars in thousands, except share amounts and as noted
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
Additional Paid-In Capital
|
Retained Earnings
|
Accumulated Other Comprehensive Loss
|
Noncontrolling Interest
|
Total
|
|
Shares
|
$ Amount
|
Balance at December 31, 2018
|
117,275,217
|
|
$
|
117
|
|
$
|
3,057,982
|
|
$
|
991,838
|
|
$
|
(780,177
|
)
|
$
|
207,186
|
|
$
|
3,476,946
|
|
Cumulative effect of accounting change
|
—
|
|
—
|
|
—
|
|
15,368
|
|
(15,368
|
)
|
—
|
|
—
|
|
Net (loss) income
|
—
|
|
—
|
|
—
|
|
(52,023
|
)
|
—
|
|
4,021
|
|
(48,002
|
)
|
Distributions to noncontrolling owners
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,170
|
)
|
(2,170
|
)
|
Noncontrolling interest share repurchase
|
—
|
|
—
|
|
(22,409
|
)
|
—
|
|
(21,372
|
)
|
(48,940
|
)
|
(92,721
|
)
|
Other comprehensive income, net of tax of $(413)
|
—
|
|
—
|
|
—
|
|
—
|
|
18,053
|
|
4,119
|
|
22,172
|
|
Issuance of Tangible Equity Units
|
—
|
|
—
|
|
377,814
|
|
—
|
|
—
|
|
—
|
|
377,814
|
|
Common stock-based award activity
|
283,197
|
|
1
|
|
7,676
|
|
—
|
|
—
|
|
—
|
|
7,677
|
|
Balance at March 29, 2019
|
117,558,414
|
|
118
|
|
3,421,063
|
|
955,183
|
|
(798,864
|
)
|
164,216
|
|
3,741,716
|
|
Net (loss) income
|
—
|
|
—
|
|
—
|
|
(469,234
|
)
|
—
|
|
2,629
|
|
(466,605
|
)
|
Distributions to noncontrolling owners
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,970
|
)
|
(2,970
|
)
|
Noncontrolling interest share repurchase
|
—
|
|
—
|
|
(565
|
)
|
—
|
|
410
|
|
(211
|
)
|
(366
|
)
|
Other comprehensive loss, net of tax of $(1,981)
|
—
|
|
—
|
|
—
|
|
—
|
|
(20,794
|
)
|
(2,113
|
)
|
(22,907
|
)
|
Common stock-based award activity
|
108,945
|
|
—
|
|
7,481
|
|
—
|
|
—
|
|
—
|
|
7,481
|
|
Balance at June 28, 2019
|
117,667,359
|
|
118
|
|
3,427,979
|
|
485,949
|
|
(819,248
|
)
|
161,551
|
|
3,256,349
|
|
Net income
|
—
|
|
—
|
|
—
|
|
10,474
|
|
—
|
|
2,320
|
|
12,794
|
|
Distributions to noncontrolling owners
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(7,237
|
)
|
(7,237
|
)
|
Other comprehensive loss, net of tax of $193
|
—
|
|
—
|
|
—
|
|
—
|
|
(129,902
|
)
|
(5,704
|
)
|
(135,606
|
)
|
Common stock-based award activity
|
89,371
|
|
—
|
|
6,638
|
|
—
|
|
—
|
|
—
|
|
6,638
|
|
Balance at September 27, 2019
|
117,756,730
|
|
$
|
118
|
|
$
|
3,434,617
|
|
$
|
496,423
|
|
$
|
(949,150
|
)
|
$
|
150,930
|
|
$
|
3,132,938
|
|
See Notes to Condensed Consolidated Financial Statements.
COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
Dollars in thousands, except share amounts and as noted
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
Additional Paid-In Capital
|
Retained Earnings
|
Accumulated Other Comprehensive Loss
|
Noncontrolling Interest
|
Total
|
|
Shares
|
$ Amount
|
Balance at December 31, 2017
|
123,245,827
|
|
$
|
123
|
|
$
|
3,228,174
|
|
$
|
846,490
|
|
$
|
(574,372
|
)
|
$
|
226,849
|
|
$
|
3,727,264
|
|
Cumulative effect of accounting change, net of tax of $2,808
|
—
|
|
—
|
|
—
|
|
5,152
|
|
(5,152
|
)
|
—
|
|
—
|
|
Net income
|
—
|
|
—
|
|
—
|
|
24,535
|
|
—
|
|
4,507
|
|
29,042
|
|
Distributions to noncontrolling owners
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(721
|
)
|
(721
|
)
|
Other comprehensive income, net of tax of $(3,573)
|
—
|
|
—
|
|
—
|
|
—
|
|
71,447
|
|
6,052
|
|
77,499
|
|
Common stock-based award activity
|
231,908
|
|
—
|
|
8,160
|
|
—
|
|
—
|
|
—
|
|
8,160
|
|
Balance at March 30, 2018
|
123,477,735
|
|
123
|
|
3,236,334
|
|
876,177
|
|
(508,077
|
)
|
236,687
|
|
3,841,244
|
|
Net income
|
—
|
|
—
|
|
—
|
|
38,457
|
|
—
|
|
3,322
|
|
41,779
|
|
Distributions to noncontrolling owners
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3
|
)
|
(3
|
)
|
Other comprehensive loss, net of tax of $11,718
|
—
|
|
—
|
|
—
|
|
—
|
|
(190,603
|
)
|
(18,840
|
)
|
(209,443
|
)
|
Common stock repurchases
|
(4,604,974
|
)
|
(4
|
)
|
(143,898
|
)
|
—
|
|
—
|
|
—
|
|
(143,902
|
)
|
Common stock-based award activity
|
53,153
|
|
—
|
|
7,765
|
|
—
|
|
—
|
|
—
|
|
7,765
|
|
Balance at June 29, 2018
|
118,925,914
|
|
119
|
|
3,100,201
|
|
914,634
|
|
(698,680
|
)
|
221,166
|
|
3,537,440
|
|
Net income
|
—
|
|
—
|
|
—
|
|
31,310
|
|
—
|
|
3,892
|
|
35,202
|
|
Distributions to noncontrolling owners
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(182
|
)
|
(182
|
)
|
Other comprehensive loss, net of tax of $(2,272)
|
—
|
|
—
|
|
—
|
|
—
|
|
(37,214
|
)
|
(8,416
|
)
|
(45,630
|
)
|
Common stock repurchases
|
(1,844,451
|
)
|
(2
|
)
|
(56,096
|
)
|
—
|
|
—
|
|
—
|
|
(56,098
|
)
|
Common stock-based award activity
|
117,986
|
|
—
|
|
7,590
|
|
—
|
|
—
|
|
—
|
|
7,590
|
|
Balance at September 28, 2018
|
117,199,449
|
|
$
|
117
|
|
$
|
3,051,695
|
|
$
|
945,944
|
|
$
|
(735,894
|
)
|
$
|
216,460
|
|
$
|
3,478,322
|
|
See Notes to Condensed Consolidated Financial Statements.
COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
Net (loss) income
|
$
|
(501,813
|
)
|
|
$
|
106,023
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
Held for sale impairment loss
|
481,000
|
|
|
—
|
|
Depreciation, amortization and other impairment charges
|
190,577
|
|
|
110,597
|
|
Stock-based compensation expense
|
17,005
|
|
|
18,867
|
|
Non-cash interest expense
|
5,674
|
|
|
3,332
|
|
Loss on short-term investments
|
—
|
|
|
10,128
|
|
Deferred income tax benefit
|
(18,673
|
)
|
|
(21,730
|
)
|
Gain on sale of property, plant and equipment
|
(140
|
)
|
|
(8,211
|
)
|
Loss on sale of business
|
—
|
|
|
4,337
|
|
Pension settlement loss
|
77,390
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
Trade receivables, net
|
29,071
|
|
|
(51,722
|
)
|
Inventories, net
|
(54,256
|
)
|
|
(56,951
|
)
|
Accounts payable
|
(98,920
|
)
|
|
6,486
|
|
Income taxes
|
(39,909
|
)
|
|
(12,019
|
)
|
Customer advances and billings in excess of costs incurred
|
33,149
|
|
|
18,970
|
|
Changes in other operating assets and liabilities
|
(54,406
|
)
|
|
(27,299
|
)
|
Net cash provided by operating activities
|
65,749
|
|
|
100,808
|
|
Cash flows from investing activities:
|
|
|
|
Purchases of property, plant and equipment
|
(100,383
|
)
|
|
(40,247
|
)
|
Proceeds from sale of property, plant and equipment
|
7,474
|
|
|
17,758
|
|
Acquisitions, net of cash received
|
(3,136,777
|
)
|
|
(83,846
|
)
|
Sale of short-term investments, net
|
—
|
|
|
139,480
|
|
Proceeds from sale of business, net
|
—
|
|
|
18,626
|
|
Net cash (used in) provided by investing activities
|
(3,229,686
|
)
|
|
51,771
|
|
Cash flows from financing activities:
|
|
|
|
Payments under term credit facility
|
(533,437
|
)
|
|
(93,750
|
)
|
Proceeds from borrowings under notes and term credit facility
|
2,725,000
|
|
|
—
|
|
Proceeds from borrowings on revolving credit facilities and other
|
1,780,085
|
|
|
911,772
|
|
Repayments of borrowings on revolving credit facilities and other
|
(1,136,186
|
)
|
|
(722,573
|
)
|
Payment of debt issuance costs
|
(24,402
|
)
|
|
—
|
|
Proceeds from tangible equity units, net
|
377,814
|
|
|
—
|
|
Proceeds from issuance of common stock, net
|
4,787
|
|
|
4,648
|
|
Payment for noncontrolling interest share repurchase
|
(93,087
|
)
|
|
—
|
|
Payments for common stock repurchases
|
—
|
|
|
(200,000
|
)
|
Other
|
(9,680
|
)
|
|
(1,038
|
)
|
Net cash provided by (used in) financing activities
|
3,090,894
|
|
|
(100,941
|
)
|
Effect of foreign exchange rates on Cash and cash equivalents
|
(5,216
|
)
|
|
(27,757
|
)
|
(Decrease) increase in Cash and cash equivalents
|
(78,259
|
)
|
|
23,881
|
|
Cash and cash equivalents, beginning of period
|
245,019
|
|
|
262,019
|
|
Cash and cash equivalents, end of period
|
$
|
166,760
|
|
|
$
|
285,900
|
|
See Notes to Condensed Consolidated Financial Statements.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Colfax Corporation (the “Company” or “Colfax”) is a leading diversified technology company that provides air and gas handling, fabrication technology, and medical device products and services to customers around the world under the Howden, ESAB, and DJO brands.
On May 15, 2019, the Company entered into a definitive equity and asset purchase agreement (the “Purchase Agreement”) with Granite Holdings US Acquisition Co., a Delaware corporation, and Brillant 3047, GmbH, a company organized under the laws of Germany (collectively, the “Purchaser”), which are affiliates of KPS Capital Partners, LP (“KPS”), pursuant to which the Purchaser agreed to purchase certain subsidiaries and assets comprising Colfax’s Air and Gas Handling business. On September 30, 2019, Colfax completed the sale of its Air and Gas Handling business to the Purchaser for an aggregate purchase price of $1.8 billion, including $1.67 billion of cash paid at closing, subject to certain adjustments pursuant to the Purchase Agreement, and the assumption of certain liabilities and minority interests. Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as a discontinued operation. See Note 3, “Discontinued Operations”, for further information.
On February 22, 2019, Colfax completed the purchase of DJO Global, Inc. (“DJO”) pursuant to the previously disclosed Agreement and Plan of Merger (the “Merger Agreement”), dated November 19, 2018. Colfax paid an aggregate purchase price of $3.15 billion, subject to certain adjustments set forth in the Merger Agreement (the “Purchase Price”). DJO is a global leader in orthopedic solutions, providing orthopedic devices, reconstructive implants, software and services spanning the full continuum of patient care, from injury prevention to rehabilitation.
On December 11, 2017, the Company completed the sale of its Fluid Handling business (“Fluid Handling”). Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Fluid Handling business and the remaining asbestos and environmental activity as a discontinued operation. See Note 3, “Discontinued Operations”, for further information.
The Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements.
The Condensed Consolidated Balance Sheet as of December 31, 2018 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, 2018 (the “2018 Form 10-K”), filed with the SEC on February 21, 2019.
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 at 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.
The results of operations for the three and nine months ended September 27, 2019 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. General economic conditions may, however, impact future seasonal variations.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
2. Recently Issued Accounting Pronouncements
Accounting Guidance Implemented in 2019
|
|
|
|
|
|
Standards Adopted
|
|
Description
|
|
Effective Date
|
ASU 2016-02, Leases (Topic 842)
|
|
The standard requires a lessee to recognize assets and liabilities associated with the rights and obligations attributable to most leases but also recognize expenses similar to current lease accounting. The standard also requires certain qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases, along with additional key information about leasing arrangements. The Company adopted ASU No. 2016-02, “Leases (Topic 842)”, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach without restating prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the standard, which among other things, allowed historical lease classification to be carried forward. Additionally, the Company elected the practical expedient to consolidate less significant non-lease components into the lease component for all asset classes. The Company made an accounting policy election, as permitted by Topic 842 to only record a right-of-use asset and related liability for leases with an initial term in excess of 12 months. The Company recognizes those lease payments in the Consolidated Statement of Operations on a straight-line basis over the lease term. The Company has recognized a right-of-use asset of $160 million, with corresponding related lease liabilities on the Condensed Consolidated Balance Sheet. For more information, refer to Note 10, “Leases”.
|
|
January 1, 2019
|
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
|
|
The standard provides entities the option to reclassify to retained earnings the tax effects resulting from the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) related to items stranded in accumulated other comprehensive income. The guidance was applied retrospectively as of January 1, 2019. As a result of this accounting guidance, $15.4 million of tax benefit formerly booked to Other Comprehensive Income was reclassified to retained earnings.
|
|
January 1, 2019
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
New Accounting Guidance to be Implemented
|
|
|
|
|
|
|
|
Standards Pending Adoption
|
|
Description
|
|
Anticipated Impact
|
|
Effective/Adoption Date
|
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
|
|
The ASU eliminates the probable initial recognition threshold under current GAAP and broadens the information an entity must consider when developing its expected credit loss estimates to include forward-looking information. The standard applies to most financial assets held at amortized costs, as well as certain other instruments. Under the current expected credit loss (CECL) model, entities must estimate losses over the entire contractual term of the asset from the date of initial recognition. In determining expected losses, consideration must be given to historical loss experience, current conditions, and reasonable and supportable forecasts incorporating forward looking information.
|
|
The Company notes that certain financial assets, which are not reserved for currently, are now in the scope of this ASU. The Company has selected a compliant methodology and is in the process of performing a quantitative assessment of the materiality of the adoption of this ASU. The Company does not intend to early adopt this new guidance.
|
|
January 1, 2020
|
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
|
|
The ASU modifies the disclosure requirements for fair value measurements.
|
|
This accounting standard update impacts disclosures only. The Company is currently evaluating the impact of this ASU on its consolidated financial statement disclosures and the timing of adoption.
|
|
January 1, 2020
|
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.
|
|
This accounting standard update impacts disclosures only. The Company is currently evaluating the impact of this ASU on its consolidated financial statement disclosures and the timing of adoption.
|
|
January 1, 2021
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
3. Discontinued Operations
Sale of Air and Gas Handling Business
As discussed previously in Note 1, “General,” the Company entered into the Purchase Agreement to sell its Air and Gas Handling business to the Purchaser, and the sale subsequently closed in the Company’s fiscal fourth quarter on September 30, 2019.
The accounting requirements for reporting a business to be divested as a discontinued operation were met as of the end of the second quarter of 2019. Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as a discontinued operation. The Air and Gas Handling business had revenues of $998.8 million for the nine months ended September 27, 2019 and $1,473.7 million for the year ended December 31, 2018.
The total consideration for the sale was $1.8 billion, including $1.67 billion in cash paid at closing, subject to certain adjustments pursuant to the purchase agreement, and the assumption of certain liabilities and minority interests.
Based on the purchase price and the carrying value of the net assets being sold, the Company recorded an impairment loss of $481 million in the second quarter of 2019, which is included in Loss from discontinued operations, net of taxes in the Condensed Consolidated Statement of Operations. The impairment loss included a $449 million goodwill impairment charge and a $32 million valuation allowance charge on assets held for sale relating to the initial estimated cost to sell the business. An accumulated other comprehensive loss of approximately $350 million associated with the Air and Gas Handling business was included in the determination of the goodwill impairment charge, which is mostly attributable to the recognition of cumulative foreign currency translation effects from the long-term strengthening of the U.S. Dollar.
The Company reduced the valuation allowance by $8.5 million for amounts paid during the third quarter of 2019. As of September 27, 2019, the remaining valuation allowance for the estimated cost to sell the disposal group was $23.5 million. The Company also performed an impairment assessment of the assets held for sale as of September 27, 2019 and concluded there was no further impairment.
In connection with the Purchase Agreement, the Company and KPS entered into various agreements to provide a framework for their relationship after the disposition, including a transition services agreement. The amounts to be billed for future transition services under the above agreements is not expected to be material to the Company’s results of operations.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The key components of Income (loss) from discontinued operations, net of taxes related to the Air and Gas Handling business for the three and nine months ended September 27, 2019 and September 28, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Net sales
|
$
|
338,885
|
|
|
$
|
351,351
|
|
|
$
|
998,793
|
|
|
$
|
1,063,434
|
|
Cost of sales
|
230,692
|
|
|
251,695
|
|
|
689,004
|
|
|
782,232
|
|
Selling, general and administrative expense
|
65,117
|
|
|
65,275
|
|
|
194,562
|
|
|
196,766
|
|
Restructuring and other related charges
|
4,987
|
|
|
9,257
|
|
|
13,354
|
|
|
21,148
|
|
Held for sale impairment loss
|
—
|
|
|
—
|
|
|
481,000
|
|
|
—
|
|
Divestiture-related expense(1)
|
4,481
|
|
|
—
|
|
|
11,692
|
|
|
—
|
|
Operating income (loss)
|
33,608
|
|
|
25,124
|
|
|
(390,819
|
)
|
|
63,288
|
|
Interest expense (income)(2)
|
12,779
|
|
|
(1,726
|
)
|
|
38,899
|
|
|
(4,302
|
)
|
Pension settlement loss
|
—
|
|
|
—
|
|
|
43,774
|
|
|
—
|
|
Income (loss) from discontinued operations before income taxes
|
20,829
|
|
|
26,850
|
|
|
(473,492
|
)
|
|
67,590
|
|
Income tax expense
|
9,809
|
|
|
5,610
|
|
|
5,387
|
|
|
15,566
|
|
Income (loss) from discontinued operations, net of taxes
|
$
|
11,020
|
|
|
$
|
21,240
|
|
|
$
|
(478,879
|
)
|
|
$
|
52,024
|
|
(1) Primarily related to professional and consulting fees associated with the divestiture including seller due diligence and preparation of regulatory filings, as well as other disposition-related activities.
(2) The Company reclassified the portion of its interest expense associated with its Term Loan Facilities that is associated with the mandatory repayment using net proceeds from the sale of the business.
Total income attributable to noncontrolling interest related to the Air and Gas Handling business, net of taxes was $1.5 million, $3.5 million, $5.9 million, and $10.0 million for the three months ended September 27, 2019 and September 28, 2018 and the nine months ended September 27, 2019 and September 28, 2018, respectively.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The following table summarizes the major classes of assets and liabilities held for sale that were included in the Company’s consolidated balance sheets as of September 27, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
ASSETS HELD FOR SALE
|
|
|
|
Cash and cash equivalents
|
$
|
39,695
|
|
|
$
|
167,866
|
|
Trade receivables, less allowance for doubtful accounts of $8,783 and $8,308
|
520,379
|
|
|
602,830
|
|
Inventories, net
|
155,877
|
|
|
136,880
|
|
Other current assets
|
61,079
|
|
|
89,668
|
|
Property, plant, and equipment, net
|
184,035
|
|
|
176,189
|
|
Goodwill
|
599,544
|
|
|
1,078,785
|
|
Intangible assets, net
|
365,728
|
|
|
384,613
|
|
Other assets
|
110,508
|
|
|
101,118
|
|
Valuation allowance on assets held for sale
|
(23,500
|
)
|
|
—
|
|
Total assets held for sale
|
2,013,345
|
|
|
2,737,949
|
|
Less: current portion
|
2,013,345
|
|
|
997,244
|
|
Total assets held for sale, less current portion
|
$
|
—
|
|
|
$
|
1,740,705
|
|
|
|
|
|
LIABILITIES HELD FOR SALE
|
|
|
|
Current portion of long-term debt
|
$
|
1,137
|
|
|
$
|
1,314
|
|
Accounts payable
|
256,955
|
|
|
349,434
|
|
Customer advances and billings in excess of costs incurred
|
158,324
|
|
|
130,480
|
|
Accrued liabilities
|
140,354
|
|
|
131,020
|
|
Other liabilities
|
94,948
|
|
|
95,395
|
|
Total liabilities held for sale
|
651,718
|
|
|
707,643
|
|
Less: current portion
|
651,718
|
|
|
612,248
|
|
Total liabilities held for sale, less current portion
|
$
|
—
|
|
|
$
|
95,395
|
|
Cash provided by operating activities of discontinued operations related to the sale of the Air and Gas Handling business for the nine months ended September 27, 2019 and September 28, 2018 was $18.0 million and $71.7 million, respectively. Cash used in investing activities of discontinued operations related to the sale of the Air and Gas Handling business was $27.5 million and $35.3 million for the nine months ended September 27, 2019 and September 28, 2018, respectively.
Sale of Fluid Handling Business
The Company sold its Fluid Handling business to CIRCOR International, Inc. (“CIRCOR”) on December 11, 2017. After certain post-closing adjustments, total consideration for the sale was $860.6 million, consisting of $551.0 million of cash, 3.3 million shares of CIRCOR common stock (“CIRCOR Shares”), and assumption of $168.0 million of net retirement liabilities. All cash consideration was collected as of June 29, 2018.
During the second quarter of 2018, the Company sold its CIRCOR Shares for $139.5 million, net of $5.8 million of underwriters' fees. The related loss of $10.1 million on the disposition of the shares was recorded in Loss on short-term investments in the Consolidated Statements of Operations for the nine months ended September 28, 2018 and was reflected in the Company’s continuing operations.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The key components of Loss from discontinued operations related to the Fluid Handling business for the three and nine months ended September 27, 2019 and September 28, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Selling, general and administrative expense(1)
|
$
|
2,637
|
|
|
$
|
2,668
|
|
|
$
|
7,645
|
|
|
$
|
7,262
|
|
Divestiture-related expense, net(2)
|
—
|
|
|
1,013
|
|
|
—
|
|
|
3,371
|
|
Operating loss
|
(2,637
|
)
|
|
(3,681
|
)
|
|
(7,645
|
)
|
|
(10,633
|
)
|
Loss on disposal
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,337
|
)
|
Loss from discontinued operations before income taxes
|
(2,637
|
)
|
|
(3,681
|
)
|
|
(7,645
|
)
|
|
(14,970
|
)
|
Income tax (benefit) expense(3)
|
(641
|
)
|
|
(985
|
)
|
|
(259
|
)
|
|
16,292
|
|
Loss from discontinued operations, net of taxes
|
$
|
(1,996
|
)
|
|
$
|
(2,696
|
)
|
|
$
|
(7,386
|
)
|
|
$
|
(31,262
|
)
|
(1) Pursuant to the purchase agreement, the Company retained its asbestos-related contingencies and insurance coverages. However, as the Company did not retain an interest in the ongoing operations of the business subject to the contingencies, the Company has classified asbestos-related activity in its Condensed Consolidated Statements of Operations as part of Loss from discontinued operations. See Note 15, “Commitments and Contingencies” for further information.
(2) Primarily related to professional and consulting fees associated with the divestiture including due diligence and preparation of regulatory filings, as well as employee benefit arrangements and other disposition-related activities.
(3) Income tax expense for the nine months ended September 28, 2018 includes incremental tax expense due to changes in the estimated gain allocation by jurisdiction which was recognized during the three months ended June 29, 2018.
The Company did not have material cash flows for discontinued operations related to the sale of the Fluid Handling business during the nine months ended September 27, 2019 and September 28, 2018.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
4. Acquisition
On February 22, 2019, Colfax completed the purchase of DJO Global, Inc. (“DJO”) pursuant to the previously disclosed Agreement and Plan of Merger (the “Merger Agreement”), dated November 19, 2018. Colfax paid an aggregate net purchase price of $3.15 billion, subject to certain adjustments set forth in the Merger Agreement (the “Purchase Price”). See Note 8, “Equity” and Note 11, “Debt” for a discussion of the respective financing components of the DJO acquisition.
DJO is a global leader in orthopedic solutions, providing orthopedic devices, reconstructive implants, software and services spanning the full continuum of patient care, from injury prevention to rehabilitation. DJO has approximately 5,000 employees across 18 locations around the world. The acquisition is expected to evolve the Company to higher margins, faster growth, and lower cyclicality, while providing opportunities for significant bolt-on and adjacent acquisitions over time. The value included as Goodwill for this acquisition is reflective of these expected benefits in conjunction with anticipated synergies as the Company uses Colfax Business System (“CBS”) to drive further operating improvement, margin expansion, and long-term growth. CBS is the Company’s business management system, combining a comprehensive set of tools and repeatable, teachable processes, that the Company uses to create superior value for its customers, shareholders and associates.
During the three and nine months ended September 27, 2019, the Company incurred $0.7 million and $56.7 million, respectively, of advisory, legal, audit, valuation and other professional service fees in connection with the DJO acquisition, which are included in Selling, general and administrative expense in the Condensed Consolidated Statement of Operations. As of September 27, 2019, there was $0.8 million related to these expenses included in Accrued liabilities in the Condensed Consolidated Balance Sheet.
The DJO acquisition was accounted for using the acquisition method of accounting and accordingly, the Condensed Consolidated Financial Statements include the financial position and results of operations from the date of acquisition. The following unaudited proforma financial information presents Colfax’s consolidated financial information assuming the acquisition had taken place on January 1, 2018. These amounts are presented in accordance with GAAP, consistent with the Company’s accounting policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(Unaudited, in thousands)
|
Net sales
|
$
|
846,519
|
|
|
$
|
818,073
|
|
|
$
|
2,608,251
|
|
|
$
|
2,509,669
|
|
Net income (loss) from continuing operations attributable to Colfax Corporation
|
7,676
|
|
|
(3,025
|
)
|
|
72,857
|
|
|
39,582
|
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The following table summarizes the Company’s current estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition. These amounts, including inventories, deferred taxes, intangible assets, useful lives of the intangible assets, and property, plant and equipment, are determined based upon certain valuations and studies that have yet to be finalized. Accordingly, the assets acquired and liabilities assumed, as detailed below, are subject to adjustment once the detailed analyses are completed, which could be material. Substantially all of the Goodwill recognized is not expected to be deductible for income tax purposes.
|
|
|
|
|
|
February 22, 2019
|
|
(In thousands)
|
Trade receivables
|
$
|
160,234
|
|
Inventories
|
208,619
|
|
Property, plant and equipment
|
170,601
|
|
Goodwill
|
1,301,451
|
|
Intangible assets
|
1,737,000
|
|
Accounts payable
|
(108,540
|
)
|
Other assets and liabilities, net
|
(337,402
|
)
|
Total
|
3,131,963
|
|
Less: net assets attributable to noncontrolling interest
|
(1,861
|
)
|
Consideration, net of cash acquired
|
$
|
3,130,102
|
|
The following table summarizes preliminary Intangible assets acquired, excluding Goodwill, as of February 22, 2019:
|
|
|
|
|
|
|
|
Intangible
Asset
|
|
Weighted-Average Amortization Period
|
|
(In thousands)
|
|
(Years)
|
Trademarks
|
$
|
479,000
|
|
|
16
|
Customer relationships
|
954,000
|
|
|
14
|
Acquired technology
|
304,000
|
|
|
12
|
Intangible assets
|
$
|
1,737,000
|
|
|
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
5. Revenue
The Company’s Fabrication Technology segment formulates, develops, manufactures and supplies consumable products and equipment. Substantially all revenue from the Fabrication Technology business is recognized at a point in time. The Company disaggregates its Fabrication Technology revenue into the following product groups:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Equipment
|
$
|
162,531
|
|
|
$
|
143,130
|
|
|
$
|
525,148
|
|
|
$
|
441,994
|
|
Consumables
|
376,697
|
|
|
380,892
|
|
|
1,167,199
|
|
|
1,176,158
|
|
Total
|
$
|
539,228
|
|
|
$
|
524,022
|
|
|
$
|
1,692,347
|
|
|
$
|
1,618,152
|
|
Contracts with customers in the consumables product grouping generally have a shorter fulfillment period than equipment contracts.
The Company’s Medical Technology segment provides products and services spanning the full continuum of patient care, from injury prevention to rehabilitation. The Company’s Medical Technology sales are primarily derived from three sales channels including dealers and distributors, insurance, and direct to consumers and hospitals. Substantially all its revenue from the Medical Technology business is recognized at a point in time. The Company disaggregates its Medical Technology revenue into the following product groups:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 27, 2019
|
|
Nine Months Ended September 27, 2019
|
|
(In thousands)
|
Prevention & Rehabilitation
|
$
|
221,314
|
|
|
$
|
533,986
|
|
Reconstructive
|
85,977
|
|
|
212,752
|
|
Total
|
$
|
307,291
|
|
|
$
|
746,738
|
|
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 September 27, 2019 is immaterial.
The nature of the Company’s contracts gives rise to certain types of variable consideration, including rebates, implicit price concessions, and other discounts. The Company includes estimated amounts of variable consideration in the transaction price to the extent that it is probable there will not be a significant reversal of revenue.
In some circumstances for both over-time and point-in-time contracts, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 2018 and 2017, total contract liabilities were $13.0 million and $17.3 million, respectively. During the three and nine months ended September 27, 2019, revenue recognized that was included in the contract liability balance at the beginning of the year was $4.8 million and $13.0 million, respectively. During the three and nine months ended September 28, 2018, revenue recognized that was included in the contract liability balance at the beginning of the year was $0.9 million and $17.3 million, respectively. As of September 27, 2019 and September 28, 2018, total contract liabilities were $15.6 million and $19.5 million, respectively.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
6. Net Income (Loss) Per Share from Continuing Operations
Net income (loss) per share from continuing operations was computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands, except share data)
|
Computation of Net income (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
|
$
|
2,901
|
|
|
$
|
16,231
|
|
|
$
|
(18,636
|
)
|
|
$
|
83,520
|
|
Weighted-average shares of Common stock outstanding - basic
|
136,121,017
|
|
|
117,709,725
|
|
|
135,440,566
|
|
|
121,283,339
|
|
Net income (loss) per share from continuing operations - basic
|
$
|
0.02
|
|
|
$
|
0.14
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.69
|
|
Computation of Net income (loss) per share from continuing operations - diluted:
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
|
$
|
2,901
|
|
|
$
|
16,231
|
|
|
$
|
(18,636
|
)
|
|
$
|
83,520
|
|
Weighted-average shares of Common stock outstanding - basic
|
136,121,017
|
|
|
117,709,725
|
|
|
135,440,566
|
|
|
121,283,339
|
|
Net effect of potentially dilutive securities - stock options and restricted stock units
|
929,143
|
|
|
747,211
|
|
|
—
|
|
|
518,179
|
|
Weighted-average shares of Common stock outstanding - diluted
|
137,050,160
|
|
|
118,456,936
|
|
|
135,440,566
|
|
|
121,801,518
|
|
Net income (loss) per share from continuing operations - diluted
|
$
|
0.02
|
|
|
$
|
0.14
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.69
|
|
(1) Net income (loss) from continuing operations attributable to Colfax Corporation for the respective periods is calculated using Net income (loss) from continuing operations less the continuing operations component of the income attributable to noncontrolling interest, net of taxes of $0.9 million and $3.1 million for the three and nine months ended September 27, 2019 and $0.4 million and $1.7 million for the three and nine months ended September 28, 2018, respectively.
For the three and nine months ended September 27, 2019, the weighted-average shares of Common stock outstanding - basic includes the impact of 18.4 million shares related to the issuance of Colfax’s tangible equity units. See Note 8, “Equity” for details.
The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three and nine months ended September 27, 2019 excludes 4.4 million and 4.6 million, respectively, of outstanding stock-based compensation awards as their inclusion would be anti-dilutive.
The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the three and nine months ended September 28, 2018 excludes 3.5 million 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
During the three and nine months ended September 27, 2019, Income (loss) from continuing operations before income taxes was $2.4 million and $(8.7) million, respectively, while the income tax (benefit) provision was $(1.4) million and $6.8 million, respectively. The effective tax rates were (56.0)% and (78.5)% for the three and nine months ended September 27, 2019, respectively. The effective tax rate for the three months ended September 27, 2019 differed from the 2019 U.S. federal statutory rate of 21% mainly due to a discrete tax benefit associated with the enactment of tax law changes in a European jurisdiction offset in part by losses in certain jurisdictions where a tax benefit is not expected to be recognized in 2019, and non-deductible deal costs. The effective tax rate for the nine months ended September 27, 2019 differed from the 2019 U.S. federal statutory rate of 21% mainly due to losses in certain jurisdictions where a tax benefit is not expected to be recognized in 2019, $16.7 million of non-deductible deal costs, and an aggregate $9.2 million unfavorable discrete U.S. income tax expense due to a change in valuation allowance and state tax expense as a result of the DJO acquisition, offset in part by a discrete tax benefit associated with the enactment of tax law changes in a European jurisdiction.
During the three and nine months ended September 28, 2018, Income from continuing operations before income taxes was $23.4 million and $81.2 million, respectively, while the income tax provision (benefit) was $6.8 million and $(4.1) million, respectively. The effective tax rates were 28.9% and (5.0)% for the three and nine months ended September 28, 2018, respectively. The effective tax rate for the three months ended September 28, 2018 differs from the 2018 U.S. federal statutory rate of 21% mainly due to losses in certain tax jurisdictions where a tax benefit is not expected to be realized in 2018, the net impact of foreign earnings taxed at a higher rate offset in part by the expected realization of U.S. tax credits. The effective tax rate for the nine months ended September 28, 2018 differs from the 2018 U.S. statutory rate of 21% mainly due to the effective settlement of uncertain tax positions, an enacted tax rate change in a foreign jurisdiction, valuation allowance reversals and the expected realization of certain U.S. tax credits, offset in part by losses in certain jurisdictions where a tax benefit is not expected to be recognized in 2018. The Provision for income taxes for the three and nine months ended September 28, 2018 includes $4.4 million and $29.8 million of net discrete tax benefits, respectively.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
8. Equity
Share Repurchase Program
On February 12, 2018, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions. The Board of Directors increased the repurchase authorization by an additional $100 million on June 6, 2018. On July 19, 2018, the Board of Directors increased the repurchase authorization by another $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 were no repurchases made during the nine months ended September 27, 2019. As of September 27, 2019, the remaining stock repurchase authorization provided by the Company’s Board of Directors was $100.0 million.
Accumulated Other Comprehensive Loss
The following tables present the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the nine months ended September 27, 2019 and September 28, 2018. All amounts are net of tax and noncontrolling interest, if any.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss Components
|
|
Net Unrecognized Pension and Other Post-Retirement Benefit Cost
|
|
Foreign Currency Translation Adjustment
|
|
Unrealized Gain on Hedging Activities
|
|
Total
|
|
(In thousands)
|
Balance at January 1, 2019
|
$
|
(80,794
|
)
|
|
$
|
(752,989
|
)
|
|
$
|
38,238
|
|
|
$
|
(795,545
|
)
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
859
|
|
|
(120,722
|
)
|
|
(304
|
)
|
|
(120,167
|
)
|
Loss on long-term intra-entity foreign currency transactions
|
—
|
|
|
(4,197
|
)
|
|
—
|
|
|
(4,197
|
)
|
Gain on net investment hedges
|
—
|
|
|
—
|
|
|
14,258
|
|
|
14,258
|
|
Unrealized gain on cash flow hedges
|
—
|
|
|
—
|
|
|
167
|
|
|
167
|
|
Other comprehensive income (loss) before reclassifications
|
859
|
|
|
(124,919
|
)
|
|
14,121
|
|
|
(109,939
|
)
|
Amounts reclassified from Accumulated other comprehensive loss (1)
|
(22,704
|
)
|
|
—
|
|
|
—
|
|
|
(22,704
|
)
|
Noncontrolling interest share repurchase
|
—
|
|
|
(20,962
|
)
|
|
—
|
|
|
(20,962
|
)
|
Net Other comprehensive (loss) income
|
(21,845
|
)
|
|
(145,881
|
)
|
|
14,121
|
|
|
(153,605
|
)
|
Balance at September 27, 2019
|
$
|
(102,639
|
)
|
|
$
|
(898,870
|
)
|
|
$
|
52,359
|
|
|
$
|
(949,150
|
)
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss Components
|
|
Net Unrecognized Pension and Other Post-Retirement Benefit Cost
|
|
Foreign Currency Translation Adjustment
|
|
Unrealized Gain on Hedging Activities
|
|
Total
|
|
(In thousands)
|
Balance at January 1, 2018
|
$
|
(84,338
|
)
|
|
$
|
(525,324
|
)
|
|
$
|
30,138
|
|
|
$
|
(579,524
|
)
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
835
|
|
|
(173,041
|
)
|
|
(466
|
)
|
|
(172,672
|
)
|
Gain on long-term intra-entity foreign currency transactions
|
—
|
|
|
6,777
|
|
|
—
|
|
|
6,777
|
|
Gain on net investment hedges
|
—
|
|
|
—
|
|
|
9,210
|
|
|
9,210
|
|
Unrealized loss on cash flow hedges
|
—
|
|
|
—
|
|
|
(2,191
|
)
|
|
(2,191
|
)
|
Other comprehensive income (loss) before reclassifications
|
835
|
|
|
(166,264
|
)
|
|
6,553
|
|
|
(158,876
|
)
|
Amounts reclassified from Accumulated other comprehensive loss (1)
|
2,506
|
|
|
—
|
|
|
—
|
|
|
2,506
|
|
Net Other comprehensive income (loss)
|
3,341
|
|
|
(166,264
|
)
|
|
6,553
|
|
|
(156,370
|
)
|
Balance at September 28, 2018
|
$
|
(80,997
|
)
|
|
$
|
(691,588
|
)
|
|
$
|
36,691
|
|
|
$
|
(735,894
|
)
|
(1) Included in the computation of net periodic benefit cost. See Note 13, “Net Periodic Benefit Cost - Defined Benefit Plans” for additional details.
Tangible equity unit (“TEU”) offering
On January 11, 2019, the Company issued $460 million in tangible equity units. The Company offered 4 million of its 5.75% tangible equity units at the stated amount of $100 per unit. An option to purchase up to an additional 600,000 tangible equity units at the stated amount of $100 per unit was exercised in full at settlement. Total cash of $447.7 million was received upon closing.
The proceeds from the issuance of the TEUs were allocated initially to equity and debt based on the relative fair value of the respective components of each TEU as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEU prepaid stock purchase contracts
|
|
TEU amortizing notes
|
|
Total
|
|
(In millions, except per unit amounts)
|
Fair value per unit
|
$
|
84.39
|
|
|
$
|
15.61
|
|
|
$
|
100.00
|
|
|
|
|
|
|
|
Gross proceeds
|
$
|
388.2
|
|
|
$
|
71.8
|
|
|
$
|
460.0
|
|
Less: Issuance costs
|
10.4
|
|
|
1.9
|
|
|
12.3
|
|
Net proceeds
|
$
|
377.8
|
|
|
$
|
69.9
|
|
|
$
|
447.7
|
|
The $377.8 million fair value of the prepaid stock purchase contracts was recorded in Additional paid-in capital in the Condensed Consolidated Balance Sheets. The fair value of the $69.9 million of TEU amortizing notes due January 2022 has both a short-term and a long-term component. Upon the issuance of the TEUs, $47.3 million was initially recorded in Long-term debt, less current portion, and $22.6 million was initially recorded in Current portion of long-term debt in the Condensed Consolidated Balance Sheets. The Company deferred certain debt issuance costs associated with the debt component of the TEUs. These amounts offset the debt liability balance in the Condensed Consolidated Balance Sheets and are being amortized over its term.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
TEU prepaid stock purchase contracts
Unless previously settled at the holder’s option, for each purchase contract the Company will deliver to holders on January 15, 2022 (subject to postponement in certain limited circumstances, the “mandatory settlement date”) a number of shares of common stock. The number of shares of common stock issuable upon settlement of each purchase contract (the “settlement rate”) will be determined using the arithmetic average of the volume average weighted price for the 20 consecutive trading days beginning on, and including, the 21st scheduled trading day immediately preceding January 15, 2022 (“the Applicable Market Value”) with reference to the following settlement rates:
|
|
•
|
if the Applicable Market Value of the common stock is greater than the threshold appreciation price of $25.00, then 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, then 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, then the holder will receive 4.8054 shares of common stock for each purchase contract (the “maximum settlement rate”).
|
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 a final installment payment date of January 15, 2022. On each January 15, April 15, July 15 and October 15, commencing on April 15, 2019, the Company pays equal quarterly cash installments of $1.4375 per TEU amortizing note (except for the April 15, 2019 installment payment, which was $1.5014 per TEU amortizing note), which will constitute a payment of interest and a partial repayment of principal, and which cash payment in the aggregate per year will be equivalent to 5.75% per year with respect to the $100 stated amount per unit. The Company has paid $13.5 million representing a partial payment of principal and interest on the TEU amortizing notes in 2019. 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.
Earnings per share
Unless the 4.6 million stock purchase contracts are redeemed by the Company or settled earlier at the unit holder’s option, they are mandatorily convertible into shares of Colfax common stock at not less than 4.0 shares per purchase contract or more than 4.8054 shares per purchase contract on January 15, 2022. This corresponds to not less than 18.4 million shares and not more than 22.1 million shares at the maximum. The 18.4 million minimum shares are included in the calculation of weighted-average shares of Common stock outstanding - basic. The difference between the minimum and maximum shares represents potentially dilutive securities. The Company includes them in its calculation of weighted-average shares of Common stock outstanding - diluted on a pro rata basis to the extent the average Applicable Market Value is higher than the reference price but is less than the conversion price.
Repurchase of noncontrolling interest shares
During the first quarter of 2019, a South Africa consolidated subsidiary of the Company repurchased substantially all of the noncontrolling interest shares from existing shareholders under a general offer. During the second quarter of 2019, the Company completed the repurchase of the remaining noncontrolling interest shares. As a part of the Air and Gas Handling business, this subsidiary is reported within held for sale and its results of operations are included in discontinued operations for all periods presented.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
9. Inventories, Net
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
Raw materials
|
$
|
121,930
|
|
|
$
|
120,383
|
|
Work in process
|
41,777
|
|
|
27,834
|
|
Finished goods
|
482,631
|
|
|
245,571
|
|
|
646,338
|
|
|
393,788
|
|
Less: allowance for excess, slow-moving and obsolete inventory
|
(61,987
|
)
|
|
(34,133
|
)
|
Inventories, net
|
$
|
584,351
|
|
|
$
|
359,655
|
|
10. Leases
The Company leases certain office spaces, warehouses, facilities, vehicles, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include renewal options, which can extend the lease term into the future. The Company determines the lease term by assuming options that are reasonably certain of being renewed will be exercised. Certain of the Company’s leases include rental payments adjusted for inflation. The right-of-use lease asset and lease liability are recorded on the Condensed Consolidated Balance Sheet, with the current lease liability being included in Accrued liabilities. Operating lease expense approximated cash paid for leases during the nine months ended September 27, 2019.
Quantitative information regarding the Company’s leases is as follows:
|
|
|
|
|
|
Nine Months Ended September 27, 2019
|
|
(In thousands)
|
Operating lease expense
|
$
|
28,340
|
|
|
|
|
As of September 27, 2019
|
Future lease payments by year:
|
(In thousands)
|
2019
|
$
|
10,468
|
|
2020
|
38,244
|
|
2021
|
30,100
|
|
2022
|
22,416
|
|
2023
|
18,584
|
|
Thereafter
|
65,238
|
|
Total
|
185,050
|
|
Less: present value discount
|
(25,051
|
)
|
Present value of lease liabilities
|
$
|
159,999
|
|
|
|
Weighted-average remaining lease term (in years):
|
|
Operating leases
|
8.1
|
|
Weighted-average discount rate:
|
|
Operating leases
|
3.5
|
%
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
11. Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
Term loans
|
$
|
1,675,826
|
|
|
$
|
485,959
|
|
Euro senior notes
|
379,030
|
|
|
395,420
|
|
TEU amortizing notes
|
59,452
|
|
|
—
|
|
2024 and 2026 notes
|
988,715
|
|
|
—
|
|
Revolving credit facilities and other
|
928,996
|
|
|
316,049
|
|
Total debt
|
4,032,019
|
|
|
1,197,428
|
|
Less: current portion
|
(29,654
|
)
|
|
(5,020
|
)
|
Long-term debt
|
$
|
4,002,365
|
|
|
$
|
1,192,408
|
|
Term Loan Facilities and Revolving Credit Facility
On December 17, 2018, the Company entered into a credit agreement (the “Credit Facility”) by and among the Company, as the borrower, certain U.S. subsidiaries of the Company identified therein, as guarantors, each of the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Credit Suisse Loan Funding LLC, as syndication agent, and the co-documentation agents named therein. The Credit Facility consists of a revolving credit facility which totals $1.3 billion in commitments (the “Revolver”) and a Term A-1 loan in an aggregate amount of $1.2 billion (the “Five Year Term Loan”), each of which matures in five years, and a Term A-2 loan in an aggregate amount of $500 million, which matures in two years (the “Two Year Term Loan” and, together with the Five Year Term Loan, the “Term Loan Facilities”). The Revolver contains a $50 million swing line loan sub-facility.
The initial credit extensions under the Credit Facility were only made available to the Company on the date of consummation of the DJO acquisition, which occurred on February 22, 2019. See Note 4, “Acquisition” for details.
The Term Loan Facilities and the Revolver bear interest, at the Company’s election, at either the base rate (as defined in the Credit Facility) or the Eurocurrency rate (as defined in the Credit Facility), in each case, plus the applicable interest rate margin. The Term Loan Facilities and the Revolver initially bear interest either at the Eurocurrency rate plus 1.75% or at the base rate plus 0.75%, and in future quarters will bear interest either at the Eurocurrency rate or the base rate plus the applicable interest rate margin based upon either, whichever results in the lower applicable interest rate margin (subject to certain exceptions), the Company’s total leverage ratio and the Company’s corporate family credit rating as determined by Standard & Poor’s and Moody’s (ranging from 1.25% to 2.00%, in the case of the Eurocurrency margin, and 0.25% to 1.00%, in the case of the base rate margin). Each swing line loan denominated in dollars bears interest at the base rate plus the applicable interest rate margin and each swing line loan denominated in any other currency available under the Credit Facility bears interest at the Eurocurrency rate plus the applicable interest rate margin.
Certain of the Company’s U.S. subsidiaries agreed to guarantee the Company’s obligations under the Credit Facility.
The Credit Facility contains customary covenants limiting the ability of Colfax and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends. In addition, the Credit Facility contains financial covenants requiring Colfax to maintain (subject to certain exceptions) (i) a maximum total leverage ratio, calculated as Consolidated Total Debt (as defined in the Credit Facility) divided by EBITDA (as defined in the Credit Facility) of, initially, 6.00:1.00, with a step-down to 5.50:1.00 at the end of the second and third fiscal quarters following the consummation of the DJO acquisition, 4.75:1.00 at the end of the fourth and fifth fiscal quarters, 4.25:1.00 at the end of the sixth fiscal quarter, 4.00:1.00 at the end of the seventh fiscal quarter, and 3.50:1.00 at the end of the eighth fiscal quarter, and (ii) a minimum interest coverage ratio of 3.00:1:00. The Credit Facility also contains a “springing” collateral provision, which will require the obligations under the Credit Facility to be secured by substantially all personal property of Colfax and its U.S. subsidiaries, subject to customary exceptions, within an agreed period of time if Colfax’s total leverage ratio under the Credit Facility is greater than or equal to 3.75:1.00 for two consecutive fiscal quarters following the fourth fiscal quarter ending after consummation of the DJO acquisition. The Credit Facility contains various events of default (including failure to comply with the covenants under the Credit Facility and related agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Term Loan Facilities and the Revolver. As of September 27, 2019, the Company is in compliance with the covenants under the Credit Facility.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The proceeds of the loans under the Credit Facility were used by the Company to repay in full its preexisting credit agreement (the “DB Credit Agreement”) by and among the Company, as the borrower, certain U.S. subsidiaries of the Company identified therein, as guarantors, each of the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent, swing line lender and global coordinator, as well as to pay a portion of the consideration paid by the Company in connection with the DJO acquisition and other related fees.
In conjunction with the Credit Facility, the Company recorded a charge to Interest expense, net in the Condensed Consolidated Statement of Operations for the nine months ended September 27, 2019 of $0.8 million to write-off certain original issue discount and deferred financing fees associated with the DB Credit Agreement. In association with the Credit Facility, the Company recorded an aggregate $12.8 million in deferred financing fees, which is being accreted to Interest expense, net primarily using the effective interest method, over the life of the Credit Facility.
As of September 27, 2019, the weighted-average interest rate of borrowings under the Credit Facility was 4.22%, excluding accretion of original issue discount and deferred financing fees, and there was $415.0 million available on the Revolver.
The Credit Facility also requires, under certain circumstances, any funds received as net proceeds from the sale of certain of the Company’s assets or subsidiaries be used to repay outstanding balances on the Term Loan Facilities, as well as outstanding balances under the Revolver. Accordingly, a corresponding amount of interest associated with the Term Loan Facilities and and Revolver has been included in Loss from discontinued operations, net of taxes on the Condensed Consolidated Statement of Operations. On September 25, 2019, the Company entered into Amendment No. 1 to the Credit Facility, which clarified the pre-payment steps required to be taken with the use of any such net proceeds. Subsequent to the end of the quarter on September 30, 2019, upon the completion of the sale of its Air and Gas Handling business, the Company used $1.65 billion of the proceeds to repay a portion of the Term Loan Facilities and the Revolver.
Euro Senior Notes
On April 19, 2017, the Company issued senior unsecured notes with an aggregate principal amount of €350 million (the “Euro Senior Notes”). The Euro Senior Notes are due in April 2025 and have an interest rate of 3.25%. The proceeds from the Euro Senior Notes offering were used to repay borrowings under the DB Credit Agreement and bilateral credit facilities totaling €283.5 million, as well as for general corporate purposes, and are guaranteed by certain of the Company’s domestic subsidiaries (the "Guarantees"). In conjunction with the issuance, the Company recorded $6.0 million of deferred financing fees. The Euro Senior Notes and the Guarantees have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any other jurisdiction.
TEU Amortizing Notes
On January 11, 2019, the Company issued $460 million in tangible equity units. The Company offered 4 million of its 5.75% tangible equity units at the stated amount of $100 per unit. An option to purchase up to an additional 600,000 tangible equity units at the stated amount of $100 per unit was exercised in full at settlement. Total cash of $447.7 million was received upon closing, comprised of $377.8 million TEU prepaid stock purchase contracts and $69.9 million of TEU amortizing notes due January 2022. The proceeds were used to finance a portion of the purchase price for the DJO acquisition and for general corporate purposes. For more information, refer to Note 8, “Equity.”
2024 Notes and 2026 Notes
On February 5, 2019, two tranches of senior notes with aggregate principal amounts of $600 million (the “2024 Notes”) and $400 million (the “2026 Notes”) were issued by CFX Escrow Corporation, an unaffiliated special purpose finance entity established to issue the notes and incorporated in the State of Delaware, to finance a portion of the DJO acquisition. The 2024 Notes are due on February 15, 2024 and have an interest rate of 6.0%. The 2026 Notes are due on February 15, 2026 and have an interest rate of 6.375%. Upon closing of the DJO acquisition, the Company assumed all of CFX Escrow Corporation’s obligations under the 2024 Notes and 2026 Notes. Each tranche of notes is guaranteed by certain of the Company’s domestic subsidiaries.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Other Indebtedness
In addition to the debt agreements discussed above, the Company is party to various bilateral credit facilities with a borrowing capacity of $267.4 million. As of September 27, 2019, outstanding borrowings under these facilities were $35.0 million, and had a weighted average borrowing rate of 3.75%.
Additionally, as discussed in Note 8, “Equity”, the Company repurchased repurchased substantially all of the noncontrolling interest shares of its South Africa consolidated subsidiary during the first quarter of 2019. During the second quarter of 2019, the Company completed the repurchase of the remaining noncontrolling interest shares. Based on local requirements, the Company was required to enter into a debt arrangement to enact the repurchases. The outstanding loan balance associated with this transaction was repaid in the the second quarter of 2019. As of September 27, 2019, there is no outstanding balance on the Company’s Condensed Consolidated Balance Sheets related to this debt arrangement.
The continuing operations of the Company is also party to letter of credit facilities with total capacity of $498.2 million. Total letters of credit of $57.8 million were outstanding as of September 27, 2019.
In total, the Company had deferred financing fees of $26.7 million included in its Condensed Consolidated Balance Sheet as of September 27, 2019, which will be charged to Interest expense, net, primarily using the effective interest method, over the life of the applicable debt agreements.
12. Accrued Liabilities
Accrued liabilities in the Condensed Consolidated Balance Sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
Accrued compensation and related benefits
|
$
|
98,623
|
|
|
$
|
72,216
|
|
Accrued taxes
|
49,325
|
|
|
55,554
|
|
Accrued asbestos-related liability
|
63,339
|
|
|
56,045
|
|
Warranty liability - current portion
|
15,899
|
|
|
12,312
|
|
Accrued restructuring liability - current portion
|
7,857
|
|
|
5,475
|
|
Accrued third-party commissions
|
27,607
|
|
|
15,765
|
|
Lease liability - current portion
|
36,761
|
|
|
—
|
|
Accrued interest
|
14,551
|
|
|
2,956
|
|
Other
|
117,371
|
|
|
53,694
|
|
Accrued liabilities
|
$
|
431,333
|
|
|
$
|
274,017
|
|
Warranty Liability
The activity in the Company’s warranty liability consisted of the following:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Warranty liability, beginning of period
|
$
|
12,312
|
|
|
$
|
10,949
|
|
Accrued warranty expense
|
5,456
|
|
|
5,456
|
|
Changes in estimates related to pre-existing warranties
|
1,256
|
|
|
1,171
|
|
Cost of warranty service work performed
|
(7,783
|
)
|
|
(5,900
|
)
|
Acquisition-related liability
|
5,356
|
|
|
—
|
|
Foreign exchange translation effect
|
(427
|
)
|
|
(478
|
)
|
Warranty liability, end of period
|
$
|
16,170
|
|
|
$
|
11,198
|
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Accrued Restructuring Liability
The Company’s restructuring programs include a series of actions to reduce the structural costs of the Company. A summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Condensed Consolidated Balance Sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 27, 2019
|
|
Balance at Beginning of Period
|
|
Acquisitions
|
|
Provisions
|
|
Payments
|
|
Foreign Currency Translation
|
|
Balance at End of Period(3)
|
|
(In thousands)
|
Restructuring and other related charges:
|
|
|
|
|
|
|
|
|
|
|
|
Fabrication Technology:
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits(1)
|
$
|
5,494
|
|
|
$
|
—
|
|
|
$
|
6,414
|
|
|
$
|
(8,051
|
)
|
|
$
|
(454
|
)
|
|
$
|
3,403
|
|
Facility closure costs(2)
|
662
|
|
|
—
|
|
|
5,849
|
|
|
(6,475
|
)
|
|
27
|
|
|
63
|
|
Fabrication Technology subtotal
|
6,156
|
|
|
—
|
|
|
12,263
|
|
|
(14,526
|
)
|
|
(427
|
)
|
|
3,466
|
|
Non-cash charges(2)
|
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,965
|
|
|
|
|
|
|
|
Medical Technology:
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits(1)
|
—
|
|
|
6,096
|
|
|
4,734
|
|
|
(5,723
|
)
|
|
—
|
|
|
5,107
|
|
Facility closure costs(2)
|
—
|
|
|
—
|
|
|
33,026
|
|
|
(21,640
|
)
|
|
—
|
|
|
11,386
|
|
Medical Technology subtotal
|
—
|
|
|
6,096
|
|
|
37,760
|
|
|
(27,363
|
)
|
|
—
|
|
|
16,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
6,156
|
|
|
$
|
6,096
|
|
|
$
|
50,023
|
|
|
$
|
(41,889
|
)
|
|
$
|
(427
|
)
|
|
$
|
19,959
|
|
Non-cash charges(2)
|
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,725
|
|
|
|
|
|
|
|
(1) Includes severance and other termination benefits, including outplacement services.
(2) Includes the cost of relocating associates, relocating equipment and lease termination expense in connection with the closure of facilities. During the nine months ended September 27, 2019, the Company recorded an $0.7 million non-cash impairment charge for facilities in the Fabrication Technology segment as part of Corporate approved restructuring activities. Restructuring charges in the Medical Technology segment during the nine months ended September 27, 2019 includes costs related to product and distribution channel transformations, facilities optimization, and integration charges. Restructuring charges in the Medical Technology segment also includes $3.5 million classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the nine months ended September 27, 2019.
(3) As of September 27, 2019, $7.9 million and $0.7 million of the Company’s restructuring liability was included in Accrued liabilities and Other liabilities, respectively, and $11.4 million was included in Accounts payable.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
13. Net Periodic Benefit Cost - Defined Benefit Plans
The following table sets forth the components of total net periodic benefit cost of the Company’s defined benefit pension plans and other post-retirement employee benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Pension Benefits - U.S. Plans:
|
|
|
|
|
|
|
|
Service cost
|
$
|
33
|
|
|
$
|
20
|
|
|
$
|
101
|
|
|
101
|
|
Interest cost
|
1,798
|
|
|
1,155
|
|
|
5,393
|
|
|
4,776
|
|
Expected return on plan assets
|
(2,660
|
)
|
|
(2,969
|
)
|
|
(7,980
|
)
|
|
(8,247
|
)
|
Amortization
|
776
|
|
|
606
|
|
|
2,327
|
|
|
2,434
|
|
Net periodic benefit income
|
$
|
(53
|
)
|
|
$
|
(1,188
|
)
|
|
$
|
(159
|
)
|
|
$
|
(936
|
)
|
|
|
|
|
|
|
|
|
Pension Benefits - Non-U.S. Plans:
|
|
|
|
|
|
|
|
Service cost
|
$
|
427
|
|
|
$
|
407
|
|
|
$
|
1,105
|
|
|
$
|
1,154
|
|
Interest cost
|
2,176
|
|
|
2,928
|
|
|
6,705
|
|
|
9,088
|
|
Expected return on plan assets
|
(2,181
|
)
|
|
(3,263
|
)
|
|
(6,739
|
)
|
|
(10,139
|
)
|
Settlement loss
|
33,616
|
|
|
—
|
|
|
33,616
|
|
|
—
|
|
Amortization
|
102
|
|
|
259
|
|
|
287
|
|
|
801
|
|
Net periodic benefit cost
|
$
|
34,140
|
|
|
$
|
331
|
|
|
$
|
34,974
|
|
|
$
|
904
|
|
|
|
|
|
|
|
|
|
Other Post-Retirement Benefits:
|
|
|
|
|
|
|
|
Service cost
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
19
|
|
Interest cost
|
122
|
|
|
124
|
|
|
366
|
|
|
370
|
|
Amortization
|
(37
|
)
|
|
(22
|
)
|
|
(112
|
)
|
|
(66
|
)
|
Net periodic benefit cost
|
$
|
86
|
|
|
$
|
108
|
|
|
$
|
258
|
|
|
$
|
323
|
|
During the three months ended September 27, 2019, the Company settled a non-U.S. pension plan in its Fabrication Technology segment through a third-party buyout arrangement. As a result of the settlement, the Company is no longer responsible for any liabilities under the plan and recognized a loss of $33.6 million, which is reflected in Pension settlement loss in the Consolidated Statements of Operations.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
14. Financial Instruments and Fair Value Measurements
The carrying values of financial instruments, including Trade receivables and Accounts payable, approximate their fair values due to their short-term maturities. The $4.0 billion and $1.2 billion estimated fair value of the Company’s debt as of September 27, 2019 and December 31, 2018, respectively, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
Level
One
|
|
Level
Two
|
|
Level
Three
|
|
Total
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
17,740
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,740
|
|
Foreign currency contracts related to sales - not designated as hedges
|
—
|
|
|
378
|
|
|
—
|
|
|
378
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
527
|
|
|
—
|
|
|
527
|
|
Deferred compensation plans
|
—
|
|
|
8,297
|
|
|
—
|
|
|
8,297
|
|
|
$
|
17,740
|
|
|
$
|
9,202
|
|
|
$
|
—
|
|
|
$
|
26,942
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency contracts related to sales - not designated as hedges
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
23
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
809
|
|
|
—
|
|
|
809
|
|
Deferred compensation plans
|
—
|
|
|
8,297
|
|
|
—
|
|
|
8,297
|
|
|
$
|
—
|
|
|
$
|
9,129
|
|
|
$
|
—
|
|
|
$
|
9,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Level
One
|
|
Level
Two
|
|
Level
Three
|
|
Total
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
5,388
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,388
|
|
Foreign currency contracts related to sales - not designated as hedges
|
—
|
|
|
326
|
|
|
—
|
|
|
326
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
325
|
|
|
—
|
|
|
325
|
|
Deferred compensation plans
|
—
|
|
|
7,154
|
|
|
—
|
|
|
7,154
|
|
|
$
|
5,388
|
|
|
$
|
7,805
|
|
|
$
|
—
|
|
|
$
|
13,193
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency contracts related to sales - not designated as hedges
|
$
|
—
|
|
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
133
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
557
|
|
|
—
|
|
|
557
|
|
Deferred compensation plans
|
—
|
|
|
7,154
|
|
|
—
|
|
|
7,154
|
|
|
$
|
—
|
|
|
$
|
7,844
|
|
|
$
|
—
|
|
|
$
|
7,844
|
|
There were no transfers in or out of Level One, Two or Three during the nine months ended September 27, 2019.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Foreign Currency Contracts
As of September 27, 2019 and December 31, 2018, the Company had foreign currency contracts with the following notional values:
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
Foreign currency contracts sold - not designated as hedges
|
$
|
24,868
|
|
|
$
|
43,510
|
|
Foreign currency contracts purchased - not designated as hedges
|
90,992
|
|
|
75,102
|
|
Total foreign currency derivatives
|
$
|
115,860
|
|
|
$
|
118,612
|
|
The Company recognized the following in its Condensed Consolidated Financial Statements related to its derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Contracts Designated as Hedges:
|
|
|
|
Unrealized gain on net investment hedges(1)
|
$
|
12,807
|
|
|
$
|
671
|
|
|
$
|
14,258
|
|
|
$
|
9,210
|
|
Contracts Not Designated in a Hedge Relationship:
|
|
|
|
|
|
|
|
Foreign Currency Contracts - related to customer sales contracts:
|
|
|
|
|
|
|
|
Unrealized gain (loss)
|
423
|
|
|
(476
|
)
|
|
215
|
|
|
1,173
|
|
Realized loss
|
(165
|
)
|
|
(596
|
)
|
|
(1,232
|
)
|
|
(49
|
)
|
Foreign Currency Contracts - related to supplier purchases contracts:
|
|
|
|
|
|
|
|
Unrealized (loss) gain
|
(732
|
)
|
|
174
|
|
|
(81
|
)
|
|
(1,631
|
)
|
Realized gain
|
1
|
|
|
397
|
|
|
455
|
|
|
73
|
|
(1) The unrealized gain on net investment hedges is attributable to the change in valuation of Euro denominated debt.
15. Commitments and Contingencies
For further description of the Company’s litigation and contingencies, reference is made to Note 17, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements in the Company’s 2018 Form 10-K. Since the Company did not retain an interest in the ongoing operations of the divested Fluid Handling business, 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.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Asbestos Contingencies
Claims activity since December 31 related to asbestos claims is as follows:
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(Number of claims)
|
Claims unresolved, beginning of period
|
16,417
|
|
|
17,737
|
|
Claims filed(1)
|
3,360
|
|
|
2,982
|
|
Claims resolved(2)
|
(3,604
|
)
|
|
(4,450
|
)
|
Claims unresolved, end of period
|
16,173
|
|
|
16,269
|
|
(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.
The Company’s Condensed Consolidated Balance Sheets included the following amounts related to asbestos-related litigation:
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
Current asbestos insurance receivable(1)
|
$
|
24,826
|
|
|
$
|
—
|
|
Long-term asbestos insurance asset(2)
|
271,095
|
|
|
278,662
|
|
Long-term asbestos insurance receivable(2)
|
43,802
|
|
|
62,523
|
|
Accrued asbestos liability(3)
|
63,339
|
|
|
56,045
|
|
Long-term asbestos liability(4)
|
268,675
|
|
|
288,962
|
|
(1) Included in Other current assets in the Condensed Consolidated Balance Sheets.
(2) Included in Other assets in the Condensed Consolidated Balance Sheets.
(3) 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.
(4) 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.
Over the next year, the Company expects to be reimbursed for certain asbestos-related costs that were mainly incurred prior to certain court rulings.
Other Litigation Matters
The Company is also involved in 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. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
16. Segment Information
Prior to entering into the Purchase Agreement, the Company conducted its operations through three operating segments: Air and Gas Handling, Fabrication Technology, and Medical Technology. Subsequent to the Purchase Agreement date, the Company conducts its continuing operations through two operating segments: Fabrication Technology and Medical Technology, which also represent the Company’s reportable segments.
|
|
▪
|
Fabrication Technology - a global supplier of welding equipment, cutting equipment, automated welding and cutting systems, and consumables.
|
|
|
•
|
Medical Technology - a leading provider of orthopedic solutions, providing orthopedic devices, software and services spanning the full continuum of patient care, from injury prevention to rehabilitation.
|
Certain amounts not allocated to the two reportable segments and intersegment eliminations are reported under the heading “Corporate and other.” The Company’s management evaluates the operating results of each of its reportable segments based upon Net sales and segment operating income, which represents Operating income before Restructuring and other related charges.
The Company’s segment results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Net sales:
|
|
|
|
|
|
Fabrication Technology
|
$
|
539,228
|
|
|
$
|
524,022
|
|
|
$
|
1,692,347
|
|
|
$
|
1,618,152
|
|
Medical Technology
|
307,291
|
|
|
—
|
|
|
746,738
|
|
|
—
|
|
|
$
|
846,519
|
|
|
$
|
524,022
|
|
|
$
|
2,439,085
|
|
|
$
|
1,618,152
|
|
Segment operating income(1):
|
|
|
|
|
|
|
|
Fabrication Technology
|
$
|
72,999
|
|
|
$
|
55,634
|
|
|
$
|
224,574
|
|
|
$
|
190,864
|
|
Medical Technology
|
22,456
|
|
|
—
|
|
|
37,743
|
|
|
—
|
|
Corporate and other
|
(14,285
|
)
|
|
(13,919
|
)
|
|
(99,864
|
)
|
|
(46,453
|
)
|
|
$
|
81,170
|
|
|
$
|
41,715
|
|
|
$
|
162,453
|
|
|
$
|
144,411
|
|
(1) Following is a reconciliation of Income (loss) from continuing operations before income taxes to segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
(In thousands)
|
Income (loss) from continuing operations before income taxes
|
$
|
2,417
|
|
|
$
|
23,445
|
|
|
$
|
(8,708
|
)
|
|
$
|
81,185
|
|
Loss on short-term investments
|
—
|
|
|
—
|
|
|
—
|
|
|
10,128
|
|
Pension settlement loss
|
33,616
|
|
|
—
|
|
|
33,616
|
|
|
—
|
|
Interest expense, net
|
31,828
|
|
|
11,611
|
|
|
86,820
|
|
|
33,455
|
|
Restructuring and other related charges(1)
|
13,309
|
|
|
6,659
|
|
|
50,725
|
|
|
19,643
|
|
Segment operating income
|
$
|
81,170
|
|
|
$
|
41,715
|
|
|
$
|
162,453
|
|
|
$
|
144,411
|
|
(1) Restructuring and other related charges includes $3.5 million of expense classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 2019.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
17. Subsequent Events
On September 30, 2019, the Company completed the sale of its Air and Gas Handling business to the Purchaser for $1.8 billion, including $1.67 billion of cash paid at closing and the assumption of certain liabilities and minority interests. The purchase consideration is subject to certain adjustments pursuant to the Purchase Agreement which have not been finalized. The Company does not expect a material impact from adjustments associated with finalizing the purchase consideration. On September 30, 2019, the Company used $1.65 billion of the proceeds, as required by the Credit Facility, to repay a portion of the Term Loan Facilities and the Revolver.