MIDDLEBY Corp [MIDD] Filings

10-Q 1 midd-20211002.htm 10-Q midd-20211002

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


☐			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 5, 2021, there were 55,626,327 shares of the registrant's common stock outstanding.

THE MIDDLEBY CORPORATION

QUARTER ENDED OCTOBER 2, 2021

INDEX


DESCRIPTION		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	CONDENSED CONSOLIDATED BALANCE SHEETS as of OCTOBER 2, 2021 and JANUARY 2, 2021	1

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three and nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020	2

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three and nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020	3

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020	5

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 6.	Exhibits	42

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(Unaudited)


ASSETS	Oct 2, 2021		Jan 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, net	686,043		540,198
Prepaid expenses and other	82,582		81,049
Prepaid taxes	21,149		17,782
Total current assets	1,507,737		1,270,493
Property, plant and equipment, net of accumulated depreciation of $256,701 and $229,871	370,266		344,482
Goodwill	2,106,182		1,934,261
Other intangibles, net of amortization of $458,451 and $403,347	1,574,601		1,450,381
Long-term deferred tax assets	83,589		76,052
Other assets	130,476		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 payable	254,287		182,773
Accrued expenses	546,996		494,541
Total current liabilities	822,836		700,258
Long-term debt	1,866,022		1,706,652
Long-term deferred tax liability	165,100		147,224
Accrued pension benefits	432,909		469,500
Other non-current liabilities	187,014		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 capital	381,014		433,308
Treasury stock, at cost; 8,027,948 and 8,013,296 shares in 2021 and 2020	(539,611)		(537,134)
Retained earnings	2,959,625		2,568,756
Accumulated other comprehensive loss	(502,205)		(488,428)
Total stockholders' equity	2,298,970		1,976,649
Total liabilities and stockholders' equity	$	5,772,851	$	5,202,474

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
	Oct 2, 2021		Sep 26, 2020		Oct 2, 2021		Sep 26, 2020
Net sales	$	817,545	$	634,525	$	2,384,376	$	1,783,961
Cost of sales	517,918		411,776		1,505,149		1,157,896
Gross profit	299,627		222,749		879,227		626,065
Selling, general and administrative expenses	175,354		128,814		496,022		384,580
Restructuring expenses	791		7,263		2,596		10,281
Merger termination fee	(110,000)		—		(110,000)		—
Loss (gain) on sale of plant	—		—		(763)		—

Income from operations	233,482		86,672		491,372		231,204
Interest expense and deferred financing amortization, net	13,192		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), net	794		(294)		(1,366)		3,414
Earnings before income taxes	230,859		78,697		483,525		201,913
Provision for income taxes	54,893		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
Basic	55,232		54,982		55,225		55,104
Dilutive common stock equivalents	1,707		118		1,301		48
Diluted	56,939		55,100		56,526		55,152
Comprehensive income	$	163,011	$	82,887	$	372,037	$	133,201

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 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.

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 issuance	1		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 issuance	1		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

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Nine Months Ended
	Oct 2, 2021		Sep 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 amortization	90,672		81,594
Amortization of discount and issuance costs on convertible notes	—		2,130
Non-cash share-based compensation	27,136		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 assets	11,132		16,576
Accounts payable	61,286		(28,171)
Accrued expenses and other liabilities	42,613		(19,882)
Net cash provided by operating activities	346,040		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 equipment	6,062		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 Facility	485,976		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 activities	54,361		(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 year	268,103		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

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.

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.

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.

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.

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 Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	14,647	$	—	$	14,647

Current assets	43,670		(13,391)		30,279
Property, plant and equipment	3,014		(241)		2,773
Goodwill	55,335		3,740		59,075
Other intangibles	63,201		(4,375)		58,826

Other assets	6,121		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 payments	8,666		(468)		8,198
Contingent consideration	16,144		(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.

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 assets	23,762
Property, plant and equipment	17,058
Goodwill	142,741
Other intangibles	126,557

Other assets	26

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.

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.


	Preliminary Opening Balance Sheet
Cash	$	347

Current assets	8,070
Property, plant and equipment	19,120
Goodwill	42,570
Other intangibles	65,230

Other assets	6

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, 2021		September 26, 2020
Net sales	$	2,472,306	$	1,899,883
Net earnings	407,715		155,067

Net earnings per share:
Basic	$	7.38	$	2.81
Diluted	$	7.21	$	2.81

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.

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.

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 October 2, 2021

United States and Canada

366,619