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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 October 2, 2021
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)  
Delaware36-3352497
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
 
 
1400 Toastmaster Drive,Elgin,Illinois60120
(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 filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging 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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockMIDDNasdaq Global Select Market
As of November 5, 2021, there were 55,626,327 shares of the registrant's common stock outstanding.



THE MIDDLEBY CORPORATION
 
QUARTER ENDED OCTOBER 2, 2021
  
INDEX
DESCRIPTIONPAGE
PART I.  FINANCIAL INFORMATION 
  
Item 1. 
   
 CONDENSED CONSOLIDATED BALANCE SHEETS as of OCTOBER 2, 2021 and JANUARY 2, 2021
  
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three and nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020
  
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three and nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020
 
  
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)
 
ASSETSOct 2, 2021Jan 2, 2021
Current assets:  
Cash and cash equivalents$251,476 $268,103 
Accounts receivable, net of reserve for doubtful accounts of $19,440 and $19,225
466,487 363,361 
Inventories, net686,043 540,198 
Prepaid expenses and other82,582 81,049 
Prepaid taxes21,149 17,782 
Total current assets1,507,737 1,270,493 
Property, plant and equipment, net of accumulated depreciation of $256,701 and $229,871
370,266 344,482 
Goodwill2,106,182 1,934,261 
Other intangibles, net of amortization of $458,451 and $403,347
1,574,601 1,450,381 
Long-term deferred tax assets83,589 76,052 
Other assets130,476 126,805 
Total assets$5,772,851 $5,202,474 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Current maturities of long-term debt$21,553 $22,944 
Accounts payable254,287 182,773 
Accrued expenses546,996 494,541 
Total current liabilities822,836 700,258 
Long-term debt1,866,022 1,706,652 
Long-term deferred tax liability165,100 147,224 
Accrued pension benefits432,909 469,500 
Other non-current liabilities187,014 202,191 
Stockholders' equity:  
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued
  
Common stock, $0.01 par value; 63,654,275 and 63,651,773 shares issued in 2021 and 2020, respectively
147 147 
Paid-in capital381,014 433,308 
Treasury stock, at cost; 8,027,948 and 8,013,296 shares in 2021 and 2020
(539,611)(537,134)
Retained earnings2,959,625 2,568,756 
Accumulated other comprehensive loss(502,205)(488,428)
Total stockholders' equity2,298,970 1,976,649 
Total liabilities and stockholders' equity$5,772,851 $5,202,474 
 


See accompanying notes
1


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
 Three Months EndedNine Months Ended
 Oct 2, 2021Sep 26, 2020Oct 2, 2021Sep 26, 2020
Net sales$817,545 $634,525 $2,384,376 $1,783,961 
Cost of sales517,918 411,776 1,505,149 1,157,896 
Gross profit299,627 222,749 879,227 626,065 
Selling, general and administrative expenses175,354 128,814 496,022 384,580 
Restructuring expenses791 7,263 2,596 10,281 
Merger termination fee(110,000) (110,000) 
Loss (gain) on sale of plant  (763) 
Income from operations233,482 86,672 491,372 231,204 
Interest expense and deferred financing amortization, net13,192 18,418 43,481 55,881 
Net periodic pension benefit (other than service costs)(11,363)(10,149)(34,268)(30,004)
Other expense (income), net794 (294)(1,366)3,414 
Earnings before income taxes230,859 78,697 483,525 201,913 
Provision for income taxes54,893 18,181 97,711 46,456 
Net earnings$175,966 $60,516 $385,814 $155,457 
Net earnings per share:  
Basic$3.19 $1.10 $6.99 $2.82 
Diluted$3.09 $1.10 $6.83 $2.82 
Weighted average number of shares  
Basic55,232 54,982 55,225 55,104 
Dilutive common stock equivalents1,707 118 1,301 48 
Diluted56,939 55,100 56,526 55,152 
Comprehensive income$163,011 $82,887 $372,037 $133,201 
 



















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, July 3, 2021$147 $370,816 $(539,496)$2,783,659 $(489,250)$2,125,876 
Net earnings   175,966  175,966 
Currency translation adjustments    (21,881)(21,881)
Change in unrecognized pension benefit costs, net of tax of $1,296
    5,870 5,870 
Unrealized gain on interest rate swap, net of tax of $1,065
    3,056 3,056 
Stock compensation 10,198    10,198 
Purchase of treasury stock  (115)  (115)
Balance, October 2, 2021$147 $381,014 $(539,611)$2,959,625 $(502,205)$2,298,970 
Balance, January 2, 2021$147 $433,308 $(537,134)$2,568,756 $(488,428)$1,976,649 
Net earnings   385,814  385,814 
Adoption of ASU 2020-06 (1)
 (79,430) 5,055  (74,375)
Currency translation adjustments    (33,000)(33,000)
Change in unrecognized pension benefit costs, net of tax of $673
    3,052 3,052 
Unrealized gain on interest rate swap, net of tax of $5,637
    16,171 16,171 
Stock compensation 27,136    27,136 
Purchase of treasury stock  (2,477)  (2,477)
Balance, October 2, 2021$147 $381,014 $(539,611)$2,959,625 $(502,205)$2,298,970 

(1) As of January 3, 2021 the company adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity using the modified retrospective method. The adoption of this guidance resulted in a $79.4 million reduction to paid-in capital, net of tax of $25.5 million, and the recognition of $5.1 million as an adjustment to the opening balance of retained earnings, net of tax of $1.6 million.


3


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, June 27, 2020 $145 $406,640 $(528,111)$2,456,403 $(395,560)$1,939,517 
Net earnings   60,516  60,516 
Currency translation adjustments    25,851 25,851 
Change in unrecognized pension benefit costs, net of tax of $(1,283)
    (6,133)(6,133)
Unrealized gain on interest rate swap, net of tax of $960
    2,653 2,653 
Stock compensation 5,300    5,300 
Stock issuance1 3,705    3,706 
Purchase of treasury stock  (395)  (395)
Equity component of issuance of convertible notes 307    307 
Balance, September 26, 2020$146 $415,952 $(528,506)$2,516,919 $(373,189)$2,031,322 
Balance, December 28, 2019$145 $387,402 $(451,262)$2,361,462 $(350,933)$1,946,814 
Net earnings   155,457  155,457 
Currency translation adjustments    (3,213)(3,213)
Change in unrecognized pension benefit costs, net of tax of $1,308
    6,184 6,184 
Unrealized (loss) on interest rate swap, net of tax of $(9,303)
    (25,227)(25,227)
Stock compensation 14,422    14,422 
Stock issuance1 13,821    13,822 
Purchase of treasury stock  (77,244)  (77,244)
Equity component of issuance of convertible notes 307    307 
Balance, September 26, 2020$146 $415,952 $(528,506)$2,516,919 $(373,189)$2,031,322 

    



















See accompanying notes
4


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 Nine Months Ended
 Oct 2, 2021Sep 26, 2020
Cash flows from operating activities--  
Net earnings$385,814 $155,457 
Adjustments to reconcile net earnings to net cash provided by operating activities--  
Depreciation and amortization90,672 81,594 
Amortization of discount and issuance costs on convertible notes 2,130 
Non-cash share-based compensation27,136 14,422 
Deferred income taxes(5,704)11,696 
Net periodic pension benefit (other than service costs)(34,268)(30,004)
Gain on sale of plant(763) 
Changes in assets and liabilities, net of acquisitions  
Accounts receivable, net(97,355)69,176 
Inventories, net(134,523)43,188 
Prepaid expenses and other assets11,132 16,576 
Accounts payable61,286 (28,171)
Accrued expenses and other liabilities42,613 (19,882)
Net cash provided by operating activities346,040 316,182 
Cash flows from investing activities--  
Net additions to property, plant and equipment(29,732)(29,776)
Proceeds on sale of property, plant and equipment6,062 9,381 
Acquisitions, net of cash acquired(389,009)(33,144)
Net cash used in investing activities(412,679)(53,539)
Cash flows from financing activities--  
Proceeds under Credit Facility485,976 2,547,305 
Repayments under Credit Facility(421,550)(3,217,507)
Proceeds from issuance of convertible notes, net of issuance costs 729,933 
Premiums paid for capped call (104,650)
Net (repayments) proceeds under international credit facilities(1,473)2,033 
Net repayments under other debt arrangement(254)(34)
Payments of deferred purchase price(5,861)(3,700)
Repurchase of treasury stock(2,477)(77,244)
Debt issuance costs on Credit Facility (10,974)
Net cash provided by (used in) financing activities54,361 (134,838)
Effect of exchange rates on cash and cash equivalents(4,349)(1,995)
Changes in cash and cash equivalents--  
Net (decrease) increase in cash and cash equivalents(16,627)125,810 
Cash and cash equivalents at beginning of year268,103 94,500 
Cash and cash equivalents at end of period$251,476 $220,310 
Non-cash investing and financing activities:
Stock issuance related to acquisition$ $3,706 
 

See accompanying notes
5


THE MIDDLEBY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 2021
(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 2020 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2021. 
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 October 2, 2021 and January 2, 2021, the results of operations for the three and nine months ended October 2, 2021 and September 26, 2020, cash flows for the nine months ended October 2, 2021 and September 26, 2020 and statement of stockholders' equity for the three and nine months ended October 2, 2021 and September 26, 2020.
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 $10.2 million and $5.3 million for the three months period ended October 2, 2021 and September 26, 2020, respectively. Non-cash share-based compensation expense was $27.1 million and $14.4 million for the nine months period ended October 2, 2021 and September 26, 2020, respectively.
c)Income Taxes
A tax provision of $54.9 million, at an effective rate of 23.8% was recorded during the three months period ended October 2, 2021, as compared to a $18.2 million tax provision at an effective rate of 23.1% in the prior year period. A tax provision of $97.7 million, at an effective rate of 20.2%, was recorded during the nine months period ended October 2, 2021, as compared to a $46.5 million tax provision at a 23.0% effective rate in the prior year period.

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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 October 2, 2021
Financial Assets:
    Interest rate swaps$ $1,465 $ $1,465 
Financial Liabilities:
    Interest rate swaps$ $30,750 $ $30,750 
    Contingent consideration$ $ $25,251 $25,251 
    Foreign exchange derivative contracts$ $3,400 $ $3,400 
As of January 2, 2021
Financial Liabilities:
    Interest rate swaps$ $51,093 $ $51,093 
    Contingent consideration$ $ $25,558 $25,558 
    Foreign exchange derivative contracts$ $2,191 $ $2,191 
The contingent consideration as of October 2, 2021 and January 2, 2021, 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 $38.5 million and $51.1 million for the nine months ended October 2, 2021 and September 26, 2020, respectively. Cash payments totaling $98.9 million and $28.0 million were made for income taxes for the nine months ended October 2, 2021 and September 26, 2020, respectively.
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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 28,102 and 118,143 for the three months ended October 2, 2021, and September 26, 2020, 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 16,342 and 47,555 for the nine months ended October 2, 2021, and September 26, 2020, respectively. For the nine months ended October 2, 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes (as defined below) resulting in 1,678,501 and 1,284,381 diluted common stock equivalents to be included in the diluted net earnings per share for the three and nine months ended October 2, 2021, respectively. There have been no 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.
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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.

Termination of Welbilt Merger

As previously disclosed, on April 20, 2021, Middleby, entered into a Merger Agreement with Welbilt, Inc., a Delaware corporation ("Welbilt"), Middleby Marshall Inc., a Delaware corporation and a direct wholly owned subsidiary of Middleby ("Acquiror") and Mosaic Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of Acquiror ("Merger Sub"), which provided that, upon the terms and subject to the conditions set forth therein, Merger Sub would merge with and into Welbilt, with Welbilt surviving as an indirect, wholly-owned subsidiary of Middleby.

As previously disclosed, on July 13, 2021, Middleby announced that, under the terms of the Merger Agreement, it would not exercise its right to propose any modifications to the terms of the Merger Agreement and would allow the five-day match period to expire. Accordingly, on July 14, 2021, Welbilt delivered to Middleby a written notice terminating the Merger Agreement in accordance with Section 7.1(c)(iii) of the Merger Agreement and, concurrently with Middleby’s receipt of the termination fee of $110.0 million in cash from Welbilt, the Merger Agreement was terminated on July 14, 2021.

The termination fee received is reflected in the Condensed Consolidated Statements of Comprehensive Income as the "merger termination fee" and $19.7 million of deal costs associated with the transaction are reflected in selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income.

The following represents the company's significant acquisitions in 2021 and 2020 as well as summarized information on various acquisitions that were not individually material.















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2020 Acquisitions
During 2020, the company completed various 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 2020 acquisitions and are summarized as follows (in thousands):
Preliminary Opening Balance SheetPreliminary Measurement
Period
Adjustments
Adjusted Opening Balance Sheet
Cash$14,647 $ $14,647 
Current assets43,670 (13,391)30,279 
Property, plant and equipment3,014 (241)2,773 
Goodwill55,335 3,740 59,075 
Other intangibles63,201 (4,375)58,826 
Other assets6,121 52 6,173 
Current liabilities(54,478)13,037 (41,441)
Long-term deferred tax liability(123)387 264 
Other non-current liabilities(21,902)791 (21,111)
Consideration paid at closing$109,485 $ $109,485 
Deferred payments8,666 (468)8,198 
Contingent consideration16,144 (836)15,308 
Net assets acquired and liabilities assumed$134,295 $(1,304)$132,991 
The long-term deferred tax asset amounted to $0.3 million and is related to the difference between the book and tax basis on other assets and liability accounts.
The goodwill and $15.7 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $10.6 million allocated to customer relationships, $26.2 million allocated to developed technology and $6.3 million allocated to backlog, which are being amortized over periods of 6 to 9 years, 6 to 12 years, and 3 to 9 months, respectively. Goodwill of $59.1 million and other intangibles of $58.8 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Of these assets, goodwill of $24.4 million and intangibles of $58.5 million are expected to be deductible for tax purposes.
Several purchase agreements include deferred payment 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 2021 and 2022. The contractual obligations associated with the deferred payments on the acquisition date amount to $8.2 million. The earnouts are payable between 2021 and 2023, if the company exceeds certain sales and earnings targets. The contractual obligations associated with the contingent earnout provisions recognized on the acquisition date amount to $15.3 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 various 2020 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.
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Novy Invest NV
On July 12, 2021, the company completed its acquisition of all of the capital stock of Novy Invest NV ("Novy"), a leading manufacturer of premium residential ventilation hoods and cook tops located in Belgium, for a purchase price of approximately $250.9 million, net of cash acquired.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair values of assets acquired and liabilities assumed (in thousands):
Preliminary Opening Balance Sheet
Cash$16,152 
Current assets23,762 
Property, plant and equipment17,058 
Goodwill142,741 
Other intangibles126,557 
Other assets26 
Current liabilities(23,440)
Long-term deferred tax liability(33,918)
Other non-current liabilities(1,930)
Net assets acquired and liabilities assumed$267,008 
The long-term deferred tax liability amounted to $33.9 million. The deferred tax liability is comprised of $31.6 million related to the difference between the book and tax basis of identifiable intangible assets and $2.3 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $89.5 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $33.9 million allocated to customer relationships, $2.3 million allocated to developed technology and $0.9 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 months, respectively. Goodwill of $142.7 million and other intangibles of $126.6 million of the company are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Goodwill and other intangibles are not expected to be deductible for tax purposes.




















11




Imperial Manufacturing Company
On September 24, 2021, the company completed its acquisition of all of the capital stock of Spenuzza, Inc. (dba Imperial Manufacturing Company) ("Imperial") located in Corona, CA, a manufacturer of ranges, fryers, ovens, countertop equipment and other specialty cooking products for commercial kitchens, for a purchase price of approximately $127.3 million, net of cash acquired.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair values of assets acquired and liabilities assumed (in thousands):
Preliminary Opening Balance Sheet
Cash$347 
Current assets8,070 
Property, plant and equipment19,120 
Goodwill42,570 
Other intangibles65,230 
Other assets6 
Current liabilities(7,701)
Net assets acquired and liabilities assumed$127,642 
The goodwill and $35.5 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $28.3 million allocated to customer relationships, $0.9 million allocated to developed technology and $0.6 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 months, respectively. Goodwill of $42.6 million and other intangibles of $65.2 million of the company are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes and are expected to be deductible for tax purposes.
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 2021 acquisitions to date. 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 October 2, 2021 and September 26, 2020, assumes the 2020 and 2021 acquisitions described above were completed on December 29, 2019 (first day of fiscal year 2020). 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
 October 2, 2021September 26, 2020
Net sales$2,472,306 $1,899,883 
Net earnings407,715 155,067 
Net earnings per share:  
Basic$7.38 $2.81 
Diluted$7.21 $2.81 
12


 
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.
13


4)    Recently Issued Accounting Standards
Accounting Pronouncements - Recently Adopted
In August 2020, the FASB issued ASU No. 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument is reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Effective January 3, 2021, the company early adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard resulted in an increase to the opening balance of retained earnings of $5.1 million, a decrease to additional paid-in capital of $79.4 million, and an increase to convertible senior notes of $98.4 million. In addition, the company ceased recording non-cash interest expense associated with amortization of the debt discount and calculates earnings per share using the if-converted method to the extent those shares are not anti-dilutive.
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. The company adopted this guidance on January 3, 2021, and it did not have a material impact on the company's Consolidated Financial Statements upon adoption.
In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition related to reference rate reform. The amendments in this update were effective immediately for all entities. The adoption of this guidance did not materially impact the company's Consolidated Financial Statements.

Accounting Pronouncements - To be adopted
On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements and disclosures.

14


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 ProcessingResidential Kitchen Total
Three Months Ended October 2, 2021   
United States and Canada$366,619 $