ENOVIS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
Colfax Corporation ("Colfax," "the Company," "we," "our," and "us") should be
read in conjunction with the Condensed Consolidated Financial Statements and
related footnotes included in Part I. Item 1. "Financial Statements" of this
Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2021
(this "Form 10-Q") and the Consolidated Financial Statements and related
footnotes included in Part II. Item 8. "Financial Statements and Supplementary
Data" of our Annual Report on Form 10-K for the year ended December 31, 2020
(the "2020 Form 10-K") filed with the Securities and Exchange Commission (the
"SEC") on February 18, 2021 .
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with theSEC . All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including statements regarding: the intended separation of our fabrication and medical technology businesses into two differentiated, independent publicly traded companies (the "Separation"; See the section below entitled "The Separation" under "Results of Operations - Items Affecting Comparability of Reported Results" for further description); the timing and method of the Separation; the anticipated benefits of the Separation; the expected financial and operating performance of, and future opportunities for, each company following the Separation; the tax treatment of the Separation; the leadership of each company following the Separation; the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, the actions by governments, businesses and individuals in response to the situation, on the global and regional economies, financial markets, and overall demand for our products; projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, pension and benefit obligations and funding requirements, synergies or other financial items; plans, strategies and objectives of our management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments; developments, performance or industry or market rankings relating to products or services; future economic conditions or performance; the outcome of outstanding claims or legal proceedings including asbestos-related liabilities and insurance coverage litigation; potential gains and recoveries of costs; assumptions underlying any of the foregoing; and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future (see Part II. Item 1A. "Risk Factors" in this form 10-Q for further discussion of risks related to the Separation). Forward-looking statements may be, but not always, characterized by terminology such as "believe," "anticipate," "should," "would," "intend," "plan," "will," "expect," "estimate," "project," "positioned," "strategy," "targets," "aims," "seeks," "sees," and similar expressions. These statements are based on assumptions and assessments made by our management as of the filing date of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties and actual results could differ materially due to numerous factors, including but not limited to the following: •risks related to the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, actions by governments, businesses and individuals in response to the situation, such as the scope and duration of the outbreak, the nature and effectiveness of government actions and restrictive measures implemented in response, delays and cancellations of medical procedures, supply chain disruptions, the impact on creditworthiness and financial viability of customers, and other impacts on our business and ability to execute business continuity plans; •risks related to the proposed Separation, targeted for the first quarter of 2022, including the uncertainty of obtaining regulatory approvals and a favorable tax opinion and/orU.S. Internal Revenue Service ("IRS") ruling, our ability to satisfactorily complete steps necessary for the Separation and related transactions for the Separation to be generally tax-free forU.S. federal income tax purposes, the ability to satisfy the necessary conditions to complete the Separation on a timely basis, or at all, our ability to realize the anticipated benefits of the Separation, developments related to the impact of the COVID-19 pandemic on the Separation and the financial and operating performance of each company following the Separation, and final approval of the Separation by our board of directors; 25
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•changes in the general economy, as well as the cyclical nature of the markets we serve;
•supply chain constraints and backlogs, including risks affecting raw material, part and component availability, labor shortages and inefficiencies, freight and logistical challenges, and inflation in raw material, part, component, freight and delivery costs; •volatility in the commodity markets and certain commodity prices, including oil and steel, due to economic disruptions from the COVID-19 pandemic and various geopolitical events;
•our ability to identify, finance, acquire and successfully integrate attractive acquisition targets;
•our exposure to unanticipated liabilities resulting from acquisitions;
•our ability and the ability of our customers to access required capital at a reasonable cost;
•our ability to accurately estimate the cost of or realize savings from our restructuring programs;
•the amount of and our ability to estimate our asbestos-related liabilities;
•the solvency of our insurers and the likelihood of their payment for asbestos-related costs;
•material disruptions at any of our manufacturing facilities;
•noncompliance with various laws and regulations associated with our international operations, including anti-bribery laws, export control regulations and sanctions and embargoes;
•risks associated with our international operations, including risks from trade protection measures and other changes in trade relations;
•risks associated with the representation of our employees by trade unions and work councils;
•our exposure to product liability claims;
•potential costs and liabilities associated with environmental, health and safety laws and regulations;
•failure to maintain, protect and defend our intellectual property rights;
•the loss of key members of our leadership team;
•restrictions in our principal credit facility that may limit our flexibility in operating our business;
•impairment in the value of intangible assets;
•the funding requirements or obligations of our defined benefit pension plans and other postretirement benefit plans;
•significant movements in foreign currency exchange rates;
•new regulations and customer preferences reflecting an increased focus on environmental, social and governance issues, including new regulations related to the use of conflict minerals; •service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure;
•risks arising from changes in technology;
•the competitive environment in our industries;
26
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•changes in our tax rates, realizability of deferred tax assets, or exposure to
additional income tax liabilities, including the effects of the COVID-19 global
pandemic and the Coronavirus Aid, Relief, and Economic Security Act (the "CARES
Act");
•our ability to manage and grow our business and execution of our business and growth strategies;
•the level of capital investment and expenditures by our customers in our strategic markets;
•our financial performance;
•difficulties and delays in integrating or fully realizing projected cost savings and benefits of our acquisitions; and
•other risks and factors, listed in Item 1A. "Risk Factors" in Part I of our 2020 Form 10-K and Part II. Item 1A. "Risk Factors" in this Form 10-Q.
The effects of the COVID-19 pandemic, including the rise, prevalence and severity of variants of the virus and actions by governments, businesses and individuals in response to the situation, may give rise or contribute to or amplify the risks associated with many of these factors.
Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. These forward-looking statements speak only as of the date this Form 10-Q is filed with theSEC . We do not assume any obligation and do not intend to update any forward-looking statement except as required by law. See Part I. Item 1A. "Risk Factors" in our 2020 Form 10-K and Part II. Item 1A. "Risk Factors" in this Form 10-Q for a further discussion regarding some of the reasons that actual results may be materially different from those that we anticipate.
Overview
Please see Part I, Item 1. "Business" in our 2020 Form 10-K for a discussion of Colfax's objectives and methodologies for delivering shareholder value.
Colfax conducts its operations through two operating segments: Fabrication Technology and Medical Technology.
•Fabrication Technology - a leading global supplier of consumable products and equipment for use in the cutting, joining and automated welding, as well as gas control equipment, providing a wide range of products with innovative technologies to solve challenges in a wide range of industries. •Medical Technology - a leader in orthopedic solutions, providing devices, software and services spanning the full continuum of patient care, from injury prevention to joint replacement to rehabilitation.
Certain amounts not allocated to the two reportable segments and intersegment eliminations are reported under the heading "Corporate and other."
We have a global footprint, with production facilities inEurope ,North America ,South America ,Asia ,Australia andAfrica . We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels. Our customer base is highly diversified in the medical and industrial end markets. Integral to our operations is Colfax Business System ("CBS"), our business management system.CBS is our culture and includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders and associates. We believe that our management team's access to, and experience in, the application of theCBS methodology is one of our primary competitive strengths. 27
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Results of Operations
The following discussion of Results of Operations addresses the comparison of
the periods presented. Our management evaluates the operating results of each of
its reportable segments based upon Net sales, Segment operating income, which
represents Operating income before Restructuring and other related charges and
European Union Medical Devices Regulation ("MDR") costs, and Adjusted EBITA as
defined in the "Non-GAAP Measures" section.
Items Affecting Comparability of Reported Results
The comparability of our operating results for the three and nine months endedOctober 1, 2021 to the comparable periods in 2020 is affected by the number of selling days for each region and the following other significant items:
Recent Events
During the second quarter of 2021, we used the proceeds from ourMarch 2021 equity offering to redeem all$600 million of our 2024 senior notes and$100 million of outstanding principal on our 2026 senior notes. We paid an early redemption premium of$24.4 million and recorded a loss on the extinguishment of debt of$29.9 million . Additionally, we recognized a pension settlement gain of$11.2 million in the second quarter of 2021 when the independent trustees of a company pension plan agreed to merge that plan with another company pension plan and contribute its surplus assets.
The Separation
We currently report our operations through our Fabrication Technology and Medical Technology segments. These businesses operate in distinct markets, with unique business opportunities and investment requirements. OnMarch 4, 2021 , we announced the intention to separate these businesses into two differentiated, independent publicly traded companies. The Chairman of our board of directors and co-founder of Colfax,Mitchell P. Rales , is expected to serve on the boards of directors of both companies. We expect that the Separation will allow each company to: (1) optimize capital allocation for internal investment, mergers and acquisitions, and return of capital to shareholders; (2) tailor investment to its specific business profile and strategic priorities in the most efficient manner possible; (3) increase operating flexibility and resources to capitalize on growth opportunities in its respective markets; and (4) improve both investor alignment with its clear value proposition and the ability for investors to value it based on its distinct strategic, operational and financial characteristics. The Separation would also provide each company with an appropriately valued acquisition currency that could be used for larger, transformational transactions. We continue to make progress on the Separation and are targeting its completion in the first quarter of 2022. Completion of the Separation is subject to, among other things, completion of financing and other transactions on satisfactory terms, other steps necessary to qualify the Separation as a tax-free transaction, receipt of regulatory approvals, a favorable tax opinion and/orIRS ruling and final approval from our board of directors. There can be no assurance regarding the form and timing of the Separation or its completion. Details regarding the Separation will be included in our future filings with theSEC .
Please see Part II. Item 1A. "Risk Factors" in this Form 10-Q for further discussion of the Company's risks relating to the Separation.
The COVID-19 Pandemic
InDecember 2019 , a novel coronavirus disease ("COVID-19") was first reported inChina . OnMarch 11, 2020 , due to worldwide spread of the virus, theWorld 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 resulted in widespread economic disruptions, significantly affecting broader economies, financial markets, and overall demand for our products. In an effort to protect the health and safety of our employees, we have taken actions to adopt social distancing policies at our locations around the world, including working from home, reducing the number of people in our sites at any one time, and suspending or restricting employee travel. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted measures throughout 2020 and into 2021, including periodically closing businesses not deemed "essential," 28 -------------------------------------------------------------------------------- isolating residents to their homes, limiting access to healthcare, curtailing activities including sporting events, and practicing social distancing. Increased access to vaccinations has contributed to slowing the spread of COVID-19 in certain jurisdictions, resulting in some or all restrictions being lifted in a number of jurisdictions around the world, allowing a return to more normal activity and operational levels during the first half of 2021. However, the emergence and subsequent spread of COVID-19 variants has led to the reinstatement of certain restrictions, which slowed the pace of recovery during the third quarter of 2021. During 2020, we implemented a broad range of temporary actions to mitigate the effects of lower sales levels including temporarily reducing salaries, furloughing and laying-off employees, significantly curtailing discretionary expenses, re-phasing of capital expenditures, reducing supplier purchase levels and / or prices, adjusting working capital practices and other measures. As sales volumes have improved in 2021, these measures have been removed. As reflected in the discussions that follow, the pandemic and actions taken in response to it have had a variety of impacts on our results of operations during 2020 and 2021. In 2020, the pandemic began to impact our financial results in March, with the most severe financial impact occurring in the second quarter. Subsequently, we observed a partial recovery in the second half of 2020. The surge in COVID-19 cases in the fourth quarter of 2020 contributed to certain jurisdictions putting further restrictions into place, which slowed recovery in the fourth quarter of 2020, and the impact continued into the beginning of the first quarter of 2021, after which sales volumes began to normalize through the second quarter of 2021. Recovery of sales volumes slowed in the third quarter of 2021 due to increased restrictions in certain jurisdictions as a result of the spread of COVID-19 variants. We continue to monitor the evolving situation and guidance from international and domestic authorities, including national and local public health authorities, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control that require us to further adjust our operations. Given the continued dynamic nature of this situation, including the rise, prevalence and severity of variants of the virus, we cannot reasonably estimate the full impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. COVID-19 and other market dynamics have caused widespread supply chain challenges due to labor, raw material, and component shortages. As a result, we have experienced supply constraints in our businesses, which have led to cost inflation and logistics delays. We are taking actions in an effort to mitigate impacts to our supply chain, however, we expect these pressures to continue.
Please see Part II. Item 1A. "Risk Factors" in our 2020 Form 10-K for a further discussion of some of the risks related to the COVID-19 pandemic.
Strategic Acquisitions
We complement our organic growth plans with strategic acquisitions. Acquisitions can significantly affect our reported results, and we report the change in our Net sales between periods both from existing and acquired businesses. The change in Net sales due to acquisitions for the three and nine months endedOctober 1, 2021 presented in this filing represents the incremental sales subsequent to the beginning of the prior year periods. We completed one acquisition in our Fabrication Technology segment and five acquisitions in our Medical Technology segment during the nine months endedOctober 1, 2021 for net cash consideration of$208.1 million and equity consideration of$285.7 million . The largest of these acquisitions were in our Medical Technology segment, which includes Trilliant Surgical, a national provider of foot and ankle orthopedic implants;MedShape, Inc. , a provider of innovative surgical solutions for foot and ankle surgeons; andMathys AG Bettlach , aSwitzerland -based company that develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions and sports medicine.
Foreign Currency Fluctuations
A significant portion of our Net sales, approximately 59% for both the three and nine months endedOctober 1, 2021 , were derived from operations outside theU.S. , with the majority of those sales denominated in currencies other than theU.S. dollar. Because much of our manufacturing and employee costs are outside theU.S. , a significant portion of our costs are also denominated in currencies other than theU.S. dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant. For the nine months endedOctober 1, 2021 compared to the nine months endedOctober 2, 2020 , fluctuations in foreign currencies had a favorable impact on the change in Net sales of approximately 2% and affected Gross profit and Selling, general and administrative expenses by less than 2%. For the third quarter of 2021 compared to the 29 -------------------------------------------------------------------------------- third quarter of 2020, fluctuations in foreign currencies had a favorable impact on the change in Net sales of approximately 1%, and affected Gross profit and Selling, general and administrative expenses by less than 1%. The changes in foreign exchange rates sinceDecember 31, 2020 also decreased net assets by approximately 2% as ofOctober 1, 2021 .
Seasonality
European operations in our Fabrication Technology segment typically experience a
slowdown during the July, August and December vacation seasons. Sales in our
Medical Technology segment typically peak in the fourth quarter. However, the
business impact caused by the COVID-19 pandemic has distorted the effects of
historical seasonality patterns in 2020 and 2021.
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Non-GAAP Measures
Adjusted EBITA
Adjusted EBITA, a non-GAAP performance measure, is included in this report
because it is a key metric used by our management to assess our operating
performance. Adjusted EBITA excludes from Net income from continuing operations
the effect of restructuring and other related charges, MDR and other costs,
acquisition-related intangible asset amortization and other non-cash charges,
and strategic transaction costs, as well as income tax expense, pension
settlement gain, debt extinguishment charges and interest expense, net. We also
present Adjusted EBITA margin, which is subject to the same adjustments as
Adjusted EBITA. Further, we present Adjusted EBITA (and Adjusted EBITA margin)
on a segment basis, where we exclude the impact of restructuring and other
related charges, MDR and other costs, acquisition-related intangible asset
amortization and other non-cash charges, and strategic transaction costs from
segment operating income. Adjusted EBITA assists Colfax management in comparing
its operating performance over time because certain items may obscure underlying
business trends and make comparisons of long-term performance difficult, as they
are of a nature and/or size that occur with inconsistent frequency or relate to
discrete restructuring plans and other initiatives that are fundamentally
different from our ongoing productivity improvements. Colfax management also
believes that presenting these measures allows investors to view its performance
using the same measure that we use in evaluating our financial and business
performance and trends.
Non-GAAP financial measures should not be considered in isolation from, or as a
substitute for, financial information calculated in accordance with GAAP.
Investors are encouraged to review the reconciliation of these non-GAAP measures
to their most directly comparable GAAP financial measures. The following tables
set forth a reconciliation of Net income from continuing operations, the most
directly comparable GAAP financial measure, to Adjusted EBITA.
Three Months Ended Nine Months Ended
October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020
(Dollars in millions)
Net income from continuing operations (GAAP) $ 28.1 $ 16.8 $ 87.2 $ 22.6
Income tax expense 22.3 19.5 38.4 2.6
Pension settlement gain - - (11.2) -
Interest expense, net 13.5 25.6 57.0 78.6
Debt extinguishment charges - - 29.9 -
Restructuring and other related charges(1) 6.5 6.3 16.0 28.5
MDR and other costs(2) 1.9 2.6 5.6 4.5
Strategic transaction costs(3) 17.9 0.6 27.3 3.2
Acquisition-related amortization and other
non-cash charges(4) 41.3 36.2 118.8 108.1
Adjusted EBITA (non-GAAP) $ 131.6 $
107.7
2.9 % 2.1 % 3.1 % 1.0 %
Adjusted EBITA margin (non-GAAP) 13.6 % 13.4 % 13.0 % 11.1 %
(1) Restructuring and other related charges includes $2.2 million and $4.9
million of expense classified as Cost of sales on our Condensed Consolidated
Statements of Operations for the three and nine months ended October 2, 2020 ,
respectively.
(2) Primarily related to costs specific to compliance with medical device
reporting regulations and other requirements of the European Union MDR. These
costs are classified as Selling, general and administrative expense on our
Condensed Consolidated Statements of Operations.
(3) For the three and nine months ended October 1, 2021 , Strategic transaction
costs includes costs related to the Separation and certain transaction and
integration costs related to recent acquisitions. For the three and nine months
ended October 2, 2020 , Strategic transaction costs includes costs incurred for
the acquisition of DJO.
(4) Includes amortization of acquired intangibles and fair value charges on
acquired inventory.
31-------------------------------------------------------------------------------- The following tables set forth a reconciliation of operating income (loss), the most directly comparable financial statement measure, to Adjusted EBITA by segment for the three and nine months endedOctober 1, 2021 andOctober 2, 2020 . Three Months Ended October 1, 2021 Nine Months Ended October 1, 2021 Fabrication Corporate and Fabrication Medical Corporate and Technology Medical Technology other Total Technology Technology other Total (Dollars in millions) Operating income (loss) (GAAP) $ 86.4 $ 6.7
20.5$ (75.8) $ 201.2 Restructuring and other related charges 4.2 2.2 - 6.5 10.8 5.2 - 16.0 MDR and other costs - 1.9 - 1.9 - 5.6 - 5.6 Segment operating income (loss) (non-GAAP) 90.6 10.8 (29.1) 72.3 267.3 31.3 (75.8) 222.8 Strategic transaction costs 0.7 1.1 16.1 17.9 0.8 1.1 25.4 27.3 Acquisition-related amortization and other non-cash charges 8.9 32.4 - 41.3 27.1 91.7 - 118.8 Adjusted EBITA (non-GAAP)$ 100.3 $ 44.4$ (13.0) $ 131.6 $ 295.2$ 124.1 $ (50.4) $ 368.9 Segment operating income margin (non-GAAP) 15.0 % 3.0 % - % 7.5 % 14.8 % 3.0 % - % 7.9 % Adjusted EBITA margin (non-GAAP) 16.5 % 12.3 % - % 13.6 % 16.4 % 12.1 % - % 13.0 % Three Months Ended October 2, 2020
Nine Months Ended
Corporate and Fabrication Medical Corporate and
Fabrication Technology Medical Technology other Total Technology Technology other Total
(Dollars in millions)
Operating income (loss)
(GAAP) $ 60.5 $ 16.5 $ (15.1) $ 61.9 $ 164.3 $ (15.7) $ (44.7) $ 103.8
Restructuring and other
related charges(1) 2.5 3.8 - 6.3 11.4 17.1 - 28.5
MDR and other costs - 2.6 - 2.6 - 4.5 - 4.5
Segment operating income
(loss) (non-GAAP) 63.1 22.9 (15.1) 70.8 175.7 5.9 (44.7) 136.9
Strategic transaction
costs - - 0.6 0.6 - - 3.2 3.2
Acquisition-related
amortization and other
non-cash charges 9.1 27.1 - 36.2 26.8 81.3 - 108.1
Adjusted EBITA (non-GAAP) $ 72.2 $ 50.0 $ (14.5) $ 107.7 $ 202.5 $ 87.2 $ (41.5) $ 248.2
Segment operating income
(loss) margin (non-GAAP) 12.8 % 7.3 % - % 8.8 % 12.3 % 0.7 % - % 6.1 %
Adjusted EBITA margin
(non-GAAP) 14.7 % 15.9 % - % 13.4 % 14.1 % 10.7 % - % 11.1 %
(1) Restructuring and other related charges includes $2.2 million and $4.9
million of expense classified as Cost of sales on our Condensed Consolidated
Statements of Operations for the three and nine months ended October 2, 2020 ,
respectively.
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Sales
Net sales for the three and nine months ended
Three Months Ended Nine Months Ended
Net Sales Change % Net Sales Change %
(Dollars in millions)
For the three and nine months ended October
2, 2020 $ 805.9 $ 2,242.6
Components of Change:
Existing Businesses(1) 110.2 13.7 % 462.3 20.6 %
Acquisitions(2) 46.0 5.7 % 84.0 3.7 %
Foreign Currency Translation(3) 3.9 0.5 % 42.1 1.9 %
160.0 19.9 % 588.4 26.2 %
For the three and nine months ended October
1, 2021 $ 965.9 $ 2,831.0
(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions,
thus providing a measure of change due to factors such as price, product mix and
volume.
(2) Represents the incremental sales as a result of acquisitions closed
subsequent to the beginning of the prior year respective periods.
(3) Represents the difference between prior year sales valued at the actual
prior year foreign exchange rates and prior year sales valued at current year
foreign exchange rates.
The increase in Net sales during the three and nine months ended October 1, 2021
compared to the prior year periods was primarily attributable to the recovery
from the COVID-related sales downturn in 2020, as well as acquisition-related
sales and inflation-related pricing increases. During the three and nine months
ended October 1, 2021 , the existing business sales of our Fabrication Technology
segment increased $111.5 million and $342.5 million , respectively, while our
Medical Technology segment increased $119.8 million during the nine months ended
October 1, 2021 . Existing business sales in our Fabrication Technology segment
increased in the three months ended October 1, 2021 primarily due to
inflation-related pricing increases and, to a lesser extent, new product
initiatives and improved sales volume. During the nine months ended October 1,
2021 , existing business sales in our Fabrication Technology segment increased
due to strong sales volume, inflation-related pricing increases and new product
initiatives. Net sales from acquisitions increased during the three and nine
months ended October 1, 2021 primarily due to acquisitions in our Medical
Technology segment that closed in 2021 and in the fourth quarter of 2020. The
weakening of the U.S. dollar relative to other currencies resulted in $3.9
million and $42.1 million favorable foreign currency translation impacts during
the three and nine months ended October 1, 2021 , respectively.
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Operating Results The following table summarizes our results of continuing operations for the comparable periods.
Three Months Ended Nine Months Ended
October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020
(Dollars in millions)
Gross profit $ 404.9 $
344.1
41.9 % 42.7 % 42.2 % 41.6 %
Selling, general and administrative
expense $ 334.4 $
278.1
$ 64.0 $
61.9
6.6 % 7.7 % 7.1 % 4.6 %
Net income from continuing operations $ 28.1 $ 16.8 $ 87.2 $ 22.6 Net income margin from continuing operations
2.9 % 2.1 % 3.1 % 1.0 %
Adjusted EBITA (non-GAAP) $ 131.6 $
107.7
13.6 % 13.4 % 13.0 % 11.1 %
Items excluded from Adjusted EBITA:
Restructuring and other related
charges(1) $ 6.5 $ 6.3 $ 16.0 $ 28.5
MDR and other costs $ 1.9 $ 2.6 $ 5.6 $ 4.5
Strategic transaction costs $ 17.9 $ 0.6 $ 27.3 $ 3.2
Acquisition-related amortization and
other non-cash charges $ 41.3 $ 36.2 $ 118.8 $ 108.1
Pension settlement gain $ - $ - $ (11.2) $ -
Interest expense, net $ 13.5 $ 25.6 $ 57.0 $ 78.6
Debt extinguishment charges $ - $ - $ 29.9 $ -
Income tax expense $ 22.3 $ 19.5 $ 38.4 $ 2.6
(1) Restructuring and other related charges includes $2.2 million and $4.9
million of expense classified as Cost of sales on our Condensed Consolidated
Statements of Operations for the three and nine months ended October 2, 2020 ,
respectively.
Third Quarter of 2021 Compared to Third Quarter of 2020
Gross profit increased in the third quarter of 2021 compared with the prior year period due to a$33.0 million increase in our Fabrication Technology segment and a$27.7 million increase in our Medical Technology segment. The Gross profit increase in our Fabrication Technology segment was primarily attributable to a rebound from lower sales volumes in the third quarter of 2020 caused by the COVID-19 impact. The Gross profit increase in our Medical Technology segment was due to acquisition growth. Improved Gross profit in both segments was partially offset by increased supply chain and logistic costs. Gross profit margin was impacted by the same drivers as Gross profit, but decreased slightly due to inflation-related pricing and cost increases in our Fabrication Technology segment. Selling, general and administrative expense increased$56.3 million in the third quarter of 2021 compared to the prior year period due to$36.1 million of costs related to acquired businesses, the cessation of prior year temporary cost reduction measures that were taken in response to COVID-19, and a$17.3 million increase in strategic transaction costs due to Separation-related costs. Interest expense, net decreased in the third quarter of 2021 compared to the prior year period due to a reduction in debt balances, primarily as a result of the redemption of senior notes in the second quarter of 2021. The effective tax rate for Net income from continuing operations during the third quarter of 2021 was 44.3%, which was higher than the 2021 U.S. federal statutory tax rate of 21%, mainly due to the relative unfavorable increase inU.S. tax on international operations due to lowerU.S. forecasted income and increased taxable foreign exchange gains as compared to the three months endedJuly 2, 2021 and nine months endedOctober 1, 2021 . The effective tax rate for the third quarter of 2020 was 53.7%, which was higher than the 2020 U.S. federal statutory tax rate of 21% mainly due to the net impact of additional 34 --------------------------------------------------------------------------------U.S. tax on international operations, withholding taxes, and certain non-deductible expenses. These unfavorable impacts were partially offset by the impact ofU.S. tax credits, a benefit fromU.S. state tax losses, and the realization of tax benefits associated with effective settlements of uncertain tax positions. Net income from continuing operations increased in the third quarter of 2021 compared with the prior year period primarily due to the strong recovery from the prior year COVID-related sales downturn and related cost impacts. The sales-related benefits from this recovery were partially offset by increases in expenses attributable to the cessation of aforementioned temporary cost reductions in place during the third quarter of 2020 in reaction to COVID-driven sales reductions, as well as increased supply chain and logistic costs and higher Selling, general and administrative expenses associated with the Separation. Net income margin from continuing operations increased by 80 basis points due to the aforementioned factors. Adjusted EBITA increased due to the improved sales volumes, partially offset by higher supply chain and logistic costs and the cessation of third quarter 2020 temporary cost reductions. Adjusted EBITA margin increased for the same reasons Adjusted EBITA increased, partially offset by inflation-related pricing and cost increases in our Fabrication Technology segment, as well as recent acquisitions in our Medical Technology segment which were dilutive to the margin, but are expected to be accretive in future years.
Nine months ended
Gross profit increased in the nine months endedOctober 1, 2021 compared with the prior year period due to a$122.5 million increase in our Fabrication Technology segment and a$139.1 million increase in our Medical Technology segment. The Gross profit increase was primarily attributable to higher sales volumes and the related improved production variances compared to the nine months endedOctober 2, 2020 , during which sales volumes were negatively impacted by the COVID-19 pandemic. During the nine months endedOctober 1, 2021 , Gross profit also improved due to acquisition growth, new product initiatives and favorable foreign currency impacts, partially offset by increased supply chain and logistic costs in both segments. Gross profit margin increased for the same reasons, partially offset by inflation-related pricing and cost increases in our Fabrication Technology segment. Selling, general and administrative expense increased$171.7 million in the nine months endedOctober 1, 2021 compared to the prior year period, primarily due to a$69.9 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses, primarily within our Medical Technology segment, the cessation of prior year temporary cost reduction measures that were taken in response to COVID-19, and increased sales commissions from increased sales levels. A$24.1 million increase in strategic transaction costs related to the Separation also increased Selling, general and administrative expense during the nine months endedOctober 1, 2021 . Restructuring and other related charges decreased due to the completion of certain restructuring programs in our Medical Technology segment. Additionally, during the nine months endedOctober 1, 2021 , a pension settlement gain of$11.2 million was recognized when the independent trustees of a company pension plan agreed to merge that plan with another company pension plan and contribute its surplus assets. Debt extinguishment charges of$29.9 million were recorded in the second quarter of 2021 due to an early redemption of certain senior notes. Interest expense, net decreased in the nine months endedOctober 1, 2021 compared to the same period in the prior year, primarily due to an overall reduction in debt balances during the current year period as a result of the aforementioned redemption of senior notes. The effective tax rate for Net income from continuing operations during the nine months endedOctober 1, 2021 was 30.6%, which was higher than the 2021 U.S. federal statutory tax rate of 21%, mainly due to withholding taxes,U.S. tax on international operations, and other non-deductible expenses, offset in part by the effective settlements of uncertain tax positions, a benefit fromU.S. state tax losses, andU.S. tax credits. The effective tax rate for the nine months endedOctober 2, 2020 was 10.5%, which was lower than the 2020 U.S. federal statutory tax rate of 21% mainly due to the net impact ofU.S. tax credits, a benefit fromU.S. state tax losses, a discrete tax benefit associated with the filing of timely elected changes toU.S. Federal tax returns to credit rather than to deduct foreign taxes, the impact of an enacted law change inIndia , and the realization of tax benefits associated with effective settlements of uncertain tax positions. These favorable impacts were partially offset by the impact of additionalU.S. tax on international operations, withholding taxes, and certain non-deductible expenses. Net income from continuing operations increased in the nine months endedOctober 1, 2021 compared with the prior year period primarily due to the strong recovery from the prior year COVID-related sales downturn. The sales-related benefits from this recovery in the nine months endedOctober 1, 2021 were partially offset by increases in expenses attributable to the 35 -------------------------------------------------------------------------------- cessation of aforementioned temporary cost reductions implemented during the nine months endedOctober 2, 2020 in reaction to COVID-driven sales reductions, as well as increased supply chain and logistic costs. In the nine months endedOctober 1, 2021 , we incurred higher sales commissions related to greater sales and debt extinguishment charges. Net income margin from continuing operations increased by 210 basis points due to the aforementioned factors. Adjusted EBITA increased primarily due to the improved sales volumes, new product initiatives, and benefits from previously-completed restructuring programs, partially offset by the aforementioned supply chain and logistic costs and sales commission increases, and the cessation of the aforementioned temporary cost reductions. Adjusted EBITA margin increased for the same reasons Adjusted EBITA increased, partially offset by inflation-related pricing increases in our Fabrication Technology segment, as well as recent acquisitions in our Medical Technology segment which were dilutive to the margin, but are expected to be accretive in future years. Business Segments
As discussed above, we report results in two reportable segments: Fabrication Technology and Medical Technology.
Fabrication Technology
We formulate, develop, manufacture and supply consumable products and equipment,
including cutting, joining, and automated welding products, as well as gas
control equipment. Our fabrication technology products are marketed under
several brand names, most notably ESAB, providing a wide range of products with
innovative technologies to solve challenges in virtually any industry. ESAB's
comprehensive range of welding consumables includes electrodes, cored and solid
wires, and fluxes using a wide range of specialty and other materials, and
cutting consumables including electrodes, nozzles, shields and tips. ESAB's
fabrication technology equipment ranges from portable welding machines to large
customized automated cutting and welding systems. ESAB also offers a range of
digital software and solutions to help its customers increase their
productivity, remotely monitor their welding operations and digitize their
documentation. Products are sold into a wide range of end markets, including
infrastructure, wind power, marine, medical/life sciences, pipelines,
mobile/off-highway equipment, oil, gas, and mining.
The following table summarizes selected financial results for our Fabrication
Technology segment:
Three Months Ended Nine Months Ended
October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020
(Dollars in millions)
Net sales $ 606.0 $
491.5
$ 207.0 $
174.0
34.2 % 35.4 % 34.7 % 35.1 %
Selling, general and administrative
expense $ 116.4 $
110.9
15.0 % 12.8 % 14.8 % 12.3 %
Adjusted EBITA (non-GAAP) $ 100.3 $
72.2
16.5 % 14.7 % 16.4 % 14.1 %
Items excluded from Adjusted EBITA:
Restructuring and other related charges $ 4.2 $ 2.5 $ 10.8 $ 11.4 Strategic transaction costs
$ 0.7 $ - $ 0.8 $ -
Acquisition-related amortization and
other non-cash charges $ 8.9 $ 9.1 $ 27.1 $ 26.8
Third Quarter of 2021 Compared to Third Quarter of 2020
Net sales in our Fabrication Technology segment increased$114.5 million in the third quarter of 2021 compared with the prior year period driven by inflation-related pricing impacts, which comprised approximately 15% of the increase, as well as new product initiatives and improved sales volumes due to continued market recovery from COVID-19. Gross profit increased$33.0 million due to the higher sales volumes compared to the prior year period. Gross profit margin decreased 120 basis points due to inflation-related pricing and cost increases, which compressed the margin. Selling, general and administrative expense increased primarily due to the cessation of temporary cost reductions in place during the third quarter of 2020, partially offset by favorable resolutions of certain trade receivables and other risks. Segment operating income and Adjusted EBITA improved 36 -------------------------------------------------------------------------------- due to increased sales volumes, partially offset by increased Selling, general and administrative expenses. The related margins increased for the same reasons, partially offset by inflation-related pricing and cost increases during the third quarter of 2021.
Nine months ended
Net sales increased$372.5 million in the nine months endedOctober 1, 2021 compared with the prior year period due to the strong recovery from the COVID-19 effects in the nine months endedOctober 2, 2020 , as well as new product initiatives, inflation-related pricing impacts, and a$28.4 million favorable foreign currency translation impact. Gross profit increased$122.5 million during the nine months endedOctober 1, 2021 as a result of improved sales volumes and production efficiencies, while Gross profit margin decreased 40 basis points due to inflation-related pricing and cost increases, which compressed the margin. Selling, general and administrative expense increased in the period primarily due to the cessation of temporary cost reductions implemented in the second quarter of 2020, partially offset by benefits from restructuring initiatives. Segment operating income and Adjusted EBITA increased in the nine months endedOctober 1, 2021 compared to the prior year period due to the improved sales volumes, partially offset by increased Selling, general and administrative costs. The related margins increased for the same reasons, partially offset by inflation-related pricing and cost increases over the same period. Medical Technology We develop, manufacture and distribute high-quality medical devices and services across the continuum of patient care from injury prevention to joint replacement to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion. Our products are used by orthopedic specialists, spine surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals. Our products primarily include orthopedic braces, rehabilitation devices, footwear, surgical implants, and bone growth stimulators. The following table summarizes the selected financial results for our Medical Technology segment: Three Months Ended Nine Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 (Dollars in millions) Net sales$ 359.9 $ 314.4 $ 1,027.1 $ 811.2 Gross profit$ 197.9 $ 170.2 $ 569.8 $ 430.7 Gross profit margin 55.0 % 54.1 % 55.5 % 53.1 %
Selling, general and administrative expense
152.1
22.9 $ 31.3 $ 5.9 Segment operating income margin (non-GAAP)
3.0 % 7.3 % 3.0 % 0.7 %
Adjusted EBITA (non-GAAP) $ 44.4 $
50.0
12.3 % 15.9 % 12.1 % 10.7 %
Items excluded from Adjusted EBITA:
Restructuring and other related charges(1) $ 2.2 $ 3.8 $ 5.2 $ 17.1 MDR and other costs
$ 1.9 $ 2.6 $ 5.6 $ 4.5 Strategic transaction costs
$ 1.1 $ - $ 1.1 $ -
Acquisition-related amortization and other
non-cash charges $ 32.4 $ 27.1 $ 91.7 $ 81.3
(1) Restructuring and other related charges includes$2.2 million and$4.9 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations for the three and nine months endedOctober 2, 2020 , respectively.
Third Quarter of 2021 Compared to Third Quarter of 2020
Net sales increased in our Medical Technology segment in the third quarter of 2021 compared with the prior year period primarily due to acquisition-related sales growth of$45.5 million in the current year period. Sales from existing business were relatively flat and were unfavorably impacted by approximately$7 million of non-recurring sales of personal protective equipment in the prior year period. As a result of the surge in cases of COVID-19 variants, certain jurisdictions put further 37 -------------------------------------------------------------------------------- COVID-19-related restrictions in place during the third quarter of 2021, which decelerated the recovery in elective surgical procedure volumes. Gross profit and gross profit margins increased in the third quarter of 2021 compared to the third quarter of 2020 primarily due to acquisition-related growth and favorable product mix, partially offset by increased supply chain and logistic costs. Selling, general and administrative expense increased over the same period primarily due to the cessation of temporary employee cost reductions in place during the third quarter of 2020 and costs associated with acquisitions, including integration costs for the newly-acquired businesses. Segment operating income and Adjusted EBITA decreased primarily due to the aforementioned cessation of temporary employee cost reductions and increased supply chain and logistic costs. The related margins decreased for the same reasons, as well as a result of the dilutive impact of recent acquisitions. Restructuring and other related charges decreased by$1.6 million due to the completion of certain projects in earlier periods.
Nine months ended
Net sales increased in our Medical Technology segment in the nine months endedOctober 1, 2021 compared with the prior year period due to a recovery in sales volumes from the decline related to COVID-19 during the nine months endedOctober 2, 2020 , as well as continued expansion in the reconstructive product group from key products launched in 2020, acquisition-related sales growth of$82.4 million and a favorable foreign currency translation impact of$13.7 million . After a surge of COVID-19 cases in the fourth quarter of 2020, which negatively impacted sales volumes early in 2021, sales volumes began normalizing late in the first quarter and through the second quarter of 2021. However, as a result of the aforementioned surge in cases of COVID-19 variants, recovery slowed during the third quarter of 2021, primarily due to a deceleration in elective surgical procedure volumes. Gross profit and Gross profit margins increased during the nine months endedOctober 1, 2021 compared to the prior year period due to improved sales volumes and acquisition-related growth, partially offset by increased supply chain and logistic costs. Selling, general and administrative expense also increased primarily due to costs associated with acquisitions and the related integration costs for the newly-acquired businesses, the cessation of temporary employee cost reductions implemented during the nine months endedOctober 2, 2020 , and higher sales commissions in the current year period. Segment operating income, Adjusted EBITA, and related margins all increased as a result of the aforementioned factors. Restructuring and other related charges decreased by$11.9 million due to the completion of certain projects. 38
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Liquidity and Capital Resources
Overview
We finance our long-term capital and working capital requirements through a combination of cash flows from operating activities, various borrowings and the issuances of equity. We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, Separation costs, capital expenditures, restructuring, asbestos-related cash outflows, and debt service and required amortization of principal. We believe we could raise additional funds in the form of debt or equity if it was determined to be appropriate for strategic acquisitions or other corporate purposes.
Equity Capital
OnMarch 19, 2021 , we completed the underwritten public offering of 16.1 million shares of our Common stock at a price to the public of$46.00 per share, resulting in net proceeds of$711.3 million , after deducting offering expenses and underwriters' discount and commissions. We used these proceeds to pay down certain of our senior notes, as discussed further below. In 2018, our Board of Directors authorized the repurchase of our Common stock from time-to-time on the open market or in privately negotiated transactions. No stock repurchases have been made under this plan since the third quarter of 2018. As ofOctober 1, 2021 , the remaining stock repurchase authorization provided by our Board of Directors was$100.0 million . The timing, amount, and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors. There is no term associated with the remaining repurchase authorization.
Term Loan and Revolving Credit Facility
Our credit agreement (the "Credit Facility") by and among the Company, as the borrower, certainU.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 initial aggregate principal amount of$825 million , each with a maturity date ofDecember 6, 2024 . The Revolver contains a$50 million swing line loan sub-facility. Refer to Note 10, "Debt" in the accompanying Notes to the Condensed Consolidated Financial Statements for more information. As ofOctober 1, 2021 , we are in compliance with the covenants under the Credit Facility. As ofOctober 1, 2021 , the weighted-average interest rate of borrowings under the Credit Facility was 1.59%, excluding accretion of original issue discount and deferred financing fees, and there was$850 million available on the Revolver. Euro Senior Notes Our senior unsecured notes with an aggregate principal amount of €350 million (the "Euro Notes") are due inApril 2025 , have an interest rate of 3.25%, and are guaranteed by certain of our domestic subsidiaries (the "Guarantees"). The Euro Notes and the Guarantees have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any other jurisdiction.
TEU Amortizing Notes
Our TEU amortizing notes with an initial principal amount of$15.6099 per unit, bear interest at a rate of 6.50% per annum, and have equal quarterly cash installments of$1.4375 per TEU amortizing note with a final installment payment date ofJanuary 15, 2022 . The quarterly cash installment constitutes a payment of interest and a partial repayment of principal. We paid$18.6 million and$17.4 million of principal on the TEU amortizing notes in the nine months endedOctober 1, 2021 andOctober 2, 2020 , respectively. The TEU amortizing notes are the direct, unsecured and unsubordinated obligations of the Company and rank equally with all of the existing and future other unsecured and unsubordinated indebtedness of the Company. Refer to Note 10, "Debt" in the accompanying Notes to Condensed Consolidated Financial Statements for more information. 39
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2024 Notes and 2026 Notes
We had senior notes with an aggregate principal amount of$600 million (the "2024 Notes"), which were due onFebruary 15, 2024 and had an interest rate of 6.0%. We have senior notes with an initial aggregate principal amount of$400 million (the "2026 Notes"), which are due onFebruary 15, 2026 and have an interest rate of 6.375%. The 2026 Notes are guaranteed by certain of our domestic subsidiaries. We redeemed all of the outstanding 2024 Notes and$100 million of the outstanding principal amount of our 2026 Notes onApril 24, 2021 . Refer to Note 10, "Debt", in the accompanying Notes to Condensed Consolidated Financial Statements for more information.
Other Indebtedness
In addition, we are party to various bilateral credit facilities with a
borrowing capacity of
We are also party to letter of credit facilities with an aggregate capacity of$292.9 million . Total letters of credit of$34.6 million were outstanding as ofOctober 1, 2021 .
We believe that our sources of liquidity are adequate to fund our operations for the next twelve months.
Cash Flows As ofOctober 1, 2021 , we had$177.5 million of Cash and cash equivalents, an increase of$76.4 million from the balance as ofDecember 31, 2020 of$101.1 million , which included$4.0 million of Restricted cash. The following table summarizes the change in Cash and cash equivalents during the periods indicated: Nine Months Ended October 1, 2021 October 2, 2020 (Dollars in millions) Net cash provided by operating activities $ 259.9 $ 173.1 Purchases of property, plant and equipment (73.6) (81.6) Proceeds from sale of property, plant and equipment 2.9 4.9 Acquisitions, net of cash received, and investments (223.0) (7.5) Net cash used in investing activities (293.6) (84.1) Repayments from borrowings, net (594.3) (116.1) Proceeds from issuance of common stock, net 738.2 2.9 Payment of debt extinguishment costs (24.4) - Other (7.7) (12.4) Net cash provided by (used in) financing activities 111.8 (125.6) Effect of foreign exchange rates on Cash and cash equivalents (1.7) (6.6) Increase (decrease) in Cash and cash equivalents $ 76.4
$ (43.2)
Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as pension funding, asbestos-related costs and restructuring. Changes in significant operating cash flow items are discussed below.
•During the nine months ended
•During the nine months ended
•Year-to-date 2021 results include$69.0 million of outflows from working capital as a result of business growth and supply chain challenges, which have caused certain increases in inventory levels. Results in the comparable prior year 40
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period provided cash of
•Year-to-date 2021 net cash provided by operating activities also included a cash inflow from a$36.0 million U.S. federal tax refund received in the first quarter of 2021. •Cash used in operating activities related to discontinued operations for the nine months endedOctober 1, 2021 was$7.2 million , primarily due to a settlement related to a disposed business, partially offset by net asbestos inflows. Cash used in operating activities related to discontinued operations for the nine months endedOctober 2, 2020 was$18.4 million , which included$11.2 million of asbestos outflows and$7.2 million related to our divested air and gas handling business. Cash flows used in investing activities during the nine months endedOctober 1, 2021 increased due to cash paid for acquisitions and investments in our Medical Technology segment of$218.0 million , as well as an acquisition outlay in our Fabrication Technology segment of$5.0 million . Cash flows provided by financing activities for the nine months endedOctober 1, 2021 included the$711.3 million net proceeds from the public offering of 16.1 million shares of Colfax Common stock onMarch 19, 2021 . The net proceeds were used in the$600 million full redemption of our 2024 Notes and the$100 million partial redemption of our 2026 Notes. Cash flows from financing activities includes net borrowings on our Revolver of$125 million in 2021 and net repayments of$50.0 million and$40.0 million on our Revolver and Term A-1 loan, respectively, in 2020. Our Cash and cash equivalents as ofOctober 1, 2021 include$44.6 million held in jurisdictions outside theU.S. , a decrease of$6.0 million in the third quarter of 2021. Cash repatriation of non-U.S. cash into theU.S. may be subject to taxes, other local statutory restrictions and minority owner distributions.
Critical Accounting Policies
The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial position. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position.
There have been no other significant additions or changes to the methods, estimates and judgments included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" in our 2020 Form 10-K.
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