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, 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
|
)
|
|
Other comprehensive loss, net of tax of $4,644
|
—
|
|
—
|
|
—
|
|
—
|
|
(158,297
|
)
|
(2,593
|
)
|
(160,890
|
)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income (loss)
|
—
|
|
—
|
|
—
|
|
(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
|
|
See Notes to Condensed Consolidated Financial Statements.
COLFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income (loss)
|
$
|
5,508
|
|
|
$
|
(48,002
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
Depreciation and amortization
|
58,336
|
|
|
44,832
|
|
|
Stock-based compensation expense
|
6,124
|
|
|
5,238
|
|
|
Non-cash interest expense
|
1,311
|
|
|
1,821
|
|
|
Deferred income tax expense (benefit)
|
(567
|
)
|
|
(9,185
|
)
|
|
Loss on sale of property, plant and equipment
|
976
|
|
|
218
|
|
|
Pension settlement loss
|
—
|
|
|
43,774
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Trade receivables, net
|
29,445
|
|
|
1,876
|
|
|
Inventories, net
|
(16,431
|
)
|
|
(36,131
|
)
|
|
Accounts payable
|
30,592
|
|
|
(45,749
|
)
|
|
Changes in other operating assets and liabilities
|
(59,065
|
)
|
|
(30,980
|
)
|
|
Net cash provided by (used in) operating activities
|
56,229
|
|
|
(72,288
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchases of property, plant and equipment
|
(31,113
|
)
|
|
(24,356
|
)
|
|
Proceeds from sale of property, plant and equipment
|
1,688
|
|
|
1,283
|
|
|
Acquisitions, net of cash received
|
(7,830
|
)
|
|
(3,147,835
|
)
|
|
Net cash used in investing activities
|
(37,255
|
)
|
|
(3,170,908
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from borrowings on term credit facility
|
—
|
|
|
1,725,000
|
|
|
Payments under term credit facility
|
—
|
|
|
(502,813
|
)
|
|
Proceeds from borrowings on revolving credit facilities and other
|
608,673
|
|
|
1,233,735
|
|
|
Repayments of borrowings on revolving credit facilities and other
|
(364,403
|
)
|
|
(477,045
|
)
|
|
Proceeds from borrowings on senior unsecured notes
|
—
|
|
|
1,000,000
|
|
|
Payment of debt issuance costs
|
—
|
|
|
(24,280
|
)
|
|
Proceeds from prepaid stock purchase contracts
|
—
|
|
|
377,814
|
|
|
Proceeds from issuance of common stock, net
|
2,220
|
|
|
2,439
|
|
|
Payment for noncontrolling interest share repurchase
|
—
|
|
|
(92,721
|
)
|
|
Other
|
(1,353
|
)
|
|
(3,103
|
)
|
|
Net cash provided by financing activities
|
245,137
|
|
|
3,239,026
|
|
|
Effect of foreign exchange rates on Cash and cash equivalents
|
(8,139
|
)
|
|
1,569
|
|
|
Increase (decrease) in Cash and cash equivalents
|
255,972
|
|
|
(2,601
|
)
|
|
Cash and cash equivalents, beginning of period
|
109,632
|
|
|
245,019
|
|
|
Cash and cash equivalents, end of period
|
$
|
365,604
|
|
|
$
|
242,418
|
|
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 fabrication technology and medical device products and services to customers around the world, principally under the ESAB and DJO brands.
On September 30, 2019, Colfax completed the sale of its Air and Gas Handling business 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 discontinued operations. See Note 3, “Discontinued Operations”, for further information.
On February 22, 2019, Colfax completed the purchase of DJO Global, Inc. (“DJO”) for $3.15 billion. 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.
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, 2019 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, 2019 (the “2019 Form 10-K”), filed with the SEC on February 21, 2020.
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.
The results of operations for the three months ended April 3, 2020 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. DJO 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. The COVID-19 outbreak also has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities, and the disclosure of contingent 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 is difficult to forecast.
The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to, the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions, the speed of the anticipated recovery, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts COVID-19 as of April 3, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
credit losses and the carrying value of the goodwill and other long-lived assets. While there was not an impact to the Company’s consolidated financial statements as of and for the three months ended April 3, 2020, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
2. Recently Issued Accounting Pronouncements
Accounting Guidance Implemented in 2020
|
|
|
|
|
|
|
|
|
Standards Adopted
|
|
Description
|
|
Effective 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 adopted Topic 326 on January 1, 2020 using a modified retrospective transition method, which requires a cumulative-effect adjustment to the opening balance sheet of retained earnings to be recognized on the date of adoption without restating prior periods. The cumulative-effect adjustment, net of tax, on January 1, 2020 is $4.8 million.
|
|
January 1, 2020
|
|
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
|
|
The ASU modified the disclosure requirements for fair value measurements. The adoption of this standard does not result in any changes to the current disclosures, as the requirements modified by the ASU are not applicable or are immaterial for disclosure.
|
|
January 1, 2020
|
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 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
|
|
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 is currently evaluating the impact of this ASU on its consolidated financial statements and the timing of adoption.
|
|
January 1, 2021
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
3. Discontinued Operations
The Company has retained certain asbestos-related contingencies and insurance coverages from divested businesses for which it did not retain an interest in the ongoing operations subject to the contingencies. The Company has classified asbestos-related selling, general and administrative activity in its Condensed Consolidated Statements of Operations as part of Loss from discontinued operations. See Note 13, “Commitments and Contingencies” for further information.
Sale of Air and Gas Handling Business
The Company sold its Air and Gas Handling business on September 30, 2019. Accordingly, the accompanying Condensed Consolidated Financial Statements for all periods presented reflect the Air and Gas Handling business as a discontinued operation.
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. 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 recorded a pre-tax gain on disposal of $14.2 million in the fourth quarter of 2019. The total divestiture-related expenses incurred for the Air and Gas Handling sale were $48.6 million in the year ended December 31, 2019.
In connection with the purchase agreement, the Company and the purchaser entered into various agreements to provide a framework for their relationship after the disposition, including a transition services agreement. The transition services under the above agreements are not material to the Company’s results of operations.
The key components of Loss from discontinued operations, net of taxes related to the Air and Gas Handling business for the three months ended April 3, 2020 and March 29, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(In thousands)
|
|
Net sales
|
$
|
—
|
|
|
$
|
323,749
|
|
|
Cost of sales
|
—
|
|
|
226,472
|
|
|
Selling, general and administrative expense
|
—
|
|
|
67,740
|
|
|
Restructuring and other related charges
|
—
|
|
|
4,555
|
|
|
Divestiture-related expense(1)
|
2,285
|
|
|
2,555
|
|
|
Operating income (loss)
|
(2,285
|
)
|
|
22,427
|
|
|
Interest expense(2)
|
—
|
|
|
7,300
|
|
|
Pension settlement loss
|
—
|
|
|
43,774
|
|
|
Loss from discontinued operations before income taxes
|
(2,285
|
)
|
|
(28,647
|
)
|
|
Income tax benefit
|
(316
|
)
|
|
(5,620
|
)
|
|
Loss from discontinued operations, net of taxes
|
$
|
(1,969
|
)
|
|
$
|
(23,027
|
)
|
(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 a portion of interest expense from its Term Loan Facilities 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 $2.7 million for the three months ended March 29, 2019.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Cash used in operating activities related to the discontinued operations of the divested Air and Gas Handling business for the three months ended April 3, 2020 and March 29, 2019 was $2.1 million and $2.8 million, respectively. Cash used in investing activities related to the discontinued operations of the divested Air and Gas Handling business for the three months ended March 29, 2019 was $10.3 million.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
4. Acquisition
On February 22, 2019, Colfax completed the purchase of DJO for $3.15 billion, subject to certain adjustments set forth in the Merger Agreement.
During the three months ended April 3, 2020 and March 29, 2019, the Company incurred $0.9 million and $53.3 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.
The DJO acquisition was accounted for using the acquisition method of accounting and accordingly, the Condensed Consolidated Financial Statements include the 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, 2019. These amounts are presented in accordance with GAAP, consistent with the Company’s accounting policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(Unaudited, in thousands)
|
|
Net sales
|
$
|
816,356
|
|
|
$
|
853,085
|
|
|
Net income from continuing operations attributable to Colfax Corporation
|
10,115
|
|
|
14,135
|
|
During the first quarter of 2020, as part of the fair value adjustments to the assets and liabilities acquired, the Company increased the valuation allowance on U.S. deferred taxes, presented net within Other liabilities, by $51.4 million as of the acquisition date, with a corresponding increase to Goodwill. The accounting related to the DJO acquisition has been finalized, and the assets and liabilities acquired are no longer subject to adjustment.
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
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(In thousands)
|
|
Equipment
|
$
|
156,800
|
|
|
$
|
174,003
|
|
|
Consumables
|
368,737
|
|
|
386,381
|
|
|
Total
|
$
|
525,537
|
|
|
$
|
560,384
|
|
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. While the Company’s Medical Technology sales are primarily derived from three sales channels including dealers and distributors, insurance, and direct to consumers and hospitals, substantially all its revenue is recognized at a point in time. The Company disaggregates its Medical Technology revenue into the following product groups:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019(1)
|
|
|
(In thousands)
|
|
Prevention & Rehabilitation
|
$
|
201,493
|
|
|
$
|
87,736
|
|
|
Reconstructive
|
89,326
|
|
|
35,799
|
|
|
Total
|
$
|
290,819
|
|
|
$
|
123,535
|
|
(1) For the three months ended March 29, 2019, the Medical Technology segment includes results from the acquisition date of February 22, 2019.
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 3, 2020 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, 2019 and 2018, total contract liabilities were $14.8 million and $13.0 million, respectively. During the three months ended April 3, 2020 and March 29, 2019, revenue recognized that was included in the contract liability balance at the beginning of the year was $4.9 million and $3.9 million, respectively. As of April 3, 2020 and March 29, 2019, total contract liabilities were $17.0 million and $18.3 million, respectively.
Allowance for Credit Losses
The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1, 2020. The 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. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each segment given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The Company evaluated multiple approaches before concluding that a loss rate methodology best matched data capabilities. The Company leveraged 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 through the use of an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses, giving consideration to the location and risks associated with the Company.
The changes in the allowance for credit losses for the three months ended April 3, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Period
|
|
Charged to Expense
|
|
Write-Offs and Deductions
|
|
Foreign
Currency
Translation
|
|
Balance at
End of
Period
|
|
|
(Dollars in thousands)
|
|
Three Months Ended April 3, 2020
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
$
|
36,009
|
|
|
$
|
(652
|
)
|
|
$
|
(1,862
|
)
|
|
$
|
(2,936
|
)
|
|
$
|
30,559
|
|
6. Net Income (Loss) Per Share from Continuing Operations
Net income (loss) per share from continuing operations was computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(In thousands, except share and per share data)
|
|
Computation of Net income (loss) per share from continuing operations - basic:
|
|
|
|
|
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
|
$
|
7,841
|
|
|
$
|
(22,860
|
)
|
|
Weighted-average shares of Common stock outstanding - basic
|
136,601,111
|
|
|
133,713,815
|
|
|
Net income (loss) per share from continuing operations - basic
|
$
|
0.06
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
Computation of Net income (loss) per share from continuing operations - diluted:
|
|
|
|
|
Net income (loss) from continuing operations attributable to Colfax Corporation (1)
|
$
|
7,841
|
|
|
$
|
(22,860
|
)
|
|
Weighted-average shares of Common stock outstanding - basic
|
136,601,111
|
|
|
133,713,815
|
|
|
Net effect of potentially dilutive securities - stock options, restricted stock units and tangible equity units
|
4,868,927
|
|
|
—
|
|
|
Weighted-average shares of Common stock outstanding - diluted
|
141,470,038
|
|
|
133,713,815
|
|
|
Net income (loss) per share from continuing operations - diluted
|
$
|
0.06
|
|
|
$
|
(0.17
|
)
|
(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 $1.0 million and $1.3 million for the three months ended April 3, 2020 and March 29, 2019, respectively.
For both periods presented, the weighted-average shares of Common stock outstanding - basic includes the impact of 18.4 million shares related to the issuance of Colfax’s tangible equity units. For the three months ended April 3, 2020, the weighted-average shares of Common stock outstanding - diluted includes the impact of 3.7 million potentially issuable dilutive shares related to 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 months ended April 3, 2020 excludes 3.9 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 months ended April 3, 2020, Income (loss) 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 caused by the ongoing COVID-19 pandemic market conditions.
During the three months ended March 29, 2019, Income (loss) from continuing operations before income taxes was $(19.5) million, while the income tax expense was $2.0 million. The effective tax rate was (10.5)% for the three months ended March 29, 2019. The effective tax rate for the three months ended March 29, 2019 differs from the 2019 U.S. federal statutory rate of 21% mainly due to non-deductible deal costs and an aggregate discrete U.S. tax expense due to a change in valuation allowance associated with the acquisition of DJO.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
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 3, 2020, 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 3, 2020 and March 29, 2019. 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, 2020
|
$
|
(106,500
|
)
|
|
$
|
(421,889
|
)
|
|
$
|
44,544
|
|
|
$
|
(483,845
|
)
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
1,672
|
|
|
(170,679
|
)
|
|
(1,310
|
)
|
|
(170,317
|
)
|
|
Loss on long-term intra-entity foreign currency transactions
|
—
|
|
|
(1,027
|
)
|
|
—
|
|
|
(1,027
|
)
|
|
Gain on net investment hedges
|
—
|
|
|
—
|
|
|
12,180
|
|
|
12,180
|
|
|
Other comprehensive income (loss) before reclassifications
|
1,672
|
|
|
(171,706
|
)
|
|
10,870
|
|
|
(159,164
|
)
|
|
Amounts reclassified from Accumulated other comprehensive loss
|
867
|
|
|
—
|
|
|
—
|
|
|
867
|
|
|
Net Other comprehensive (loss) income
|
2,539
|
|
|
(171,706
|
)
|
|
10,870
|
|
|
(158,297
|
)
|
|
Balance at April 3, 2020
|
$
|
(103,961
|
)
|
|
$
|
(593,595
|
)
|
|
$
|
55,414
|
|
|
$
|
(642,142
|
)
|
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, 2019
|
$
|
(80,794
|
)
|
|
$
|
(752,989
|
)
|
|
$
|
38,238
|
|
|
$
|
(795,545
|
)
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
824
|
|
|
8,803
|
|
|
10
|
|
|
9,637
|
|
|
Gain on long-term intra-entity foreign currency transactions
|
—
|
|
|
12,621
|
|
|
—
|
|
|
12,621
|
|
|
Gain on net investment hedges
|
—
|
|
|
—
|
|
|
5,453
|
|
|
5,453
|
|
|
Unrealized loss on cash flow hedges
|
—
|
|
|
—
|
|
|
(76
|
)
|
|
(76
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
824
|
|
|
21,424
|
|
|
5,387
|
|
|
27,635
|
|
|
Amounts reclassified from Accumulated other comprehensive loss
|
(9,582
|
)
|
|
—
|
|
|
—
|
|
|
(9,582
|
)
|
|
Noncontrolling interest share repurchase
|
—
|
|
|
(21,372
|
)
|
|
—
|
|
|
(21,372
|
)
|
|
Net Other comprehensive income (loss)
|
(8,758
|
)
|
|
52
|
|
|
5,387
|
|
|
(3,319
|
)
|
|
Balance at March 29, 2019
|
$
|
(89,552
|
)
|
|
$
|
(752,937
|
)
|
|
$
|
43,625
|
|
|
$
|
(798,864
|
)
|
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 paid $6.6 million representing a partial payment of principal and interest on the TEU amortizing notes in the first quarter of 2020. 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 2019, the Company repurchased all of the noncontrolling interest shares of its South Africa consolidated subsidiary from existing shareholders under a general offer. As a part of the Air and Gas Handling business, the subsidiary was subsequently sold on September 30, 2019, and its results of operations are included in discontinued operations for all periods presented.
9. Inventories, Net
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Raw materials
|
$
|
108,586
|
|
|
$
|
115,587
|
|
|
Work in process
|
39,061
|
|
|
37,019
|
|
|
Finished goods
|
475,970
|
|
|
475,933
|
|
|
|
623,617
|
|
|
628,539
|
|
|
Less: allowance for excess, slow-moving and obsolete inventory
|
(61,942
|
)
|
|
(56,981
|
)
|
|
Inventories, net
|
$
|
561,675
|
|
|
$
|
571,558
|
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
10. Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Term loan
|
$
|
823,048
|
|
|
$
|
822,945
|
|
|
Euro senior notes
|
374,191
|
|
|
388,925
|
|
|
2024 and 2026 notes
|
989,757
|
|
|
989,236
|
|
|
TEU amortizing notes
|
48,522
|
|
|
54,044
|
|
|
Revolving credit facilities and other
|
304,389
|
|
|
56,676
|
|
|
Total debt
|
2,539,907
|
|
|
2,311,826
|
|
|
Less: current portion
|
(26,885
|
)
|
|
(27,642
|
)
|
|
Long-term debt
|
$
|
2,513,022
|
|
|
$
|
2,284,184
|
|
Term Loan and Revolving Credit Facility
The Company’s credit agreement (the “Credit Facility”) by and among the Company, as the borrower, certain U.S. subsidiaries of the Company, as guarantors, each of the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A., as syndication agent, and the co-documentation agents named therein consists of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan in an aggregate principal amount of $825 million (the “Term Loan”), each with a maturity date of December 6, 2024. The Revolver contains a $50 million swing line loan sub-facility.
The Company has $7.7 million in deferred financing fees recorded in conjunction with the Credit Facility as of April 3, 2020, which is being accreted to Interest expense, net primarily using the effective interest method over the life of the facility.
The Term Loan and the Revolver bear interest either at the Eurocurrency rate or the base rate, in each case, plus the applicable interest rate margin, whichever results in the lower applicable interest rate margin (subject to certain exceptions), based upon either the total leverage ratio or corporate family rating of the Company 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 will bear 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 will bear 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 the ratio of Consolidated Total Debt (as defined in the Credit Facility) to EBITDA (as defined in the Credit Facility), of 4.75:1.00 as of March 31, 2020, 4.25:1.00 as of June 30, 2020, 4.00:1.00 as of each fiscal quarter ending during the period from September 30, 2020 through September 30, 2021, and 3.50:1.00 as of December 31, 2021 and for each fiscal quarter ending thereafter, and (ii) a minimum interest coverage ratio of 3.00:1:00. 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 April 3, 2020, the Company is in compliance with the covenants under the Credit Facility.
As of April 3, 2020, the weighted-average interest rate of borrowings under the Credit Facility was 2.95%, excluding accretion of original issue discount and deferred financing fees, and there was $675 million available on the Revolver.
On May 1, 2020, the Company entered into an amendment to its Credit Facility. See Note 15, “Subsequent Events” for further information.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Euro Senior Notes
On April 19, 2017, the Company issued 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 proceeds from the Euro Notes offering were used to repay borrowings under our previous credit facilities totaling €283.5 million, as well as for general corporate purposes. In conjunction with the issuance of the Euro notes, the Company recorded $6.0 million of deferred financing fees. 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
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 and an option to purchase up to an additional 600,000 tangible equity units at the stated amount of $100 per unit, which 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 to finance a portion of the purchase price for 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%. Each tranche of notes is guaranteed by certain of the Company’s domestic subsidiaries.
Other Indebtedness
In addition to the debt agreements discussed above, the Company is party to various bilateral credit facilities with a borrowing capacity of $241.7 million. As of April 3, 2020, there were no outstanding borrowings under these facilities.
The Company is also party to letter of credit facilities with an aggregate capacity of $412.1 million. Total letters of credit of $119.8 million were outstanding as of April 3, 2020.
In total, the Company had deferred financing fees of $22.4 million included in its Condensed Consolidated Balance Sheet as of April 3, 2020, which will be charged to Interest expense, net, primarily using the effective interest method, over the life of the applicable debt agreements.
11. Accrued Liabilities
Accrued liabilities in the Condensed Consolidated Balance Sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Accrued compensation and related benefits
|
$
|
84,061
|
|
|
$
|
100,290
|
|
|
Accrued taxes
|
52,176
|
|
|
55,258
|
|
|
Accrued asbestos-related liability
|
68,102
|
|
|
64,394
|
|
|
Warranty liability - current portion
|
13,702
|
|
|
15,513
|
|
|
Accrued restructuring liability - current portion
|
4,437
|
|
|
6,961
|
|
|
Accrued third-party commissions
|
23,168
|
|
|
30,768
|
|
|
Customer advances and billings in excess of costs incurred
|
18,092
|
|
|
16,009
|
|
|
Lease liability - current portion
|
38,428
|
|
|
40,021
|
|
|
Accrued interest
|
17,924
|
|
|
27,333
|
|
|
Other
|
104,123
|
|
|
113,343
|
|
|
Accrued liabilities
|
$
|
424,213
|
|
|
$
|
469,890
|
|
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Warranty Liability
The activity in the Company’s warranty liability consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(In thousands)
|
|
Warranty liability, beginning of period
|
$
|
15,528
|
|
|
$
|
12,312
|
|
|
Accrued warranty expense
|
1,121
|
|
|
1,704
|
|
|
Changes in estimates related to pre-existing warranties
|
318
|
|
|
406
|
|
|
Cost of warranty service work performed
|
(1,910
|
)
|
|
(2,415
|
)
|
|
Acquisition-related liability
|
—
|
|
|
2,252
|
|
|
Foreign exchange translation effect
|
(1,309
|
)
|
|
9
|
|
|
Warranty liability, end of period
|
$
|
13,748
|
|
|
$
|
14,268
|
|
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 3, 2020
|
|
|
Balance at Beginning of Period
|
|
Provisions
|
|
Payments
|
|
Foreign Currency Translation
|
|
Balance at End of Period(3)
|
|
|
(In thousands)
|
|
Restructuring and other related charges:
|
|
|
|
|
|
|
|
|
|
|
Fabrication Technology:
|
|
|
|
|
|
|
|
|
|
|
Termination benefits(1)
|
$
|
1,638
|
|
|
$
|
940
|
|
|
$
|
(1,401
|
)
|
|
$
|
(77
|
)
|
|
$
|
1,100
|
|
|
Facility closure costs(2)
|
1,284
|
|
|
1,869
|
|
|
(3,134
|
)
|
|
—
|
|
|
19
|
|
|
|
2,922
|
|
|
2,809
|
|
|
(4,535
|
)
|
|
(77
|
)
|
|
1,119
|
|
|
Medical Technology:
|
|
|
|
|
|
|
|
|
|
|
Termination benefits(1)
|
3,919
|
|
|
958
|
|
|
(1,750
|
)
|
|
—
|
|
|
3,127
|
|
|
Facility closure costs(2)
|
257
|
|
|
8,158
|
|
|
(8,170
|
)
|
|
—
|
|
|
245
|
|
|
|
4,176
|
|
|
9,116
|
|
|
(9,920
|
)
|
|
—
|
|
|
3,372
|
|
|
Total
|
$
|
7,098
|
|
|
$
|
11,925
|
|
|
$
|
(14,455
|
)
|
|
$
|
(77
|
)
|
|
$
|
4,491
|
|
(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. Restructuring charges in the Medical Technology segment during the three months ended April 3, 2020 includes costs related to product and distribution channel transformations, facilities optimization, and integration charges. Restructuring charges in the Medical Technology segment also includes $1.8 million classified as Cost of sales on the Company’s Condensed Consolidated Statements of Operations for the three months ended April 3, 2020.
(3) As of April 3, 2020, $4.4 million and $0.1 million of the Company’s restructuring liability was included in Accrued liabilities and Other liabilities, respectively.
COLFAX 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 and Accounts payable, approximate their fair values due to their short-term maturities. The $2.5 billion and $2.3 billion estimated fair value of the Company’s debt as of April 3, 2020 and December 31, 2019, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2020
|
|
|
Level
One
|
|
Level
Two
|
|
Level
Three
|
|
Total
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
12,058
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,058
|
|
|
Foreign currency contracts related to sales - not designated as hedges
|
—
|
|
|
2,411
|
|
|
—
|
|
|
2,411
|
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
2,374
|
|
|
—
|
|
|
2,374
|
|
|
Deferred compensation plans
|
—
|
|
|
7,354
|
|
|
—
|
|
|
7,354
|
|
|
|
$
|
12,058
|
|
|
$
|
12,139
|
|
|
$
|
—
|
|
|
$
|
24,197
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency contracts related to sales - not designated as hedges
|
$
|
—
|
|
|
$
|
3,022
|
|
|
$
|
—
|
|
|
$
|
3,022
|
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
|
Deferred compensation plans
|
—
|
|
|
7,354
|
|
|
—
|
|
|
7,354
|
|
|
|
$
|
—
|
|
|
$
|
10,426
|
|
|
$
|
—
|
|
|
$
|
10,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Level
One
|
|
Level
Two
|
|
Level
Three
|
|
Total
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
13,125
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,125
|
|
|
Foreign currency contracts related to sales - not designated as hedges
|
—
|
|
|
74
|
|
|
—
|
|
|
74
|
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
408
|
|
|
—
|
|
|
408
|
|
|
Deferred compensation plans
|
—
|
|
|
8,870
|
|
|
—
|
|
|
8,870
|
|
|
|
$
|
13,125
|
|
|
$
|
9,352
|
|
|
$
|
—
|
|
|
$
|
22,477
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency contracts related to sales - not designated as hedges
|
$
|
—
|
|
|
$
|
328
|
|
|
$
|
—
|
|
|
$
|
328
|
|
|
Foreign currency contracts related to purchases - not designated as hedges
|
—
|
|
|
853
|
|
|
—
|
|
|
853
|
|
|
Deferred compensation plans
|
—
|
|
|
8,870
|
|
|
—
|
|
|
8,870
|
|
|
|
$
|
—
|
|
|
$
|
10,051
|
|
|
$
|
—
|
|
|
$
|
10,051
|
|
There were no transfers in or out of Level One, Two or Three during the three months ended April 3, 2020.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Foreign Currency Contracts
As of April 3, 2020 and December 31, 2019, the Company had foreign currency contracts with the following notional values:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Foreign currency contracts sold - not designated as hedges
|
$
|
112,681
|
|
|
$
|
28,718
|
|
|
Foreign currency contracts purchased - not designated as hedges
|
16,882
|
|
|
107,090
|
|
|
Total foreign currency derivatives
|
$
|
129,563
|
|
|
$
|
135,808
|
|
The Company recognized the following in its Condensed Consolidated Financial Statements related to its derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(In thousands)
|
|
Contracts Designated as Hedges:
|
|
|
Unrealized gain (loss) on net investment hedges(1)
|
$
|
12,180
|
|
|
$
|
5,453
|
|
|
Contracts Not Designated in a Hedge Relationship:
|
|
|
|
|
Foreign Currency Contracts - related to customer sales contracts:
|
|
|
|
|
Unrealized gain (loss)
|
(351
|
)
|
|
(29
|
)
|
|
Realized gain (loss)
|
(945
|
)
|
|
(658
|
)
|
|
Foreign Currency Contracts - related to supplier purchases contracts:
|
|
|
|
|
Unrealized gain (loss)
|
2,768
|
|
|
(355
|
)
|
|
Realized gain (loss)
|
748
|
|
|
267
|
|
(1) The unrealized gain on net investment hedges is attributable to the change in valuation of Euro denominated debt.
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 2019 Form 10-K. Since the Company did not retain an interest in the ongoing operations of the divested Fluid Handling and Air and Gas 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.
Asbestos Contingencies
Claims activity since December 31 related to asbestos claims is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(Number of claims)
|
|
Claims unresolved, beginning of period
|
16,299
|
|
|
16,417
|
|
|
Claims filed(1)
|
1,043
|
|
|
1,056
|
|
|
Claims resolved(2)
|
(600
|
)
|
|
(711
|
)
|
|
Claims unresolved, end of period
|
16,742
|
|
|
16,762
|
|
(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.
COLFAX 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 3, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Current asbestos insurance receivable(1)
|
$
|
4,474
|
|
|
$
|
4,474
|
|
|
Long-term asbestos insurance asset(2)
|
282,611
|
|
|
281,793
|
|
|
Long-term asbestos insurance receivable(2)
|
35,025
|
|
|
41,629
|
|
|
Accrued asbestos liability(3)
|
68,102
|
|
|
64,394
|
|
|
Long-term asbestos liability(4)
|
281,147
|
|
|
286,105
|
|
(1) Included in Other current assets in the Condensed Consolidated Balance Sheets. Over the next year, the Company expects to be reimbursed for certain asbestos-related costs that were mainly incurred prior to certain court rulings.
(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.
General Litigation
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)
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 global supplier of consumable products and equipment for use in the cutting, joining and automated welding of steels, aluminum and other metals and metal alloys.
|
|
|
|
|
•
|
Medical Technology - 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.
|
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 (loss), which represents Operating income (loss) before restructuring and certain other charges.
The Company’s segment results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019(1)
|
|
|
(In thousands)
|
|
Net sales:
|
|
|
Fabrication Technology
|
$
|
525,537
|
|
|
$
|
560,384
|
|
|
Medical Technology
|
290,819
|
|
|
123,535
|
|
|
|
$
|
816,356
|
|
|
$
|
683,919
|
|
|
Segment operating income(2):
|
|
|
|
|
Fabrication Technology
|
$
|
69,036
|
|
|
$
|
70,605
|
|
|
Medical Technology
|
3,804
|
|
|
10,682
|
|
|
Corporate and other
|
(14,078
|
)
|
|
(68,123
|
)
|
|
|
$
|
58,762
|
|
|
$
|
13,164
|
|
(1) For the three months ended March 29, 2019, the Medical Technology segment includes results from the acquisition date of February 22, 2019.
(2) Following is a reconciliation of Income (loss) from continuing operations before income taxes to segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 3, 2020
|
|
March 29, 2019
|
|
|
(In thousands)
|
|
Income (loss) from continuing operations before income taxes
|
$
|
22,041
|
|
|
$
|
(19,488
|
)
|
|
Interest expense, net
|
24,796
|
|
|
21,821
|
|
|
Restructuring and other related charges(1)
|
11,925
|
|
|
10,831
|
|
|
Segment operating income
|
$
|
58,762
|
|
|
$
|
13,164
|
|
(1) Restructuring and other related charges includes $1.8 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.
COLFAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
15. Subsequent Events
On May 1, 2020, the Company entered into an amendment to its Credit Facility (the “Amendment”). The Amendment, among other changes, modifies the total leverage ratio by permitting the Company to deduct (subject to certain exceptions) up to $125 million of unrestricted cash and cash equivalents from the debt component of the ratio and by increasing the maximum total leverage ratio to 5.75:1.00 as of June 30, 2020, 6.50:1.00 as of each fiscal quarter thereafter until 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 quarter ending December 31, 2021 and March 31, 2022, 4.00:1.00 for the quarter 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. The Amendment also decreases the interest coverage ratio to 3.00:1.00 for the quarter ending June 30, 2020, 2.75:1.00 for each of the fiscal quarters ending September 30, 2020 until June 30, 2021, and then increases it back to 3.00:1.00 for the quarter ending September 30, 2021 and thereafter. The Amendment contains a “springing” collateral provision (based upon the Gross Leverage Ratio as defined in the Amendment to the Credit Facility) which requires the obligations under the Amendment to the Credit Facility to be secured by substantially all personal property of Colfax and its U.S. subsidiaries and the equity of its first tier foreign subsidiaries, subject to customary exceptions, in the event Colfax’s gross leverage ratio under the Credit Facility is greater than 5.00:1.00 as of the last day of any fiscal quarter. Lastly, the Amendment adds a fifth pricing tier in the event the total leverage ratio is greater than 4.50:1.00 (regardless of the corporate family rating), with pricing at 2.50%, in the case of the Eurocurrency margin, 1.50%, in the case of the base rate margin, and 0.50% when undrawn. The total commitment and maturity of the Credit Facility remains unchanged. The Amendment increased the total leverage ratio and decreased the interest coverage ratio from those ratios disclosed in Note 10, “Debt” to provide further financial flexibility in the period impacted by the COVID-19 outbreak.