Company Quick10K Filing
Middleby
Price117.49 EPS6
Shares56 P/E19
MCap6,540 P/FCF28
Net Debt1,872 EBIT483
TEV8,412 TEV/EBIT17
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-03-28 Filed 2020-05-07
10-K 2019-12-28 Filed 2020-02-26
10-Q 2019-09-28 Filed 2019-11-07
10-Q 2019-06-29 Filed 2019-08-08
10-Q 2019-03-30 Filed 2019-05-09
10-K 2018-12-29 Filed 2019-02-27
10-Q 2018-09-29 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-30 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-07-01 Filed 2017-08-10
10-Q 2017-04-01 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-10-01 Filed 2016-11-10
10-Q 2016-07-02 Filed 2016-08-11
10-Q 2016-04-02 Filed 2016-05-12
10-K 2016-01-02 Filed 2016-03-02
10-Q 2015-10-03 Filed 2015-11-12
10-Q 2015-07-04 Filed 2015-08-13
10-Q 2015-04-04 Filed 2015-05-14
10-K 2015-01-03 Filed 2015-03-04
10-Q 2014-09-27 Filed 2014-11-06
10-Q 2014-06-28 Filed 2014-08-07
10-Q 2014-03-29 Filed 2014-05-08
10-K 2013-12-28 Filed 2014-02-26
10-Q 2013-09-28 Filed 2013-11-07
10-Q 2013-06-29 Filed 2013-08-08
10-Q 2013-03-30 Filed 2013-05-09
10-K 2012-12-29 Filed 2013-02-27
10-Q 2012-09-29 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-10-01 Filed 2011-11-10
10-Q 2011-07-02 Filed 2011-08-11
10-Q 2011-04-02 Filed 2011-05-12
10-K 2011-01-01 Filed 2011-03-02
10-Q 2010-10-02 Filed 2010-11-12
10-Q 2010-07-03 Filed 2010-08-12
10-Q 2010-04-03 Filed 2010-05-13
10-K 2010-01-02 Filed 2010-03-03
8-K 2020-06-08
8-K 2020-05-28
8-K 2020-05-07
8-K 2020-04-10
8-K 2020-02-26
8-K 2020-01-31
8-K 2019-11-06
8-K 2019-08-07
8-K 2019-08-06
8-K 2019-05-29
8-K 2019-05-08
8-K 2019-04-11
8-K 2019-02-27
8-K 2019-02-16
8-K 2018-12-18
8-K 2018-11-07
8-K 2018-08-08
8-K 2018-07-16
8-K 2018-06-22
8-K 2018-05-19
8-K 2018-05-18
8-K 2018-05-18
8-K 2018-05-09
8-K 2018-05-08
8-K 2018-02-27
8-K 2018-02-19

MIDD 10Q Quarterly Report

Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 midd-ex311x20205720x10q.htm
EX-31.2 midd-ex312x20205720x10q.htm
EX-32.1 midd-ex321x20205720x10q.htm
EX-32.2 midd-ex322x20205720x10q.htm

Middleby Earnings 2020-03-28

Balance SheetIncome StatementCash Flow
5.04.03.02.01.00.02012201420172020
Assets, Equity
0.80.60.50.30.20.02012201420172020
Rev, G Profit, Net Income
1.10.60.2-0.3-0.7-1.22012201420172020
Ops, Inv, Fin

Document
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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 March 28, 2020
or
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 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 Market
As of May 1, 2020, there were 55,580,048 shares of the registrant's common stock outstanding.




THE MIDDLEBY CORPORATION
 
QUARTER ENDED MARCH 28, 2020
  
INDEX
DESCRIPTION
PAGE
PART I.  FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS as of MARCH 28, 2020 and DECEMBER 28, 2019
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three months ended MARCH 28, 2020 and MARCH 30, 2019
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three months ended MARCH 28, 2020 and MARCH 30, 2019
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the three months ended MARCH 28, 2020 and MARCH 30, 2019
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 2.
 
 
 
Item 6.




PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
 
ASSETS
Mar 28, 2020

 
Dec 28, 2019

Current assets:
 

 
 

Cash and cash equivalents
$
381,043

 
$
94,500

Accounts receivable, net of reserve for doubtful accounts of $16,350 and $14,886
425,577

 
447,612

Inventories, net
623,822

 
585,699

Prepaid expenses and other
63,999

 
61,224

Prepaid taxes
13,221

 
20,161

Total current assets
1,507,662

 
1,209,196

Property, plant and equipment, net of accumulated depreciation of $202,863 and $197,629
345,824

 
352,145

Goodwill
1,835,787

 
1,849,747

Other intangibles, net of amortization of $350,795 and $333,507
1,434,139

 
1,443,381

Long-term deferred tax assets
33,168

 
36,932

Other assets
121,399

 
110,742

Total assets
$
5,277,979

 
$
5,002,143

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt
$
21,933

 
$
2,894

Accounts payable
191,724

 
173,693

Accrued expenses
393,575

 
416,550

Total current liabilities
607,232

 
593,137

Long-term debt
2,177,154

 
1,870,246

Long-term deferred tax liability
130,842

 
133,500

Accrued pension benefits
261,441

 
289,086

Other non-current liabilities
206,604

 
169,360

Stockholders' equity:
 

 
 

Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued

 

Common stock, $0.01 par value; 63,206,417 and 63,129,775 shares issued in 2020 and 2019, respectively
145

 
145

Paid-in capital
395,442

 
387,402

Treasury stock, at cost; 7,896,428 and 6,940,089 shares in 2020 and 2019
(525,862
)
 
(451,262
)
Retained earnings
2,435,241

 
2,361,462

Accumulated other comprehensive loss
(410,260
)
 
(350,933
)
Total stockholders' equity
1,894,706

 
1,946,814

Total liabilities and stockholders' equity
$
5,277,979

 
$
5,002,143

 


See accompanying notes

1



THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
 
Three Months Ended
 
Mar 28, 2020

 
Mar 30, 2019

Net sales
$
677,459

 
$
686,802

Cost of sales
427,269

 
429,490

Gross profit
250,190

 
257,312

Selling, general and administrative expenses
143,942

 
155,909

Restructuring expenses
834

 
342

Income from operations
105,414

 
101,061

Interest expense and deferred financing amortization, net
15,713

 
20,520

Net periodic pension benefit (other than service costs)
(10,089
)
 
(7,761
)
Other expense (income), net
3,326

 
(1,413
)
Earnings before income taxes
96,464

 
89,715

Provision for income taxes
22,685

 
20,702

Net earnings
$
73,779

 
$
69,013

 
 
 
 
Net earnings per share:
 
 
 
Basic
$
1.33

 
$
1.24

Diluted
$
1.33

 
$
1.24

Weighted average number of shares
 
 
 
Basic
55,396

 
55,601

Dilutive common stock equivalents1
2

 

Diluted
55,398

 
55,601

Comprehensive income
$
14,452

 
$
65,066

 

















1There were no anti-dilutive equity awards excluded from common stock equivalents for any period presented.

See accompanying notes

2



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, December 28, 2019
$
145

 
$
387,402

 
$
(451,262
)
 
$
2,361,462

 
$
(350,933
)
 
$
1,946,814

Net earnings

 

 

 
73,779

 

 
73,779

Currency translation adjustments

 

 

 

 
(48,916
)
 
(48,916
)
Change in unrecognized pension benefit costs, net of tax of $3,123

 

 

 

 
14,808

 
14,808

Unrealized loss on interest rate swap, net of tax of $(9,299)

 

 

 

 
(25,219
)
 
(25,219
)
Stock compensation

 
4,159

 

 

 

 
4,159

Stock issuance

 
3,881

 

 

 

 
3,881

Purchase of treasury stock

 

 
(74,600
)
 

 

 
(74,600
)
Balance, March 28, 2020
$
145

 
$
395,442

 
$
(525,862
)
 
$
2,435,241

 
$
(410,260
)
 
$
1,894,706



 
Common
Stock

 
Paid-in
Capital

 
Treasury
Stock

 
Retained
Earnings

 
Accumulated
Other
Comprehensive
Income/(loss)

 
Total
Stockholders'
Equity

Balance, December 29, 2018
$
145

 
$
377,419

 
$
(445,118
)
 
$
2,009,233

 
$
(276,476
)
 
$
1,665,203

Net earnings

 

 

 
69,013

 

 
69,013

Adoption of ASU 2017-12 (1)

 

 

 
(11
)
 
11

 

Currency translation adjustments

 

 

 

 
10,683

 
10,683

Change in unrecognized pension benefit costs, net of tax of $(1,383)

 

 

 

 
(5,263
)
 
(5,263
)
Unrealized loss on interest rate swap, net of tax of $(3,177)

 

 

 

 
(9,378
)
 
(9,378
)
Stock compensation

 
1,069

 

 

 

 
1,069

Purchase of treasury stock

 

 
(5,268
)
 

 

 
(5,268
)
Balance, March 30, 2019
$
145

 
$
378,488

 
$
(450,386
)
 
$
2,078,235

 
$
(280,423
)
 
$
1,726,059


(1) As of December 30, 2018, the company adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" using the modified retrospective method. The adoption of this guidance resulted in the recognition of less than $(0.1) million as an adjustment to the opening balance of retained earnings.

















See accompanying notes

3



THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Three Months Ended
 
Mar 28, 2020

 
Mar 30, 2019

Cash flows from operating activities--
 

 
 

Net earnings
$
73,779

 
$
69,013

Adjustments to reconcile net earnings to net cash provided by operating activities--
 

 
 

Depreciation and amortization
26,599

 
25,514

Non-cash share-based compensation
4,159

 
1,069

Deferred income taxes
8,672

 
984

Net periodic pension benefit (other than service costs)
(10,089
)
 
(7,761
)
Changes in assets and liabilities, net of acquisitions
 

 
 

Accounts receivable, net
33,408

 
11,743

Inventories, net
(28,094
)
 
(54,532
)
Prepaid expenses and other assets
9,566

 
8,117

Accounts payable
15,001

 
4,573

Accrued expenses and other liabilities
(45,864
)
 
(24,772
)
Net cash provided by operating activities
87,137

 
33,948

Cash flows from investing activities--
 

 
 

Net additions to property, plant and equipment
(9,181
)
 
(8,095
)
Acquisitions, net of cash acquired
(30,041
)
 
(12,397
)
Net cash used in investing activities
(39,222
)
 
(20,492
)
Cash flows from financing activities--
 

 
 

Proceeds under Credit Facility
2,303,953

 
103,957

Repayments under Credit Facility
(1,977,453
)
 
(102,107
)
Net proceeds (repayments) under international credit facilities
786

 
(72
)
Net repayments under other debt arrangement
(11
)
 
(175
)
Payments of deferred purchase price

 
(446
)
Repurchase of treasury stock
(74,600
)
 
(5,268
)
Debt issuance costs
(7,577
)
 

Net cash provided by (used by) financing activities
245,098

 
(4,111
)
Effect of exchange rates on cash and cash equivalents
(6,470
)
 
164

Changes in cash and cash equivalents--
 

 
 

Net increase in cash and cash equivalents
286,543

 
9,509

Cash and cash equivalents at beginning of year
94,500

 
71,701

Cash and cash equivalents at end of period
$
381,043

 
$
81,210

 

See accompanying notes

4



THE MIDDLEBY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 2020
(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 2019 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2020
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 March 28, 2020 and December 28, 2019, the results of operations for the three months ended March 28, 2020 and March 30, 2019, cash flows for the three months ended March 28, 2020 and March 30, 2019 and statement of stockholders' equity for the three months ended March 28, 2020 and March 30, 2019.
Certain prior year amounts have been reclassified to be consistent with current year presentation, including classifying the non-operating components of pension benefit as an individual adjustment within the operating activities on the Consolidated Statements of Cash Flows. Previously the amounts were reported as changes in accrued expenses and other liabilities.

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 $4.2 million and $1.1 million for the three months period ended March 28, 2020 and March 30, 2019, respectively.
C)
Income Taxes
A tax provision of $22.7 million, at an effective rate of 23.5%, was recorded during the three months period ended March 28, 2020, as compared to a $20.7 million tax provision at a 23.1% effective rate in the prior year period. The effective rates in 2020 and 2019 are higher than the federal tax rate of 21% primarily due to state taxes.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. As of March 28, 2020, CARES did not have a material impact on the company's financial statements.
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:

5



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 March 28, 2020
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
    Interest rate swaps
$

 
$
57,808

 
$

 
$
57,808

    Contingent consideration
$

 
$

 
$
7,950

 
$
7,950

    Foreign exchange derivative contracts

 
1,275

 

 
$
1,275

 
 
 
 
 
 
 
 
As of December 28, 2019
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
    Interest rate swaps
$

 
$
1,830

 
$

 
$
1,830

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
    Interest rate swaps
$

 
$
25,120

 
$

 
$
25,120

    Contingent consideration
$

 
$

 
$
6,697

 
$
6,697

    Foreign exchange derivative contracts
$

 
$
901

 
$

 
$
901


The contingent consideration as of March 28, 2020 and December 28, 2019, 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 acquired business in comparison to the earnout targets and adjusts the liability accordingly.
E)    Consolidated Statements of Cash Flows
Cash paid for interest was $14.1 million and $20.4 million for the three months ended March 28, 2020 and March 30, 2019, respectively. Cash payments totaling $6.2 million and $3.0 million were made for income taxes for the three months ended March 28, 2020 and March 30, 2019, respectively.

6



2)
Acquisitions and Purchase Accounting
The company operates in a highly fragmented industry and has completed numerous acquisitions over the past several years as a component of its growth strategy. The company has acquired industry leading brands and technologies to position itself as a leader in the commercial foodservice equipment, food processing equipment and residential kitchen equipment industries.
 
The company has accounted 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 also 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 following represents the company's significant acquisitions in 2020 and 2019 as well as summarized information on various acquisitions that were not individually material. The company also made smaller acquisitions not presented below which are individually and collectively immaterial.
Cooking Solutions Group
On April 1, 2019, the company completed its acquisition of all of the capital stock of Cooking Solutions Group, Inc. ("Cooking Solutions Group") from Standex International Corporation, which consists of the brands APW Wyott, Bakers Pride, BKI and Ultrafryer with locations in Texas, South Carolina and Mexico for a purchase price of approximately $106.1 million, net of cash acquired. During the third quarter of 2019, the company finalized the working capital provision provided for by the purchase agreement resulting in a payment due to the sellers of $0.1 million.
The final allocation of consideration paid for the Cooking Solutions Group acquisition is summarized as follows (in thousands):
 
(as initially
reported)
April 1, 2019
 
Measurement
Period
Adjustments
 
(as adjusted)
April 1, 2019
Cash
$
843

 
$

 
$
843

Current assets
33,666

 
(1,625
)
 
32,041

Property, plant and equipment
15,959

 
(58
)
 
15,901

Goodwill
31,207

 
6,330

 
37,537

Other intangibles
53,450

 
(5,850
)
 
47,600

Other assets

 
1,470

 
1,470

Current liabilities
(15,130
)
 
(1,583
)
 
(16,713
)
Long-term deferred tax liability
(13,082
)
 
2,553

 
(10,529
)
Other non-current liabilities

 
(1,163
)
 
(1,163
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
106,913

 
$
74

 
$
106,987


The long-term deferred tax liability amounted to $10.5 million. The net deferred tax liability is comprised of $11.6 million of deferred tax liability related to the difference between the book and tax basis on identifiable intangible asset and liability accounts and $1.1 million of deferred tax asset related to the difference between the book and tax basis on identifiable tangible assets and liability accounts.
The goodwill and $24.7 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $22.5 million allocated to customer relationships and $0.4 million allocated to backlog, which are being amortized over periods of 9 years and 3 months, respectively. Goodwill and other intangibles of Cooking Solutions Group are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.

7



Other 2019 Acquisitions
During 2019, the company completed various other acquisitions that were not individually material. The 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 2019 acquisitions and are summarized as follows (in thousands):
 
Preliminary Opening Balance Sheet
 
Preliminary Measurement
Period
Adjustments
 
Adjusted Opening Balance Sheet
Cash
$
2,683

 
$
(10
)
 
$
2,673

Current assets
21,525

 
922

 
22,447

Property, plant and equipment
8,920

 
(166
)
 
8,754

Goodwill
99,838

 
(3,300
)
 
96,538

Other intangibles
64,019

 
389

 
64,408

Long-term deferred tax asset
1,288

 
1,428

 
2,716

Other assets
137

 
854

 
991

Current liabilities
(20,437
)
 
(201
)
 
(20,638
)
Other non-current liabilities
(6,170
)
 
(529
)
 
(6,699
)
 
 
 
 
 
 
Consideration paid at closing
$
171,803

 
$
(613
)
 
$
171,190

 
 
 
 
 
 
Deferred payments
2,404

 

 
2,404

Contingent consideration
4,258

 

 
4,258

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
178,465

 
$
(613
)
 
$
177,852


The long-term deferred tax asset amounted to $2.7 million. The net deferred tax asset is comprised of $2.9 million of deferred tax asset related to tax loss carryforwards, $1.0 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.8 million of deferred tax asset related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.
The goodwill and $29.6 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $22.3 million allocated to customer relationships, $11.1 million allocated to developed technology and $1.4 million allocated to backlog, which are being amortized over periods of 2 to 10 years, 5 to 7 years, and 3 months, respectively. Goodwill of $42.8 million and other intangibles of $35.5 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Goodwill of $43.7 million and other intangibles of $21.3 million are allocated to the Food Processing Equipment Group for segment reporting purposes. Goodwill of $9.9 million and other intangibles of $7.6 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Of these assets, goodwill of $85.5 million and intangibles of $53.8 million are expected to be deductible for tax purposes.
One purchase agreement includes deferred payments and earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded. The deferred payments are payable between 2020 and 2022. The contractual obligation associated with the deferred payments on the acquisition date is $2.4 million. The earnout is payable in 2022, if the company exceeds certain sales and earnings targets. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $4.3 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 substantially all 2019 acquisitions. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to complete the purchase price allocations during 2020.



8



2020 Acquisitions
As of March 28, 2020, the company has 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 acquisitions and are summarized as follows (in thousands):
 
Preliminary Opening Balance Sheet
Cash
$
2,347

Current assets
31,089

Property, plant and equipment
1,032

Goodwill
12,776

Other intangibles
16,484

Other assets
1,708

Current liabilities
(30,005
)
Other non-current liabilities
(3,070
)
 
 
Consideration paid at closing
$
32,361

 
 
Deferred payments
1,250

Contingent consideration
1,774

 
 
Net assets acquired and liabilities assumed
$
35,385


The goodwill and $9.0 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $6.5 million allocated to customer relationships, $0.2 million allocated to developed technology and $0.8 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 6 months, respectively. Goodwill of $12.8 million and other intangibles of $16.5 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes and are expected to be deductible for tax purposes.
One purchase agreement includes a deferred payment and earnout provision providing for contingent payments due to the sellers to the extent certain financial targets are exceeded. The deferred payment is payable during 2020. The contractual obligation associated with the deferred payments on the acquisition date is $1.3 million. The earnout is payable in 2023, if the company exceeds certain sales and earnings targets. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $1.8 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 substantially all 2020 acquisitions to date. Thus, the provisional measurements of fair value 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.

9



Pro Forma Financial Information
 
In accordance with ASC 805 Business Combinations, the following unaudited pro forma results of operations for the three months ended March 28, 2020 and March 30, 2019, assumes the 2019 and 2020 acquisitions described above were completed on December 30, 2018 (first day of fiscal year 2019). The following pro forma results include adjustments to reflect additional interest expense to fund the acquisitions, amortization of intangibles associated with the acquisitions, and the effects of adjustments made to the carrying value of certain assets (in thousands, except per share data): 
 
Three Months Ended
 
March 28, 2020
 
March 30, 2019
Net sales
$
679,980

 
$
734,592

Net earnings
73,810

 
55,471

 
 
 
 
Net earnings per share:
 

 
 

Basic
$
1.33

 
$
1.00

Diluted
$
1.33

 
$
1.00


 
The historical consolidated financial information of the Company and the acquisitions have been adjusted in the pro forma information to give effect to pro forma 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.

10



4)    Recently Issued Accounting Standards

Accounting Pronouncements - Recently Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, and has since modified the standard with several ASUs (collectively, the “new credit loss standard”). The new credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The company adopted the new standard as of December 29, 2019 (first day of fiscal year 2020) using the modified retrospective approach. As a result of the company's assessment process on its receivables and contract assets portfolio, which is the only financial instrument in scope of this standard, the adoption of this guidance did not have a material impact on the company's Condensed Consolidated Financial Statements.  

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The amendments in ASU-04 simplify the subsequent measurement of goodwill, by removing the second step of the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The company adopted this guidance on December 29, 2019 on a prospective basis. The adoption of this guidance did not have an impact on the company's Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement". The amendments in ASU-13 remove, modify and add various disclosure requirements around fair value measurement in order to clarify and improve the cost-benefit nature of disclosures. The company adopted this guidance on December 29, 2019 on a prospective basis. The adoption of this guidance did not have an impact on the company's Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)". The amendments in ASU-15 align the requirements for capitalizing implementation costs in a service contract hosting arrangement with those of developing or obtaining internal-use software. The company adopted this guidance on December 29, 2019 on a prospective basis. The adoption of this guidance did not have an impact on the company's Condensed Consolidated Financial Statements.

Accounting Pronouncements - To be adopted

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)". The amendments in ASU-14 remove, modify and add various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. This guidance is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2020 with early adoption permitted. The amendments must be applied on a retrospective basis for all periods presented. The company is currently evaluating the impacts the adoption of this guidance will have on its Condensed Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)", which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This guidance is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2020 with early adoption permitted. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings in the period of adoption. The company is currently evaluating the impacts the adoption of this guidance will have on its Condensed Consolidated Financial Statements.






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In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting". Subject to meeting certain criteria, ASU 2020-04 provides optional expedients and exceptions to applying contract modification accounting under existing generally accepted accounting principles, for contracts that are modified to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. Some of the Company’s contracts with respect to its borrowings and interest rate swap contracts already contain comparable alternative reference rates that would automatically take effect upon the phasing out of LIBOR, while for others, the company anticipates negotiating comparable replacement rates with its counterparties.  This guidance is effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The company is currently evaluating the impacts the adoption of this guidance will have on its Condensed Consolidated Financial Statements.
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 March 28, 2020
 

 
 

 
 
 
 

United States and Canada
$
306,510

 
$
72,882

 
$
85,074

 
$
464,466

Asia
37,524

 
7,639

 
978

 
46,141

Europe and Middle East
79,732

 
19,347

 
43,465

 
142,544

Latin America
19,358

 
4,398

 
552

 
24,308

Total
$
443,124

 
$
104,266

 
$
130,069

 
$
677,459

 
 
 
 
 
 
 
 
Three Months Ended March 30, 2019
 
 
 
 
 
 
 
United States and Canada
$
300,275

 
$
57,589

 
$
83,358

 
$
441,222

Asia
48,293

 
8,682

 
1,398

 
58,373

Europe and Middle East
89,896

 
20,618

 
50,615

 
161,129

Latin America
19,067

 
5,585

 
1,426

 
26,078

Total
$
457,531

 
$
92,474

 
$
136,797

 
$
686,802



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.


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The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):
 
Mar 28, 2020
 
Dec 28, 2019
Contract assets
$
23,174

 
$
22,675

Contract liabilities
$
102,564

 
$
74,511

Non-current contract liabilities
$
12,370

 
$
12,870



During the three months period ended March 28, 2020, the company reclassified $5.1 million to receivables, which was included in the contract asset balance at the beginning of the period. During the three months period ended March 28, 2020, the company recognized revenue of $45.3 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 $63.2 million during the three months period ended March 28, 2020. The increase in contract liabilities primarily relates to companies acquired during the three months period ended March 28, 2020. 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 three months period ended March 28, 2020.
6)    Other Comprehensive Income
The company reports changes in equity during a period, except those resulting from investments by owners and distributions to owners, in accordance with ASC 220, "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
 
Total
Balance as of December 28, 2019
$
(105,705
)
 
$
(228,336
)
 
$
(16,892
)
 
$
(350,933
)
Other comprehensive income before reclassification
(48,916
)
 
14,808

 
(23,952
)
 
(58,060
)
Amounts reclassified from accumulated other comprehensive income

 

 
(1,267
)
 
(1,267
)
Net current-period other comprehensive income
$
(48,916
)
 
$
14,808

 
$
(25,219
)
 
$
(59,327
)
Balance as of March 28, 2020
$
(154,621
)
 
$
(213,528
)
 
$
(42,111
)
 
$
(410,260
)
 
 
 
 
 
 
 
 
Balance as of December 29, 2018
$
(112,771
)
 
$
(170,938
)
 
$
7,233

 
$
(276,476
)
Adoption of ASU 2017-12 (2)

 

 
11

 
11

Other comprehensive income before reclassification
10,683

 
(5,263
)
 
(10,144
)
 
(4,724
)
Amounts reclassified from accumulated other comprehensive income

 

 
766

 
766

Net current-period other comprehensive income
$
10,683

 
$
(5,263
)
 
$
(9,367
)
 
$
(3,947
)
Balance as of March 30, 2019
$
(102,088
)
 
$
(176,201
)
 
$
(2,134
)
 
$
(280,423
)

(1) As of March 28, 2020, pension and interest rate swap amounts are net of tax of $(45.5) million and $(15.3) million, respectively. During the three months ended March 28, 2020, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $3.1 million and $(9.3) million, respectively. As of March 30, 2019 pension and interest rate swap amounts are net of tax of $(38.1) million and $(0.6) million, respectively. During the three months ended March 30, 2019, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $(1.4) million and $(3.2) million, respectively.
(2) As of December 30, 2018, the company adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" using the modified retrospective method. The adoption of this guidance resulted in the recognition of less than $(0.1) million as an adjustment to the opening balance of retained earnings.

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