MIDDLEBY Corp [MIDD] Filings

10-Q 1 midd-20230930.htm 10-Q midd-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 1-9973

THE MIDDLEBY CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			36-3352497
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification Number)


1400 Toastmaster Drive,	Elgin,	Illinois	60120
(Address of principal executive offices)			(Zip Code)


Registrant's telephone number, including area code:			(847)			741-3300

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer," "large accelerated filer," "smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	MIDD	Nasdaq Global Select Market

As of November 6, 2023, there were 53,603,195 shares of the registrant's common stock outstanding.

THE MIDDLEBY CORPORATION

QUARTER ENDED SEPTEMBER 30, 2023

INDEX


DESCRIPTION		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	CONDENSED CONSOLIDATED BALANCE SHEETS as of SEPTEMBER 30, 2023 and DECEMBER 31, 2022	1

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three and nine months ended SEPTEMBER 30, 2023 and OCTOBER 1, 2022	2

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three and nine months ended SEPTEMBER 30, 2023 and OCTOBER 1, 2022	3

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended SEPTEMBER 30, 2023 and OCTOBER 1, 2022	4

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities , Use of Proceeds , and Issuer Purchases o f Equity Securities	33

Item 6.	Exhibits	34

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(Unaudited)


ASSETS	Sep 30, 2023		Dec 31, 2022
Current assets:
Cash and cash equivalents	$	167,189	$	162,001
Accounts receivable, net of reserve for doubtful accounts of $23,578 and $20,295	633,169		631,134
Inventories, net	1,015,047		1,077,729
Prepaid expenses and other	131,287		125,640
Prepaid taxes	14,165		9,492
Total current assets	1,960,857		2,005,996
Property, plant and equipment, net of accumulated depreciation of $326,916 and $299,572	498,871		443,528
Goodwill	2,452,419		2,411,834
Other intangibles, net of amortization of $559,186 and $503,034	1,775,546		1,794,232
Long-term deferred tax assets	8,877		6,738
Other assets	226,038		212,538
Total assets	$	6,922,608	$	6,874,866

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	44,330	$	45,583
Accounts payable	224,375		271,374
Accrued expenses	595,542		671,327
Total current liabilities	864,247		988,284
Long-term debt	2,535,896		2,676,741
Long-term deferred tax liability	214,021		220,204
Accrued pension benefits	5,420		14,948
Other non-current liabilities	207,809		176,942
Stockholders' equity:
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 63,941,790 and 63,508,855 shares issued in 2023 and 2022, respectively	148		147
Paid-in capital	463,475		408,376
Treasury stock, at cost; 10,338,764 and 9,814,480 shares in 2023 and 2022	(906,011)		(831,176)
Retained earnings	3,823,461		3,498,872
Accumulated other comprehensive loss	(285,858)		(278,472)
Total stockholders' equity	3,095,215		2,797,747
Total liabilities and stockholders' equity	$	6,922,608	$	6,874,866

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended				Nine Months Ended
	Sep 30, 2023		Oct 1, 2022		Sep 30, 2023		Oct 1, 2022
Net sales	$	980,651	$	992,871	$	3,028,029	$	3,001,148
Cost of sales	605,329		627,639		1,880,736		1,944,664
Gross profit	375,322		365,232		1,147,293		1,056,484
Selling, general and administrative expenses	196,433		201,200		615,361		596,757
Restructuring expenses	4,448		2,327		11,698		8,231



Income from operations	174,441		161,705		520,234		451,496
Interest expense and deferred financing amortization, net	31,080		24,067		92,071		62,563
Net periodic pension benefit (other than service costs)	(2,103)		(9,944)		(6,929)		(32,244)
Other expense, net	1,072		8,529		2,642		18,478
Earnings before income taxes	144,392		139,053		432,450		402,699
Provision for income taxes	35,742		34,684		107,861		99,327
Net earnings	$	108,650	$	104,369	$	324,589	$	303,372

Net earnings per share:
Basic	$	2.03	$	1.94	$	6.06	$	5.60
Diluted	$	2.01	$	1.92	$	5.99	$	5.50
Weighted average number of shares
Basic	53,588		53,867		53,569		54,190
Dilutive common stock equivalents	569		517		623		944
Diluted	54,157		54,384		54,192		55,134
Comprehensive income	$	76,504	$	64,883	$	317,203	$	208,597

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(amounts in thousands)

(Unaudited)


	Common Stock		Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Total Stockholders' Equity
Balance, July 1, 2023	$	148	$	444,290	$	(906,011)	$	3,714,811	$	(253,712)	$	2,999,526
Net earnings	—		—		—		108,650		—		108,650
Currency translation adjustments	—		—		—		—		(36,602)		(36,602)
Change in unrecognized pension benefit costs, net of tax of $367	—		—		—		—		4,436		4,436
Unrealized gain on interest rate swap, net of tax of $7	—		—		—		—		20		20

Stock compensation	—		13,175		—		—		—		13,175
Stock issuance	—		6,010		—		—		—		6,010

Balance, September 30, 2023	$	148	$	463,475	$	(906,011)	$	3,823,461	$	(285,858)	$	3,095,215

Balance, December 31, 2022	$	147	$	408,376	$	(831,176)	$	3,498,872	$	(278,472)	$	2,797,747
Net earnings	—		—		—		324,589		—		324,589
Currency translation adjustments	—		—		—		—		(4,751)		(4,751)
Change in unrecognized pension benefit costs, net of tax of $461	—		—		—		—		(544)		(544)
Unrealized loss on interest rate swap, net of tax of $(731)	—		—		—		—		(2,091)		(2,091)
Stock compensation	—		35,305		—		—		—		35,305
Stock issuance	1		19,794		—		—		—		19,795
Purchase of treasury stock	—		—		(74,835)		—		—		(74,835)
Balance, September 30, 2023	$	148	$	463,475	$	(906,011)	$	3,823,461	$	(285,858)	$	3,095,215


	Common Stock		Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Total Stockholders' Equity
Balance, July 2, 2022	$	147	$	376,898	$	(806,008)	$	3,261,306	$	(414,373)	$	2,417,970
Net earnings	—		—		—		104,369		—		104,369
Currency translation adjustments	—		—		—		—		(81,774)		(81,774)
Change in unrecognized pension benefit costs, net of tax of $2,775	—		—		—		—		17,928		17,928
Unrealized gain on interest rate swap, net of tax of $8,574	—		—		—		—		24,360		24,360
Stock compensation	—		15,761		—		—		—		15,761

Purchase of treasury stock	—		—		(71)		—		—		(71)

Balance, October 1, 2022	$	147	$	392,659	$	(806,079)	$	3,365,675	$	(453,859)	$	2,498,543

Balance, January 1, 2022	$	147	$	357,309	$	(566,399)	$	3,062,303	$	(359,084)	$	2,494,276
Net earnings	—		—		—		303,372		—		303,372
Currency translation adjustments	—		—		—		—		(201,176)		(201,176)
Change in unrecognized pension benefit costs, net of tax of $6,850	—		—		—		—		44,127		44,127
Unrealized gain on interest rate swap, net of tax of $22,389	—		—		—		—		63,604		63,604
Unrealized loss on certain investments, net of tax of $(443)	—		—		—		—		(1,330)		(1,330)
Stock compensation	—		42,641		—		—		—		42,641

Purchase of treasury stock	—		—		(239,680)		—		—		(239,680)
Purchase of capped calls, net of tax of $(2,364)	—		(7,291)		—		—		—		(7,291)
Balance, October 1, 2022	$	147	$	392,659	$	(806,079)	$	3,365,675	$	(453,859)	$	2,498,543

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Nine Months Ended
	Sep 30, 2023		Oct 1, 2022
Cash flows from operating activities--
Net earnings	$	324,589	$	303,372
Adjustments to reconcile net earnings to net cash provided by operating activities--
Depreciation and amortization	99,058		106,917
Non-cash share-based compensation	35,305		42,641
Deferred income taxes	(6,553)		17,657
Net periodic pension benefit (other than service costs)	(6,929)		(32,244)



Other non-cash items	(684)		(32,455)
Changes in assets and liabilities, net of acquisitions
Accounts receivable, net	(430)		(11,174)
Inventories, net	66,973		(214,017)
Prepaid expenses and other assets	(2,481)		(30,832)
Accounts payable	(49,188)		(47,262)
Accrued expenses and other liabilities	(86,557)		70,846
Net cash provided by operating activities	373,103		173,449
Cash flows from investing activities--
Net additions to property, plant and equipment	(69,645)		(50,914)

Purchase of intangible assets	(1,805)		(701)
Acquisitions, net of cash acquired	(67,774)		(206,253)
Net cash used in investing activities	(139,224)		(257,868)
Cash flows from financing activities--
Proceeds under Credit Facility	565,200		1,715,000
Repayments under Credit Facility	(711,692)		(1,360,750)

Premiums paid for capped call	—		(9,655)
Net repayments under international credit facilities	(495)		(24,156)

Payments of deferred purchase price	(4,079)		(7,930)
Repurchase of treasury stock	(74,544)		(239,680)

Other, net	(158)		(235)

Net cash (used in) provided by financing activities	(225,768)		72,594
Effect of exchange rates on cash and cash equivalents	(2,923)		(23,619)
Changes in cash and cash equivalents--
Net increase (decrease) in cash and cash equivalents	5,188		(35,444)
Cash and cash equivalents at beginning of year	162,001		180,362
Cash and cash equivalents at end of period	$	167,189	$	144,918

Non-cash investing and financing activities:
Stock issuance related to acquisition and purchase of intangible assets	$	19,795	$	—

See accompanying notes

THE MIDDLEBY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

1)Summary of Significant Accounting Policies

a)Basis of Presentation

The condensed consolidated financial statements have been prepared by The Middleby Corporation (the "company" or “Middleby”), pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements are unaudited and certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the company believes that the disclosures are adequate to make the information not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the company's 2022 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2023. Certain reclassifications of prior year data have been made to conform with current year reporting.

In the opinion of management, the financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the company as of September 30, 2023 and December 31, 2022, the results of operations for the three and nine months ended September 30, 2023 and October 1, 2022, cash flows for the nine months ended September 30, 2023 and October 1, 2022 and statement of stockholders' equity for the three and nine months ended September 30, 2023 and October 1, 2022.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, warranty reserves, insurance reserves, income tax reserves, non-cash share-based compensation and post-retirement obligations. Actual results could differ from the company's estimates.

b)Non-Cash Share-Based Compensation

The company estimates the fair value of market-based stock awards and stock options at the time of grant and recognizes compensation cost over the vesting period of the awards and options. Non-cash share-based compensation expense was $13.2 million and $15.7 million for the three months period ended September 30, 2023 and October 1, 2022, respectively. Non-cash share-based compensation expense was $35.3 million and $42.6 million for the nine months period ended September 30, 2023 and October 1, 2022, respectively.

c)Income Taxes

A tax provision of $35.7 million, at an effective rate of 24.8%, was recorded during the three months period ended September 30, 2023, as compared to a $34.7 million tax provision at an effective rate of 24.9% in the prior year period. A tax provision of $107.9 million, at an effective rate of 24.9%, was recorded during the nine months period ended September 30, 2023, as compared to a $99.3 million tax provision at a 24.7% effective rate in the prior year period. The effective tax rate for the nine months period ended September 30, 2023 is higher than the comparable year rate primarily due to an increase in the UK statutory income tax rate from 19% in 2022 to a 23.5% blended rate in 2023.

d)Fair Value Measures

Accounting Standards Codification ("ASC") 820 "Fair Value Measurements and Disclosures" defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 – Unobservable inputs based the company's own assumptions.

The company’s financial assets and liabilities that are measured at fair value and are categorized using the fair value hierarchy are as follows (in thousands):


	Fair Value Level 1		Fair Value Level 2		Fair Value Level 3		Total
As of September 30, 2023
Financial Assets:
Interest rate swaps	$	—	$	62,163	$	—	$	62,163

Financial Liabilities:

Contingent consideration	$	—	$	—	$	60,789	$	60,789
Foreign exchange derivative contracts	$	—	$	558	$	—	$	558

As of December 31, 2022
Financial Assets:
Interest rate swaps	$	—	$	64,985	$	—	$	64,985


Financial Liabilities:

Contingent consideration	$	—	$	—	$	47,242	$	47,242
Foreign exchange derivative contracts	$	—	$	474	$	—	$	474

The contingent consideration as of September 30, 2023 and December 31, 2022, relates to the earnout provisions recorded in conjunction with various purchase agreements.

The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase agreement. On a quarterly basis, the company assesses the projected results for each of the acquisitions in comparison to the earnout targets and adjusts the liability accordingly. Discount rates for valuing contingent consideration are determined based on the company rates and specific acquisition risk considerations. Changes in fair value associated with the earnout provisions are recognized in Selling, general and administrative expenses within the Condensed Consolidated Statements of Comprehensive Income.

The following table represents changes in the fair value of the contingent consideration liabilities:


	September 30, 2023
Beginning balance	$	47,242
Payments of contingent consideration	(4,117)
New contingent consideration	15,318
Changes in fair value	2,346
Ending balance	$	60,789

e) Consolidated Statements of Cash Flows

Cash paid for interest was $93.4 million and $57.0 million for the nine months ended September 30, 2023 and October 1, 2022, respectively. Cash payments totaling $119.4 million and $84.2 million were made for income taxes for the nine months ended September 30, 2023 and October 1, 2022, respectively.

Other non-cash items in the adjustments to reconcile net earnings to net cash provided by operating activities consists primarily of unrealized foreign exchange on non-functional currency third party debt.

f) Earnings Per Share

“Basic earnings per share” is calculated based upon the weighted average number of common shares actually outstanding, and “diluted earnings per share” is calculated based upon the weighted average number of common shares outstanding and other dilutive securities.

The company’s potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to 19,000 and 23,000 for the three months ended September 30, 2023, and October 1, 2022, respectively. The company’s potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to 9,000 and 12,000 for the nine months ended September 30, 2023 and October 1, 2022, respectively. For the nine months ended September 30, 2023 and October 1, 2022, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes (as defined below) resulting in 614,000 and 932,000 diluted common stock equivalents to be included in the diluted net earnings per share, respectively. There have been no material conversions to date. See Note 12, Financing Arrangements for further details on the Convertible Notes. There were no anti-dilutive restricted stock grants excluded from common stock equivalents in any period presented.

2) Acquisitions and Purchase Accounting

The company accounts for all business combinations using the acquisition method to record a new cost basis for the assets acquired and liabilities assumed. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the financial statements. The company recognizes identifiable intangible assets, primarily trade names and customer relationships, at their fair value using a discounted cash flow model. The significant assumptions used to estimate the value of the intangible assets include revenue growth rates, projected profit margins, discount rates, royalty rates, and customer attrition rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The results of operations are reflected in the consolidated financial statements of the company from the dates of acquisition.

The company completed no material acquisitions during the nine months ended September 30, 2023.

Other 2022 Acquisitions

During 2022, the company completed various acquisitions that were not individually material. The following estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition dates for the other 2022 acquisitions and are summarized as follows (in thousands):


	Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	25,860	$	159	$	26,019

Current assets	115,264		(8,653)		106,611
Property, plant and equipment	44,598		615		45,213
Goodwill	139,633		8,945		148,578
Other intangibles	93,147		7,018		100,165
Long-term deferred tax asset	426		635		1,061
Other assets	1,420		3,209		4,629
Current portion of long-term debt	(22,841)		2,043		(20,798)
Current liabilities	(57,158)		(2,611)		(59,769)
Long term debt	(5,646)		(3,995)		(9,641)
Long-term deferred tax liability	(23,137)		1,994		(21,143)
Other non-current liabilities	(19,061)		(7,022)		(26,083)

Consideration paid at closing	$	292,505	$	2,337	$	294,842


Contingent consideration	19,105		3,969		23,074

Net assets acquired and liabilities assumed	$	311,610	$	6,306	$	317,916

The net long-term deferred tax liability amounted to $20.1 million. The net deferred tax liability is comprised of $20.9 million related to the difference between the book and tax basis of identifiable intangible assets and $0.8 million net deferred tax asset related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $46.0 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $31.5 million allocated to customer relationships, $16.0 million allocated to developed technology, and $6.7 million allocated to backlog, which are being amortized over periods of 7 to 9 years, 5 to 11 years, and 3 to 12 months, respectively. Goodwill of $113.8 million and other intangibles of $63.8 million are allocated to the Food Processing Equipment Group for segment reporting purposes. Goodwill of $32.5 million and other intangibles of $35.6 million are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Goodwill of $2.3 million and other intangibles of $0.8 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Of these assets, goodwill of $21.5 million and intangibles of $11.9 million are expected to be deductible for tax purposes.

Four purchase agreements include earnout provisions providing for a contingent payment due to the sellers for the achievement of certain targets. Three earnouts are payable to the extent certain EBITDA targets are met with measurement dates ending between 2022 and 2025. One of these three earnouts is also payable yearly through 2026 based on product sales. One earnout is payable yearly through 2027 based on product sales. The contractual obligation associated with the contingent earnout provisions recognized on the acquisition date amount to $23.1 million.

The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values for certain acquisitions completed during 2022. Certain intangible assets are preliminarily valued using historical information from the Commercial Foodservice Equipment Group, Food Processing Equipment Group and Residential Kitchen Equipment Group and qualitative assessments of the individual businesses at acquisition date. Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions. Thus, the provisional measurements of fair values set forth above are subject to change. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

Other 2023 Acquisitions

During 2023, the company completed various acquisitions that were not individually material. The following estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition dates for the other 2023 acquisitions and are summarized as follows (in thousands):


	Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	3,102	$	—	$	3,102

Current assets	9,964		542		10,506
Property, plant and equipment	21,954		—		21,954
Goodwill	38,422		1,089		39,511
Other intangibles	34,337		(713)		33,624



Current liabilities	(3,774)		(1,091)		(4,865)

Long-term deferred tax liability	(958)		—		(958)
Other non-current liabilities	(12,099)		—		(12,099)

Consideration paid at closing	$	90,948	$	(173)	$	90,775


Contingent consideration	14,743		—		14,743

Net assets acquired and liabilities assumed	$	105,691	$	(173)	$	105,518

The net long-term deferred tax liability amounted to $1.0 million. The net deferred tax liability is comprised of $0.4 million related to the difference between the book and tax basis of identifiable intangible assets and $0.6 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $17.9 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $7.2 million allocated to customer relationships, and $7.9 million allocated to developed technology, and $0.6 million allocated to backlog, which are being amortized over periods of 7 years, 7 to 12 years, and 9 months, respectively. Goodwill of $17.9 million and other intangibles of $7.8 million are allocated to the Food Processing Equipment Group for segment reporting purposes. Goodwill of $8.3 million and other intangibles of $14.1 million are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Goodwill of $13.3 million and other intangibles of $11.7 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Of these assets, goodwill of $37.9 million and intangibles of $32.2 million are expected to be deductible for tax purposes.

Four purchase agreements include earnout provisions providing for a contingent payment due to the sellers for the achievement of certain targets. Four earnouts are payable to the extent certain sales and EBITDA targets are met with measurement dates ending between 2024 and 2026. One earnout is payable upon the achievement of certain product rollout targets specific to the year of measurement. The contractual obligation associated with the contingent earnout provisions recognized on the acquisition date amount to $14.7 million.

The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values for all acquisitions completed during 2023. Certain intangible assets are preliminarily valued using historical information from the Commercial Foodservice Equipment Group and Food Processing Equipment Group and qualitative assessments of the individual businesses at acquisition date. Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions. Thus, the provisional measurements of fair values set forth above are subject to change. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

Pro Forma Financial Information

In accordance with ASC 805 Business Combinations, the following unaudited pro forma results of operations for the nine months ended September 30, 2023 and October 1, 2022, assumes the 2022 and 2023 acquisitions described above were completed on January 2, 2022 (first day of fiscal year 2022). The following pro forma results include adjustments to reflect amortization of intangibles associated with the acquisition and the effects of adjustments made to the carrying value of certain assets (in thousands, except per share data):


	Nine Months Ended
	September 30, 2023		October 1, 2022
Net sales	$	3,037,755	$	3,115,311
Net earnings	327,032		294,878

Net earnings per share:
Basic	$	6.10	$	5.44
Diluted	$	6.03	$	5.35

The historical consolidated financial information of the company and the acquisitions have been adjusted in the pro forma information to give effect to events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. Pro forma data may not be indicative of the results that would have been obtained had these acquisitions occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Additionally, the pro forma financial information does not reflect the costs which the company has incurred or may incur to integrate the acquired businesses.

3) Litigation Matters

From time to time, the company is subject to proceedings, lawsuits and other claims related to products, suppliers, employees, customers and competitors. The company maintains insurance to partially cover product liability, workers compensation, property and casualty, and general liability matters. The company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of accrual required, if any, for these contingencies is made after assessment of each matter and the related insurance coverage. The required accrual may change in the future due to new developments or changes in approach, such as a change in settlement strategy in dealing with these matters. The company does not believe that any pending litigation will have a material effect on its financial condition, results of operations or cash flows.

4) Recently Issued Accounting Standards

Accounting Pronouncements - Recently Adopted

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The new accounting rules require entities to apply “Revenue from Contracts with Customers (Topic 606)” to recognize and measure contract assets and contract liabilities in a business combination. The new accounting rules were effective for the Company in the first quarter of 2023. The company adopted this standard in the first quarter of 2023 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The new standard is effective for the company as of January 1, 2023 and only impacts annual financial statement footnote disclosures. The company adopted this standard in the first quarter of 2023 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard should be applied prospectively, and it allows for a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The company adopted this standard in the first quarter of 2023 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. The new standard expands and clarifies the use of the portfolio layer method for fair value hedges of interest rate risk. The new standard allows non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The new guidance on hedging multiple layers in a closed portfolio should be applied prospectively and the guidance on the accounting for fair value basis adjustments should be applied on a modified retrospective basis. The company adopted this standard in the first quarter of 2023 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

Accounting Pronouncements - To be adopted

In March 2023, the FASB issued Accounting Standards Update ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” This ASU clarified the accounting for leasehold improvements for leases under common control. The guidance is effective for the Company beginning on January 1, 2024. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements and disclosures.

5) Revenue Recognition

Disaggregation of Revenue

The company disaggregates its net sales by reportable operating segment and geographical location as the company believes it best depicts how the nature, timing and uncertainty of its net sales and cash flows are affected by economic factors. In general, the Commercial Foodservice Equipment and Residential Foodservice Equipment Groups recognize revenue at the point in time control transfers to their customers based on contractual shipping terms. Revenue from equipment sold under the company's long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. The following table summarizes the company's net sales by reportable operating segment and geographical location (in thousands):


	Commercial Foodservice		Food Processing		Residential Kitchen		Total
Three Months Ended September 30, 2023
United States and Canada	$	458,529	$	111,092	$	116,522	$	686,143
Asia	59,922		6,389		3,371		69,682
Europe and Middle East	91,112		34,250		57,474		182,836
Latin America	24,446		14,936		2,608		41,990
Total	$	634,009	$	166,667	$	179,975	$	980,651

Nine Months Ended September 30, 2023
United States and Canada	$	1,385,929	$	354,945	$	395,236	$	2,136,110
Asia	173,901		30,507		8,652		213,060
Europe and Middle East	272,252		101,808		194,631		568,691
Latin America	61,525		41,658		6,985		110,168
Total	$	1,893,607	$	528,918	$	605,504	$	3,028,029

Three Months Ended October 1, 2022
United States and Canada	$	459,971	$	108,449	$	145,757	$	714,177
Asia	55,243		7,805		11,647		74,695
Europe and Middle East	86,963		24,263		60,200		171,426
Latin America	17,380		11,832		3,361		32,573
Total	$	619,557	$	152,349	$	220,965	$	992,871

Nine Months Ended October 1, 2022
United States and Canada	$	1,302,591	$	297,778	$	563,047	$	2,163,416
Asia	148,419		15,673		27,724		191,816
Europe and Middle East	267,558		58,931		234,203		560,692
Latin America	47,281		30,863		7,080		85,224
Total	$	1,765,849	$	403,245	$	832,054	$	3,001,148

Contract Balances

Contract assets primarily relate to the company's right to consideration for work completed but not billed at the reporting date and are recorded in prepaid expenses and other in the Condensed Consolidated Balance Sheet. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Accounts receivable are not considered contract assets under the revenue standard as contract assets are conditioned upon the company's future satisfaction of a performance obligation. Accounts receivable, in contracts, are unconditional rights to consideration.

Contract liabilities relate to advance consideration received from customers for which revenue has not been recognized. Current contract liabilities are recorded in accrued expenses in the Condensed Consolidated Balance Sheet. Non-current contract liabilities are recorded in other non-current liabilities in the Condensed Consolidated Balance Sheet. Contract liabilities are reduced when the associated revenue from the contract is recognized.

The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):


	Sep 30, 2023		Dec 31, 2022
Contract assets	$	59,129	$	40,438
Contract liabilities	$	141,388	$	185,824
Non-current contract liabilities	$	15,328	$	12,495

During the nine months period ended September 30, 2023, the company reclassified $32.2 million to receivables, which was included in the contract asset balance at the beginning of the period. During the nine months period ended September 30, 2023, the company recognized revenue of $99.4 million which was included in the contract liability balance at the beginning of the period. Additions to contract liabilities representing amounts billed to clients in excess of revenue recognized to date were $88.3 million during the nine months period ended September 30, 2023. In addition, contract liabilities increased due to the acquisitions during the nine months ended September 30, 2023. Substantially all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were no contract asset impairments during the nine months period ended September 30, 2023.

6) Other Comprehensive Income

Changes in accumulated other comprehensive income(1) were as follows (in thousands):


	Currency Translation Adjustment		Pension Benefit Costs		Unrealized Gain/(Loss) Interest Rate Swap		Unrealized Loss Certain Investments		Total
Balance as of December 31, 2022	$	(205,345)	$	(121,701)	$	48,574	$	—	$	(278,472)
Other comprehensive income before reclassification	(4,751)		(2,131)		21,872		—		14,990
Amounts reclassified from accumulated other comprehensive income	—		1,587		(23,963)		—		(22,376)
Net current-period other comprehensive income	$	(4,751)	$	(544)	$	(2,091)	—		$	(7,386)
Balance as of September 30, 2023	$	(210,096)	$	(122,245)	$	46,483	—		$	(285,858)

Balance as of January 1, 2022	$	(97,654)	$	(249,696)	$	(13,064)	$	1,330	$	(359,084)
Other comprehensive income before reclassification	(201,176)		44,127		55,958		(1,330)		(102,421)
Amounts reclassified from accumulated other comprehensive income	—		—		7,646		—		7,646
Net current-period other comprehensive income	$	(201,176)	$	44,127	$	63,604	$	(1,330)	$	(94,775)
Balance as of October 1, 2022	$	(298,830)	$	(205,569)	$	50,540	$	—	$	(453,859)

(1) As of September 30, 2023, pension and interest rate swap are net of tax of $(1.5) million and $16.1 million, respectively. During the nine months ended September 30, 2023, the adjustments to pension and interest rate swap were net of tax of $0.5 million and $(0.7) million, respectively. As of October 1, 2022, pension, interest rate swap, and gain on investment amounts are net of tax of $(32.6) million and $17.9 million, respectively. During the nine months ended October 1, 2022, the adjustments to pension, unrealized gain/(loss) interest rate swap, and loss on investments were net of tax of $6.9 million, $22.4 million, and $(0.4) million, respectively.

Components of other comprehensive income were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	Sep 30, 2023		Oct 1, 2022		Sep 30, 2023		Oct 1, 2022
Net earnings	$	108,650	$	104,369	$	324,589	$	303,372
Currency translation adjustment	(36,602)		(81,774)		(4,751)		(201,176)
Pension liability adjustment, net of tax	4,436		17,928		(544)		44,127
Unrealized gain (loss) on interest rate swaps, net of tax	20		24,360		(2,091)		63,604
Unrealized loss on certain investments, net of tax	—		—		—		(1,330)
Comprehensive income	$	76,504	$	64,883	$	317,203	$	208,597

7) Inventories

Inventories are composed of material, labor and overhead and are stated at the lower of cost or net realizable value. Costs for inventory have been determined using the first-in, first-out ("FIFO") method. The company estimates reserves for inventory obsolescence and shrinkage based on its judgment of future realization. Inventories at September 30, 2023 and December 31, 2022 are as follows (in thousands):


	Sep 30, 2023		Dec 31, 2022
Raw materials and parts	$	529,698	$	595,325
Work-in-process	94,057		86,083
Finished goods	391,292		396,321
	$	1,015,047	$	1,077,729

8) Goodwill

Changes in the carrying amount of goodwill for the nine months ended September 30, 2023 are as follows (in thousands):


	Commercial Foodservice		Food Processing		Residential Kitchen		Total
Balance as of December 31, 2022	$	1,309,776	$	350,303	$	751,755	$	2,411,834
Goodwill acquired during the year	8,256		17,923		13,332		39,511
Measurement period adjustments to goodwill acquired in prior year	2,412		1,540		—		3,952
Exchange effect	(4,573)		(1,591)		3,286		(2,878)
Balance as of September 30, 2023	$	1,315,871	$	368,175	$	768,373	$	2,452,419

The annual impairment assessment for goodwill and indefinite-lived intangible assets is performed as of the first day of the fourth quarter and since that assessment, the company does not believe there are any indicators of impairment requiring subsequent analysis. This is supported by the review of order rates, backlog levels and financial performance across business segments.

9) Intangibles

Intangible assets consist of the following (in thousands):


	September 30, 2023					December 31, 2022
	Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization		Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists	7.2	$	839,507	$	(509,610)	7.6	$	839,811	$	(460,885)
Backlog	0.0	7,496		(7,286)		0.1	8,301		(6,352)
Developed technology	8.4	97,886		(42,290)		8.3	79,763		(35,797)
		$	944,889	$	(559,186)		$	927,875	$	(503,034)
Indefinite-lived assets:
Trademarks and tradenames		$	1,389,843				$	1,369,391

The aggregate intangible amortization expense was $18.9 million and $19.8 million for the three months period ended September 30, 2023 and October 1, 2022, respectively. The aggregate intangible amortization expense was $56.6 million and $69.9 million for the nine months period ended September 30, 2023 and October 1, 2022, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):


Twelve Month Period coinciding with the end of the company's Fiscal Third Quarter	Amortization Expense

2024	$	66,884
2025	57,668
2026	55,416
2027	47,063
2028	40,934
Thereafter	117,738
	$	385,703

10) Accrued Expenses

Accrued expenses consist of the following (in thousands):


	Sep 30, 2023		Dec 31, 2022
Contract liabilities	$	141,388	$	185,824
Accrued payroll and related expenses	115,363		122,861
Accrued warranty	87,327		82,096
Accrued customer rebates	56,357		70,706
Accrued short-term leases	26,634		25,250
Accrued sales and other tax	24,889		24,044
Accrued contingent consideration	19,720		20,529
Accrued professional fees	18,442		19,541
Accrued agent commission	16,788		17,381
Accrued product liability and workers compensation	11,150		11,326

Other accrued expenses	77,484		91,769

	$	595,542	$	671,327

11) Warranty Costs

In the normal course of business, the company issues product warranties for specific product lines and provides for the estimated future warranty cost in the period in which the sale is recorded. The estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are based on the best available information, actual claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.

A rollforward of the warranty reserve is as follows (in thousands):


	Nine Months Ended
	Sep 30, 2023
Balance as of December 31, 2022	$	82,096
Warranty reserve related to acquisitions	290
Warranty expense	67,892
Warranty claims	(62,951)
Balance as of September 30, 2023	$	87,327

12) Financing Arrangements


	Sep 30, 2023		Dec 31, 2022
	(in thousands)
Senior secured revolving credit line	$	148,645	$	251,805
Term loan facility	951,819		975,785
Delayed draw term loan facility	731,250		750,000
Convertible senior notes	740,602		737,918
Foreign loans	7,169		5,917
Other debt arrangement	741		899
Total debt	2,580,226		2,722,324
Less: Current maturities of long-term debt	44,330		45,583
Long-term debt	$	2,535,896	$	2,676,741

Credit Facility

As of September 30, 2023, the company had $1.8 billion of borrowings outstanding under its credit facility (the "Credit Facility"), including $956.3 million outstanding under the term loan ($951.8 million, net of unamortized issuance fees) and $731.3 million outstanding under the delayed draw term loan. The company also had $1.6 million in outstanding letters of credit as of September 30, 2023, which reduces the borrowing availability under the Credit Facility. Remaining borrowing capacity under this facility was $2.6 billion at September 30, 2023.

On August 11, 2022, the company borrowed $750.0 million against the delayed draw term facility as provided under the Credit Agreement. The funds were used to reduce outstanding borrowings under the revolver. The delayed draw term loan amortizes in quarterly installments due on the last day of each fiscal quarter, and commenced on December 31, 2022, in an amount equal to 0.625% of the principal drawn, with the balance, plus any accrued interest payable by October 21, 2026.

At September 30, 2023, borrowings under the Credit Facility accrued interest at a rate of 1.625% above the daily simple or term Secured Overnight Financing Rate (“SOFR”) per annum or 0.625% above the highest of the prime rate, the federal funds rate plus 0.50% and one month Term SOFR plus 1.00%. The interest rates on borrowings under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt less Unrestricted Cash to Pro Forma EBITDA (the “Leverage Ratio”) on a rolling four-quarter basis. Additionally, a commitment fee based upon the Leverage Ratio is charged on the unused portion of the commitments under the Credit Facility. As of September 30, 2023, borrowings under the Credit Facility accrued interest at a minimum of 1.625% above SOFR and the variable unused commitment fee will be at a minimum of 0.25%. Borrowings under the Credit Facility accrue interest at a minimum of 1.625% above the daily simple SOFR or term SOFR for the applicable interest period (each of which includes a spread adjustment of 0.10%). The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 5.11% at the end of the period and the variable commitment fee was equal to 0.25% per annum as of September 30, 2023.

The term loan and delayed draw term loan facilities had an average interest rate per annum, inclusive of hedging instruments, of 4.94% as of September 30, 2023.

In addition, the company has international credit facilities to fund working capital needs outside the United States. At September 30, 2023, these foreign credit facilities amounted to $7.2 million in U.S. Dollars with a weighted average per annum interest rate of approximately 1.56%.

The company’s debt is reflected on the balance sheet at cost. The fair values of the Credit Facility, term debt and foreign and other debt is based on the amount of future cash flows associated with each instrument discounted using the company's incremental borrowing rate. The company believes its interest rate margins on its existing debt are consistent with current market conditions and therefore the carrying value of debt reflects the fair value. The interest rate margin is based on the company's Leverage Ratio. The carrying value and estimated aggregate fair value, a level 2 measurement, based primarily on market prices, of debt excluding the Convertible Notes is as follows (in thousands):


	Sep 30, 2023				Dec 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Total debt excluding convertible senior notes	$	1,839,624	$	1,844,055	$	1,984,406	$	1,989,871

The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit Facility. At September 30, 2023, the company had outstanding floating-to-fixed interest rate swaps totaling $208.0 million notional amount carrying an average interest rate of 1.55% maturing in less than 12 months and $740.0 million notional amount carrying an average interest rate of 1.69% that mature in more than 12 months but less than 53 months.

At September 30, 2023, the company was in compliance with all covenants pursuant to its borrowing agreements.

Convertible Notes

The following table summarizes the outstanding principal amount and carrying value of the Convertible Notes:


	Sep 30, 2023		Dec 31, 2022
	(in thousands)
Principal amounts:
Principal	$	747,499	$	747,499

Unamortized issuance costs	(6,897)		(9,581)
Net carrying amount	$	740,602	$	737,918

The following table summarizes total interest expense recognized related to the Convertible Notes:


	Three Months Ended				Nine Months Ended
	Sep 30, 2023		Oct 1, 2022		Sep 30, 2023		Oct 1, 2022
Contractual interest expense	$	1,847	$	1,848	$	5,585	$	5,606
Interest cost related to amortization of issuance costs	889		888		2,685		2,688
Total interest expense	$	2,736	$	2,736	$	8,270	$	8,294

The estimated fair value of the Convertible Notes was $837.8 million as of September 30, 2023 and was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note 1(d), Fair Value Measurements, in these Notes to the Condensed Consolidated Financial Statement. The if-converted value of the Convertible Notes did not exceed their respective principal value as of September 30, 2023.

Capped Call Transactions

In connection with the pricing of the Convertible Notes, the company entered into privately negotiated Capped Call Transactions (the "2020 Capped Call Transactions") and the company used the net proceeds of the offering of the Convertible Notes to pay the aggregate amount of $104.7 million for them. The company entered into two tranches of privately negotiated Capped Call Transactions in December 2021 (the "2021 Capped Call Transactions") in the aggregate amount of $54.6 million. On March 15, 2022 , the company entered into an additional tranche of privately negotiated Capped Call Transactions (the "2022 Capped Call Transactions") in the amount of $9.7 million.

The 2020, 2021, and 2022 Capped Call Transactions (collectively, the "Capped Call Transactions") are expected generally to reduce the potential dilution and/or offset the cash payments the company is required to make in excess of the principal amount of the Convertible Notes upon conversion of the Convertible Notes in the event that the market price per share of the company's common stock is greater than the strike price of the Capped Call Transactions (which initially corresponds to the initial conversion price of the Convertible Notes and is subject to certain adjustments under the terms of the Capped Call Transactions), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Transactions. The 2020 Capped Call Transactions have an initial cap price of $207.93 per share of the company's common stock. The 2021 Capped Call Transactions have initial cap prices of $216.50 and $225.00 per share of the company's common stock. The 2022 Capped Call Transactions have an initial cap price of $229.00 per share. The Capped Call Transactions cover, initially, the number of shares of the company's common stock underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes.

The Capped Call Transactions are separate transactions entered into by the company with the capped call counterparties, and are not part of the terms of the Convertible Notes and will not affect any holder's right under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Capped Call Transactions. The Capped Call Transactions do not meet the criteria for separate accounting as a derivative as they are indexed to the company's stock. The premiums paid of the Capped Call Transactions have been included as a net reduction to additional paid-in capital with stockholders' equity.

13) Financial Instruments

Foreign Exchange: The company uses foreign currency forward, foreign exchange swaps and option purchase and sales contracts to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The notional amount of foreign currency contracts outstanding was $224.6 million and $562.5 million as of September 30, 2023