SEC Company Response from Enovis CORP (ENOV) (CIK 0001420800) (ENOV) — May 26, 2015
Enovis CORP (ENOV) (CIK 0001420800)
Date: May 26, 2015 · CIK: 0001420800 · Accession: 0000932440-15-000167
AI Filing Summary & Sentiment
File numbers found in text: 001-34045
Referenced dates: April 30, 2015
Letter
Via EDGAR Division of Corporation Finance Colfax Corporation Form 10-K for the Fiscal Year Ended December 31, 2014 Filed February 17, 2015 File No. 001-34045
Dear Mr. Cascio:
On behalf of Colfax Corporation (“the Company” or “we,” “us,” or “our”), this letter is in response to the staff’s comments, dated April 30, 2015, regarding the Company’s Form 10-K for the Fiscal Year Ended December 31, 2014. The responses to the staff’s comments are numbered to correspond to the comments in your letter.
Form 10-K for the Fiscal Year Ended December 31, 2014
Risk Factors, page 9
1.
You disclose that foreign subsidiaries have conducted business in countries subject to U.S. sanctions, that Syria and certain other countries are identified by the U.S. State Department as state sponsors of terrorism, and that foreign subsidiaries previously made a small number of sales to Cuba from 2003 through 2007. However, it is not clear from your disclosure whether you or your subsidiaries currently conduct business with Syria, Sudan and Cuba, which are designated by the U.S. Department of State as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls. Please describe to us the nature and extent of your past, current, and anticipated contacts with
Syria, Sudan and Cuba since your May 4, 2012 letter to us, whether through subsidiaries, affiliates, distributors, resellers or other direct or indirect arrangements. We note, for instance, that a 2012 news article reports that Soldex, which you acquired in 2012, has a presence in Sudan; Allweiler-Farid Pup Co.’s website supply and installation list includes several companies in Syria; a third party business directory website listing for Allweiler Farid Pumps Co.’s Cairo office states that Allweiler exports pumps to Syria and Sudan; and a 2014 company profile reports that Siemens AG is a customer, and Siemens’ 2013 Form 20-F discloses that it does business with Syria, Sudan and Cuba. You should describe any products or services you have provided to Syria, Sudan or Cuba, directly or indirectly, and any agreements, commercial arrangements, or other contacts with the governments of those countries or entities they control.
Response:
The Company has very limited contacts with Sudan and Syria through sales by the Company’s independently operated non-U.S. subsidiaries to customers located in those countries. There were no sales to Cuba during the period of review.1 The Company believes that these non-U.S. activities are either not subject to or are in compliance with U.S. laws and regulations. Further, the non-U.S. subsidiaries do not maintain offices, assets, or employees in the Sanctioned Countries.
As described in more detail below, we do not believe that our non-U.S. subsidiaries’ activities in the Sanctioned Countries, either individually or in the aggregate, are material to our overall financial performance or constitute a material risk to our investors. In reaching this conclusion, the Company has considered quantitative factors, including the fact that sales to the Sanctioned Countries represented *. We have also considered qualitative factors that, as discussed below, include compliance with U.S. laws and regulations, and the nature and extent of non-U.S. subsidiary contacts.
Compliance Program
The Company maintains a comprehensive trade compliance program designed to ensure that the Company and its subsidiaries comply with applicable trade laws and regulations, including U.S. sanctions programs. Pursuant to this program, sales to Cuba, Sudan, and Syria are prohibited from all U.S. companies. Non-U.S. subsidiaries are prohibited from dealing with Cuba. Any sales to Sudan and Syria must be vetted by foreign subsidiaries through the facility’s export control and sanctions compliance program to ensure compliance with U.S. and other applicable sanctions and trade laws. This program, among other controls, prohibits U.S.-origin content from being sold to U.S.-sanctioned destinations, prohibits U.S. person involvement in any transaction with a sanctioned country, and is designed to prevent impermissible transactions with a prohibited or denied party under the applicable regulations. These procedures are
1 Cuba, Syria, and Sudan will hereinafter collectively be referred to as the “Sanctioned Countries.”
implemented through a variety of compliance tools, including widely disseminated policies, ERP system screening and compliance holds, Monitored Country Review procedures, and extensive employee training and awareness. Program compliance is incorporated into the Company’s Code of Business Conduct and Ethics. This program is deemed by the Company to meet and exceed industry compliance standards.
Policies
The Company prohibits all sales to sanctioned countries from any U.S. operation. The Company also prohibits its U.S. businesses, U.S. personnel, and any employees of non-U.S. subsidiaries who are U.S. persons from participating in, approving, or otherwise facilitating any aspect of the business activities in any U.S.-sanctioned country.
Soldex
Your letter identifies a news article reporting that Soldex has a presence in Sudan. On October 31, 2012, the Company acquired an approximately 91 percent interest in Soldex S.A., a company headquartered in Peru with plants in Lima and Bogota, Colombia, and on August 5, 2013, the Company completed a tender offer for shares of Soldex that increased its ownership to approximately 99 percent. Soldex continues to operate as an independent non-U.S. subsidiary of the Company.
Consistent with the applicable national laws and regulations governing Soldex’s activities prior to acquisition by the Company, Soldex lawfully engaged in limited sales to Sudan between 2008 and 2010. Soldex has not had sales nor maintained contacts in Sudan since 2010. Since its acquisition by the Company, Soldex has been integrated into the Company’s trade compliance program. As described above, this program is designed to ensure compliance with all U.S. trade regulations, including U.S. sanctions on Syria, Sudan, and Cuba.
Allweiler-Farid Pump Co.
Your letter identified two website references to Allweiler-Farid Pump Co. providing service and sales Syria and Sudan:
Allweiler-Farid Pup Co.’s website supply and installation list includes several companies in Syria; a third party business directory website listing for Allweiler Farid Pumps Co.’s Cairo office states that Allweiler exports pumps to Syria and Sudan.
Allweiler-Farid Pump Co. (“Allweiler-Farid”) is the result of *.
U.S. law does not prohibit foreign companies from doing business with or in Syria or Sudan. As described above, the Company maintains a robust compliance program to ensure that U.S.-origin goods are not sold to U.S.-sanctioned destinations, U.S. persons are not involved in any transaction with a sanctioned country, and transactions with a prohibited or denied party under the applicable regulations are prevented. Consistent with that program and to the Company’s knowledge, no sales by the Company’s non-U.S. subsidiaries to or through
Allweiler-Farid were shipped or reexported to end users in Sudan or Syria during the period of review.
Siemens AG
Your letter notes that:
Siemens AG is a customer, and Siemens’ 2013 Form 20-F discloses that it does business with Syria, Sudan and Cuba.
Siemens is a large, sophisticated, publicly traded multi-national firm unrelated to the Company. The Company’s compliance program includes vigorous screening tools, including end use and end user reviews when appropriate, compliance reviews and holds, and other procedures to prohibit the sale or transfer of U.S.-origin goods or goods with more than a de minimis amount of U.S.-origin content to sanctioned countries. These systems are deployed with respect to sales to Siemens, as with all of the Company’s customers. The Company has no knowledge that its products sold to Siemens have been subsequently associated with Siemens’ business in the Sanctioned Countries or otherwise transferred in violation of applicable laws and regulations.
Colfax Corporation: U.S. Businesses2
No U.S. subsidiary of the Company has engaged in direct or indirect transactions with the Sanctioned Countries in the past three fiscal years and first quarter of 2015 pursuant to the Company’s trade compliance program. The Company’s U.S. businesses have no other past, current, or anticipated contacts with the Sanctioned Countries.
Colfax Corporation: Non-U.S. Businesses
There were no sales by the Company’s Colfax Fluid Handling or Howden3 independent non-U.S. businesses to Cuba, Syria, or Sudan based on a review of sales data. *.
There are no outstanding or anticipated contacts between the Colfax Fluid Handling division, Howden, or ESAB and the Sanctioned Countries. *.
Therefore, across the past three fiscal years and first quarter of 2015, sales by the Company’s non-U.S. businesses to the Sanctioned Countries comprised *. This is due to focused implementation and integration of the Company’s compliance policies and programs at non-U.S. subsidiaries acquired during the period of review.
2 Sales information *.
3 On January 13, 2012, the Company acquired Charter International, plc, a Jersey Corporation with headquarters in Ireland that held the ESAB and Howden businesses.
The Company’s non-U.S. subsidiaries do not, to the best of their knowledge, have any ongoing agreements or contacts with the governments of any of the Sanctioned Countries or entities controlled by them.
2.
Please discuss the materiality of any contacts with Syria, Sudan and Cuba you describe in response to the comment above, and whether those contacts constitute a material investment risk for your security holders. You should address materiality in quantitative terms, including the approximate dollar amounts of any associated revenues, assets, and liabilities for the last three fiscal years and the subsequent interim period. Also, address materiality in terms of qualitative factors that a reasonable investor would deem important in making an investment decision. You should address the potential impact of the investor sentiment evidenced by such actions directed toward companies that have operations associated with Syria, Sudan and Cuba.
Response:
The Company believes that its contacts with the Sanctioned Countries, both individually and in the aggregate, are not material to the Company’s overall financial performance and do not constitute a material risk to the Company’s reputation or to the Company’s security holders. This determination is based on quantitative and qualitative considerations. Based on a review of the Company’s sales data described above, including direct and indirect sales to Syria, Sudan, and Cuba, the Company believes that its limited past contacts with the Sanctioned Countries are not quantitatively material. Further, neither the Company nor any of its subsidiaries maintain offices, assets, or employees in the Sanctioned Countries.
The Company also believes that contacts by its non-U.S. subsidiaries with the Sanctioned Countries do not present a qualitative material risk to the Company, our reputation, or to our investors based on our analysis of relevant considerations. The Company’s compliance program, as described above, requires full adherence to U.S. sanctions laws and regulations. The extremely limited nature and extent of the Company’s contacts with the Sanctioned Countries over the period of review, in addition to the fact that Company sales to the Sanctioned Countries has declined significantly – to virtually no contact at all – since our May 4, 2012 letter, should further dictate the qualitative immateriality of the contacts. Therefore, we do not believe it is likely that the Company will become subject to negative investor sentiment as evidenced by actions directed toward companies that have operations associated with the Sanctioned Countries.
3.
Please tell us whether your contacts with Syria, Sudan, and/or Cuba involved products with military applications or dual uses, or products otherwise included on the Commerce Control List maintained by the Commerce Department.
Response:
Virtually all of the Company’s products are “dual use” in nature – with some, but not all, products being controlled for export under the Commerce Control List – because they could theoretically be used for commercial or military purposes. Information reviewed in preparing this
response indicates that none of the products sold by the Company’s non-U.S. subsidiaries in the Sanctioned Countries were designed or engineered for military use, nor were they licensable under the applicable dual-use export regulations. To the Company’s knowledge, none of the Company’s products sold to customers in the Sanctioned Countries are used in military or military-related applications. Based on the sales data cited above, the Sanctioned Country contacts over the period of review were in compliance with all applicable export laws and regulations. Further, non-U.S.-origin products that do not contain over de minimis amounts of U.S.-origin content that are sold in the Sanctioned Countries by the Company’s non-U.S. subsidiaries are not subject to U.S. Office of Foreign Assets Control sanctions provisions or to the U.S. Department of Commerce’s Export Administration Regulations.
In accordance with regular monitoring of its compliance program, the Company will continue to evaluate and monitor its U.S. and non-U.S. subsidiaries’ sales to ensure adherence to all applicable trade regulations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies, page 36
4.
We see from Schedule II on page 101 that cost and expenses charged to inventory were approximately $8.7 million, $21.6 million and $3.3 million in 2014, 2013 and 2012, respectively. Please explain to us the underlying reasons for the significant changes in estimates of the valuation of your inventory each period. Please also explain how you considered physical deterioration, obsolescence, changes in price levels, or other causes in determining the expenses recorded each period. In addition, tell us why you do not include the valuation of inventory as a critical accounting estimate. Refer to FASB ASC 330-10-35.
Response:
The variations in the charges to the excess and obsolete inventory reserve were primarily the result of the Charter acquisition. Colfax completed the Charter acquisition in 2012 which transformed the company from a fluid-handling business into a multi-platform enterprise with a strong global footprint. As a result, Colfax revenues grew from $693 million in 2011 to $3,914 million in 2012.
The Charter acquisition included $450 million of acquired inventory far exceeding the prior year end inventory balance of $56 million. In accordance with ASC 805 the acquired inventories were recorded at fair value and therefore reflected no allowance for excess and obsolete inventory as of the acquisition date. As the acquired inventory was sold or otherwise disposed it was replaced with newly produced inventory. As the newly produced inventory aged, deteriorated, or became technically obsolete, an allowance for excess and obsolete inventory was established in accordance with the policies as described below resulting in a significant increase in the charges in 2013. The
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CERTAIN PORTIONS OF THIS LETTER HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED PURSUANT TO RULE 83 OF THE COMMISSION’S RULES ON INFORMATION AND REQUESTS WITH RESPECT TO THE OMITTED PORTIONS. OMITTED INFORMATION HAS BEEN REPLACED IN THIS LETTER WITH A PLACEHOLDER IDENTIFIED BY THE MARK “*”.
May 26, 2015
Via EDGAR
U.S. Securities and Exchange Commission
Brian Cascio, Chief
Accounting Branch
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549
Re:
Colfax Corporation
Form 10-K for the Fiscal Year Ended December 31, 2014
Filed February 17, 2015
File No. 001-34045
Dear Mr. Cascio:
On behalf of Colfax Corporation (“the Company” or “we,” “us,” or “our”), this letter is in response to the staff’s comments, dated April 30, 2015, regarding the Company’s Form 10-K for the Fiscal Year Ended December 31, 2014. The responses to the staff’s comments are numbered to correspond to the comments in your letter.
Form 10-K for the Fiscal Year Ended December 31, 2014
Risk Factors, page 9
1.
You disclose that foreign subsidiaries have conducted business in countries subject to U.S. sanctions, that Syria and certain other countries are identified by the U.S. State Department as state sponsors of terrorism, and that foreign subsidiaries previously made a small number of sales to Cuba from 2003 through 2007. However, it is not clear from your disclosure whether you or your subsidiaries currently conduct business with Syria, Sudan and Cuba, which are designated by the U.S. Department of State as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls. Please describe to us the nature and extent of your past, current, and anticipated contacts with
Syria, Sudan and Cuba since your May 4, 2012 letter to us, whether through subsidiaries, affiliates, distributors, resellers or other direct or indirect arrangements. We note, for instance, that a 2012 news article reports that Soldex, which you acquired in 2012, has a presence in Sudan; Allweiler-Farid Pup Co.’s website supply and installation list includes several companies in Syria; a third party business directory website listing for Allweiler Farid Pumps Co.’s Cairo office states that Allweiler exports pumps to Syria and Sudan; and a 2014 company profile reports that Siemens AG is a customer, and Siemens’ 2013 Form 20-F discloses that it does business with Syria, Sudan and Cuba. You should describe any products or services you have provided to Syria, Sudan or Cuba, directly or indirectly, and any agreements, commercial arrangements, or other contacts with the governments of those countries or entities they control.
Response:
The Company has very limited contacts with Sudan and Syria through sales by the Company’s independently operated non-U.S. subsidiaries to customers located in those countries. There were no sales to Cuba during the period of review.1 The Company believes that these non-U.S. activities are either not subject to or are in compliance with U.S. laws and regulations. Further, the non-U.S. subsidiaries do not maintain offices, assets, or employees in the Sanctioned Countries.
As described in more detail below, we do not believe that our non-U.S. subsidiaries’ activities in the Sanctioned Countries, either individually or in the aggregate, are material to our overall financial performance or constitute a material risk to our investors. In reaching this conclusion, the Company has considered quantitative factors, including the fact that sales to the Sanctioned Countries represented *. We have also considered qualitative factors that, as discussed below, include compliance with U.S. laws and regulations, and the nature and extent of non-U.S. subsidiary contacts.
Compliance Program
The Company maintains a comprehensive trade compliance program designed to ensure that the Company and its subsidiaries comply with applicable trade laws and regulations, including U.S. sanctions programs. Pursuant to this program, sales to Cuba, Sudan, and Syria are prohibited from all U.S. companies. Non-U.S. subsidiaries are prohibited from dealing with Cuba. Any sales to Sudan and Syria must be vetted by foreign subsidiaries through the facility’s export control and sanctions compliance program to ensure compliance with U.S. and other applicable sanctions and trade laws. This program, among other controls, prohibits U.S.-origin content from being sold to U.S.-sanctioned destinations, prohibits U.S. person involvement in any transaction with a sanctioned country, and is designed to prevent impermissible transactions with a prohibited or denied party under the applicable regulations. These procedures are
1 Cuba, Syria, and Sudan will hereinafter collectively be referred to as the “Sanctioned Countries.”
implemented through a variety of compliance tools, including widely disseminated policies, ERP system screening and compliance holds, Monitored Country Review procedures, and extensive employee training and awareness. Program compliance is incorporated into the Company’s Code of Business Conduct and Ethics. This program is deemed by the Company to meet and exceed industry compliance standards.
Policies
The Company prohibits all sales to sanctioned countries from any U.S. operation. The Company also prohibits its U.S. businesses, U.S. personnel, and any employees of non-U.S. subsidiaries who are U.S. persons from participating in, approving, or otherwise facilitating any aspect of the business activities in any U.S.-sanctioned country.
Soldex
Your letter identifies a news article reporting that Soldex has a presence in Sudan. On October 31, 2012, the Company acquired an approximately 91 percent interest in Soldex S.A., a company headquartered in Peru with plants in Lima and Bogota, Colombia, and on August 5, 2013, the Company completed a tender offer for shares of Soldex that increased its ownership to approximately 99 percent. Soldex continues to operate as an independent non-U.S. subsidiary of the Company.
Consistent with the applicable national laws and regulations governing Soldex’s activities prior to acquisition by the Company, Soldex lawfully engaged in limited sales to Sudan between 2008 and 2010. Soldex has not had sales nor maintained contacts in Sudan since 2010. Since its acquisition by the Company, Soldex has been integrated into the Company’s trade compliance program. As described above, this program is designed to ensure compliance with all U.S. trade regulations, including U.S. sanctions on Syria, Sudan, and Cuba.
Allweiler-Farid Pump Co.
Your letter identified two website references to Allweiler-Farid Pump Co. providing service and sales Syria and Sudan:
Allweiler-Farid Pup Co.’s website supply and installation list includes several companies in Syria; a third party business directory website listing for Allweiler Farid Pumps Co.’s Cairo office states that Allweiler exports pumps to Syria and Sudan.
Allweiler-Farid Pump Co. (“Allweiler-Farid”) is the result of *.
U.S. law does not prohibit foreign companies from doing business with or in Syria or Sudan. As described above, the Company maintains a robust compliance program to ensure that U.S.-origin goods are not sold to U.S.-sanctioned destinations, U.S. persons are not involved in any transaction with a sanctioned country, and transactions with a prohibited or denied party under the applicable regulations are prevented. Consistent with that program and to the Company’s knowledge, no sales by the Company’s non-U.S. subsidiaries to or through
Allweiler-Farid were shipped or reexported to end users in Sudan or Syria during the period of review.
Siemens AG
Your letter notes that:
Siemens AG is a customer, and Siemens’ 2013 Form 20-F discloses that it does business with Syria, Sudan and Cuba.
Siemens is a large, sophisticated, publicly traded multi-national firm unrelated to the Company. The Company’s compliance program includes vigorous screening tools, including end use and end user reviews when appropriate, compliance reviews and holds, and other procedures to prohibit the sale or transfer of U.S.-origin goods or goods with more than a de minimis amount of U.S.-origin content to sanctioned countries. These systems are deployed with respect to sales to Siemens, as with all of the Company’s customers. The Company has no knowledge that its products sold to Siemens have been subsequently associated with Siemens’ business in the Sanctioned Countries or otherwise transferred in violation of applicable laws and regulations.
Colfax Corporation: U.S. Businesses2
No U.S. subsidiary of the Company has engaged in direct or indirect transactions with the Sanctioned Countries in the past three fiscal years and first quarter of 2015 pursuant to the Company’s trade compliance program. The Company’s U.S. businesses have no other past, current, or anticipated contacts with the Sanctioned Countries.
Colfax Corporation: Non-U.S. Businesses
There were no sales by the Company’s Colfax Fluid Handling or Howden3 independent non-U.S. businesses to Cuba, Syria, or Sudan based on a review of sales data. *.
There are no outstanding or anticipated contacts between the Colfax Fluid Handling division, Howden, or ESAB and the Sanctioned Countries. *.
Therefore, across the past three fiscal years and first quarter of 2015, sales by the Company’s non-U.S. businesses to the Sanctioned Countries comprised *. This is due to focused implementation and integration of the Company’s compliance policies and programs at non-U.S. subsidiaries acquired during the period of review.
2 Sales information *.
3 On January 13, 2012, the Company acquired Charter International, plc, a Jersey Corporation with headquarters in Ireland that held the ESAB and Howden businesses.
The Company’s non-U.S. subsidiaries do not, to the best of their knowledge, have any ongoing agreements or contacts with the governments of any of the Sanctioned Countries or entities controlled by them.
2.
Please discuss the materiality of any contacts with Syria, Sudan and Cuba you describe in response to the comment above, and whether those contacts constitute a material investment risk for your security holders. You should address materiality in quantitative terms, including the approximate dollar amounts of any associated revenues, assets, and liabilities for the last three fiscal years and the subsequent interim period. Also, address materiality in terms of qualitative factors that a reasonable investor would deem important in making an investment decision. You should address the potential impact of the investor sentiment evidenced by such actions directed toward companies that have operations associated with Syria, Sudan and Cuba.
Response:
The Company believes that its contacts with the Sanctioned Countries, both individually and in the aggregate, are not material to the Company’s overall financial performance and do not constitute a material risk to the Company’s reputation or to the Company’s security holders. This determination is based on quantitative and qualitative considerations. Based on a review of the Company’s sales data described above, including direct and indirect sales to Syria, Sudan, and Cuba, the Company believes that its limited past contacts with the Sanctioned Countries are not quantitatively material. Further, neither the Company nor any of its subsidiaries maintain offices, assets, or employees in the Sanctioned Countries.
The Company also believes that contacts by its non-U.S. subsidiaries with the Sanctioned Countries do not present a qualitative material risk to the Company, our reputation, or to our investors based on our analysis of relevant considerations. The Company’s compliance program, as described above, requires full adherence to U.S. sanctions laws and regulations. The extremely limited nature and extent of the Company’s contacts with the Sanctioned Countries over the period of review, in addition to the fact that Company sales to the Sanctioned Countries has declined significantly – to virtually no contact at all – since our May 4, 2012 letter, should further dictate the qualitative immateriality of the contacts. Therefore, we do not believe it is likely that the Company will become subject to negative investor sentiment as evidenced by actions directed toward companies that have operations associated with the Sanctioned Countries.
3.
Please tell us whether your contacts with Syria, Sudan, and/or Cuba involved products with military applications or dual uses, or products otherwise included on the Commerce Control List maintained by the Commerce Department.
Response:
Virtually all of the Company’s products are “dual use” in nature – with some, but not all, products being controlled for export under the Commerce Control List – because they could theoretically be used for commercial or military purposes. Information reviewed in preparing this
response indicates that none of the products sold by the Company’s non-U.S. subsidiaries in the Sanctioned Countries were designed or engineered for military use, nor were they licensable under the applicable dual-use export regulations. To the Company’s knowledge, none of the Company’s products sold to customers in the Sanctioned Countries are used in military or military-related applications. Based on the sales data cited above, the Sanctioned Country contacts over the period of review were in compliance with all applicable export laws and regulations. Further, non-U.S.-origin products that do not contain over de minimis amounts of U.S.-origin content that are sold in the Sanctioned Countries by the Company’s non-U.S. subsidiaries are not subject to U.S. Office of Foreign Assets Control sanctions provisions or to the U.S. Department of Commerce’s Export Administration Regulations.
In accordance with regular monitoring of its compliance program, the Company will continue to evaluate and monitor its U.S. and non-U.S. subsidiaries’ sales to ensure adherence to all applicable trade regulations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies, page 36
4.
We see from Schedule II on page 101 that cost and expenses charged to inventory were approximately $8.7 million, $21.6 million and $3.3 million in 2014, 2013 and 2012, respectively. Please explain to us the underlying reasons for the significant changes in estimates of the valuation of your inventory each period. Please also explain how you considered physical deterioration, obsolescence, changes in price levels, or other causes in determining the expenses recorded each period. In addition, tell us why you do not include the valuation of inventory as a critical accounting estimate. Refer to FASB ASC 330-10-35.
Response:
The variations in the charges to the excess and obsolete inventory reserve were primarily the result of the Charter acquisition. Colfax completed the Charter acquisition in 2012 which transformed the company from a fluid-handling business into a multi-platform enterprise with a strong global footprint. As a result, Colfax revenues grew from $693 million in 2011 to $3,914 million in 2012.
The Charter acquisition included $450 million of acquired inventory far exceeding the prior year end inventory balance of $56 million. In accordance with ASC 805 the acquired inventories were recorded at fair value and therefore reflected no allowance for excess and obsolete inventory as of the acquisition date. As the acquired inventory was sold or otherwise disposed it was replaced with newly produced inventory. As the newly produced inventory aged, deteriorated, or became technically obsolete, an allowance for excess and obsolete inventory was established in accordance with the policies as described below resulting in a significant increase in the charges in 2013. The