Company Quick10K Filing
Quick10K
Middleby
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$117.62 56 $6,570
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
8-K 2018-12-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-07-16 Officers
8-K 2018-06-22 M&A, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-05-19 Regulation FD, Exhibits
8-K 2018-05-18 Enter Agreement, Exhibits
8-K 2018-05-09 Earnings, Exhibits
8-K 2018-02-19 Officers, Exhibits
ROP Roper Technologies
FTV Fortive
ESL Esterline Technologies
AIMC Altra Industrial Motion
ACLS Axcelis
ACMR ACM Research
VJET Voxeljet Ag
CLIR Clearsign Combustion
PFIN P&F Industries
SEII Sharing Economy International
MIDD 2018-09-29
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 midd-ex311x2018092918x10q.htm
EX-31.2 midd-ex312x2018092918x10q.htm
EX-32.1 midd-ex321x2018092918x10q.htm
EX-32.2 midd-ex322x2018092918x10q.htm

Middleby Earnings 2018-09-29

MIDD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 middleby10-qq32018.htm 10-Q Document


UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q 
 
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 29, 2018
or
o
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 x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
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 o No x
 
As of November 2, 2018, there were 55,846,662 shares of the registrant's common stock outstanding.




THE MIDDLEBY CORPORATION
 
QUARTER ENDED SEPTEMBER 29, 2018
  
INDEX
DESCRIPTION
PAGE
PART I.  FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 29, 2018 and DECEMBER 30, 2017
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME SEPTEMBER 29, 2018 and SEPTEMBER 30, 2017
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SEPTEMBER 29, 2018 and SEPTEMBER 30, 2017
 
 
 
 
 
 
 
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
Sep 29, 2018

 
Dec 30, 2017

Current assets:
 

 
 

Cash and cash equivalents
$
76,588

 
$
89,654

Accounts receivable, net of reserve for doubtful accounts of $13,398 and $13,182
410,150

 
328,421

Inventories, net
512,824

 
424,639

Prepaid expenses and other
50,142

 
55,427

Prepaid taxes
28,876

 
33,748

Total current assets
1,078,580

 
931,889

Property, plant and equipment, net of accumulated depreciation of $161,762 and $142,278
311,741

 
281,915

Goodwill
1,823,258

 
1,264,810

Other intangibles, net of amortization of $247,106 and $207,334
1,275,142

 
780,426

Long-term deferred tax assets
39,483

 
44,565

Other assets
50,405

 
36,108

Total assets
$
4,578,609

 
$
3,339,713

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt
$
3,125

 
$
5,149

Accounts payable
197,750

 
146,333

Accrued expenses
373,297

 
322,171

Total current liabilities
574,172

 
473,653

Long-term debt
1,955,243

 
1,023,732

Long-term deferred tax liability
110,984

 
87,815

Accrued pension benefits
298,628

 
334,511

Other non-current liabilities
65,949

 
58,854

Stockholders' equity:
 

 
 

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

 

Common stock, $0.01 par value; 62,735,903 and 62,619,865 shares issued in 2018 and 2017, respectively
145

 
145

Paid-in capital
380,190

 
374,922

Treasury stock, at cost; 6,889,241 and 6,889,241 shares in 2018 and 2017, respectively
(445,118
)
 
(445,118
)
Retained earnings
1,914,394

 
1,697,618

Accumulated other comprehensive loss
(275,978
)
 
(266,419
)
Total stockholders' equity
1,573,633

 
1,361,148

Total liabilities and stockholders' equity
$
4,578,609

 
$
3,339,713

 


See accompanying notes

1



THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
Sep 29, 2018

 
Sep 30, 2017

 
Sep 29, 2018

 
Sep 30, 2017

Net sales
$
713,331

 
$
593,043

 
$
1,966,259

 
$
1,702,683

Cost of sales
452,171

 
364,524

 
1,242,707

 
1,030,106

Gross profit
261,160

 
228,519

 
723,552

 
672,577

Selling, general and administrative expenses
141,372

 
114,857

 
399,328

 
351,473

Restructuring expenses
12,111

 
4,218

 
18,245

 
17,437

Gain on sale of plant

 

 

 
(12,042
)
Income from operations
107,677

 
109,444

 
305,979

 
315,709

Interest expense and deferred financing amortization, net
19,143

 
6,550

 
38,370

 
18,057

Net periodic pension benefit (other than service costs)
(9,225
)
 
(8,813
)
 
(28,046
)
 
(25,763
)
Other (income) expense, net
(260
)
 
(1,068
)
 
371

 
1,101

Earnings before income taxes
98,019

 
112,775

 
295,284

 
322,314

Provision for income taxes
25,114

 
38,104

 
72,971

 
99,372

Net earnings
$
72,905

 
$
74,671

 
$
222,313

 
$
222,942

 
 
 
 
 
 
 
 
Net earnings per share:
 

 
 

 
 
 
 
Basic
$
1.31

 
$
1.31

 
$
4.00

 
$
3.91

Diluted
$
1.31

 
$
1.31

 
$
4.00

 
$
3.91

Weighted average number of shares
 

 
 

 
 
 
 
Basic
55,577

 
56,810

 
55,575

 
57,070

Dilutive common stock equivalents1

 

 

 

Diluted
55,577

 
56,810

 
55,575

 
57,070

Comprehensive income
$
69,027

 
$
84,320

 
$
212,754

 
$
252,372

 

















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 CASH FLOWS
(In Thousands)
(Unaudited)
 
Nine Months Ended
 
Sep 29, 2018

 
Sep 30, 2017

Cash flows from operating activities--
 

 
 

Net earnings
$
222,313

 
$
222,942

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

 
 

Depreciation and amortization
66,455

 
49,276

Non-cash share-based compensation
5,268

 
6,478

Deferred income taxes
13,312

 
21,369

Gain on sale of plant

 
(12.042
)
Impairment of property, plant and equipment
783

 
2.894

Non-cash restructuring
5,179

 

Changes in assets and liabilities, net of acquisitions
 

 
 

Accounts receivable, net
(38,936
)
 
13,834

Inventories, net
(25,604
)
 
(19,967
)
Prepaid expenses and other assets
10,400

 
(3,359
)
Accounts payable
24,625

 
(17,639
)
Accrued expenses and other liabilities
(31,748
)
 
(58,894
)
Net cash provided by operating activities
252,047

 
204,892

Cash flows from investing activities--
 

 
 

Additions to property, plant and equipment
(32,552
)
 
(42,434
)
Proceeds on sale of property, plant and equipment

 
14,278

Purchase of Tradename
(5,399
)
 

Acquisitions, net of cash acquired
(1,147,738
)
 
(159,458
)
Net cash used in investing activities
(1,185,689
)
 
(187,614
)
Cash flows from financing activities--
 

 
 

Proceeds under Credit Facility
1,520,225

 
489,484

Repayments under Credit Facility
(588,911
)
 
(272,185
)
Net repayments under international credit facilities
(6,997
)
 
(1,062
)
Net repayments under other debt arrangement
(3
)
 
(26
)
Payments of deferred purchase price
(692
)
 

Repurchase of treasury stock

 
(224,996
)
Net cash provided by (used by) financing activities
923,622

 
(8,785
)
Effect of exchange rates on cash and cash equivalents
(3,046
)
 
4,748

Changes in cash and cash equivalents--
 

 
 

Net (decrease) increase in cash and cash equivalents
(13,066
)
 
13,241

Cash and cash equivalents at beginning of year
89,654

 
68,485

Cash and cash equivalents at end of period
$
76,588

 
$
81,726

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Stock issuance related to the acquisition of CVP Systems
$

 
$
12,330

 

See accompanying notes

3



THE MIDDLEBY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2018
(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 2017 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2018
In the opinion of management, the financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the company as of September 29, 2018 and December 30, 2017, the results of operations for the three and nine months ended September 29, 2018 and September 30, 2017 and cash flows for the nine months ended September 29, 2018 and September 30, 2017.
Certain prior year amounts have been reclassified to be consistent with current year presentation, including the non-operating components of pension benefit previously reported in Selling, general and administrative expenses to Net periodic pension benefit (other than service cost).

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 $3.5 million and less than $0.1 million for the three months period ended September 29, 2018 and September 30, 2017, respectively. Non-cash share-based compensation expense was $5.3 million and $6.5 million for the nine months period ended September 29, 2018 and September 30, 2017, respectively.
C)
Income Taxes
A tax provision of $73.0 million, at an effective rate of 24.7%, was recorded during the nine months period ended September 29, 2018, as compared to a $99.4 million tax provision at a 30.8% in the prior year period. In comparison to the prior year period, the tax provision reflects a lower federal tax rate of 21.0%, as opposed to 35.0% in 2017, partially offset by additional taxes due under the Tax Cuts and Jobs Act of 2017. The 2017 tax provision was lower than the statutory rate of 35.0% primarily due to a discrete tax benefit recognized as a result of the adoption of ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting". During the nine months ended September 30, 2018, we have not recorded any measurement period adjustments to the provisional estimates recorded at December 31, 2017. Final accounting for these impacts is expected in the fourth quarter of 2018, subsequent to the company's completion of 2017 tax returns.




4




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 on our own assumptions.

The company’s financial liabilities that are measured at fair value and are categorized using the fair value hierarchy are as follows (in thousands):
 
Fair Value
Level 1
 
Fair Value
Level 2
 
Fair Value
Level 3
 
Total
As of September 29, 2018
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
    Interest rate swaps
$

 
$
26,485

 
$

 
$
26,485

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
    Contingent consideration
$

 
$

 
$
4,070

 
$
4,070

 
 
 
 
 
 
 
 
As of December 30, 2017
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
    Interest rate swaps
$

 
$
10,266

 
$

 
$
10,266

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
    Contingent consideration
$

 
$

 
$
1,780

 
$
1,780

The contingent consideration as of September 29, 2018 relates to the earnout provision recorded in conjunction with the acquisitions of Scanico A/S ("Scanico") and Josper S.A ("Josper"). The contingent consideration as of December 30, 2017 relates to the earnout provisions recorded in conjunction with the acquisitions of Scanico and Desmon Food Service Equipment Company ("Desmon").
The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase agreements. On a quarterly basis, the company assesses the projected results for each of the acquired businesses in comparison to the earnout targets and adjusts the liability accordingly.
E)    Consolidated Statements of Cash Flows
Cash paid for interest was $35.9 million and $17.4 million for the nine months ended September 29, 2018 and September 30, 2017, respectively. Cash payments totaling $61.3 million and $96.7 million were made for income taxes for the nine months ended September 29, 2018 and September 30, 2017, respectively.

5



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 results of operations are reflected in the consolidated financial statements of the company from the dates of acquisition.
The following represents the company's more significant acquisitions in 2018 and 2017. The company also made smaller acquisitions not listed below which are individually and collectively immaterial.
Burford
On May 1, 2017, the company completed its acquisition of all of the capital stock of Burford Corp. ("Burford"). Burford is a leading manufacturer of industrial baking equipment for the food processing industry located in Maysville, Oklahoma, for a purchase price of approximately $14.8 million, net of cash acquired. During the fourth quarter of 2017, the company finalized the working capital provision provided for by the purchase agreement resulting in a refund from the seller of $0.3 million.
The final allocation of consideration paid for the Burford acquisition is summarized as follows (in thousands):
 
(as initially reported) May 1, 2017
 
Measurement Period Adjustments
 
(as adjusted) May 1, 2017
Cash
$
2,514

 
$

 
$
2,514

Current assets
6,424

 
104

 
6,528

Property, plant and equipment
656

 
(13
)
 
643

Goodwill
7,289

 
997

 
8,286

Other intangibles
4,900

 
1,840

 
6,740

Current liabilities
(2,254
)
 
(665
)
 
(2,919
)
Long term deferred tax liability
(1,840
)
 
224

 
(1,616
)
Other non-current liabilities

 
(2,836
)
 
(2,836
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
17,689

 
$
(349
)
 
$
17,340

The long term deferred tax liability amounted to $1.6 million. The net deferred tax liability is comprised of $2.7 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets, net of $0.4 million of deferred tax asset related to federal and state net operating loss carryforwards and $0.7 million of deferred tax asset arising from the difference between the book and tax basis of identifiable tangible asset and liability accounts.
The goodwill and $2.7 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $3.1 million allocated to customer relationships, $0.7 million allocated to developed technology and $0.3 million allocated to backlog, which are to be amortized over periods of 6 years, 7 years and 3 months, respectively. Goodwill and other intangibles of Burford are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.


    


6



CVP Systems
On June 30, 2017, the company completed its acquisition of all of the capital stock of CVP Systems, Inc. ("CVP Systems"), a leading manufacturer of high-speed packaging systems for the meat processing industry located in Downers Grove, Illinois, for a purchase price of $29.8 million, net of cash acquired. The purchase price included $18.0 million in cash and 106,254 shares of Middleby common stock valued at $12.3 million. During the second quarter of 2018, the company finalized the working capital provision provided for by the purchase agreement resulting in a refund from the seller of $0.5 million.
The final allocation of consideration paid for the CVP Systems acquisition is summarized as follows (in thousands):
 
(as initially reported) June 30, 2017
 
Measurement Period Adjustments
 
(as adjusted) June 30, 2017
Cash
$
621

 
$

 
$
621

Current assets
5,973

 
(1,435
)
 
4,538

Property, plant and equipment
238

 
(91
)
 
147

Goodwill
20,297

 
(695
)
 
19,602

Other intangibles
8,700

 
4,350

 
13,050

Current liabilities
(1,532
)
 
(581
)
 
(2,113
)
Long term deferred tax liability
(3,168
)
 
(443
)
 
(3,611
)
Other non-current liabilities

 
(1,833
)
 
(1,833
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
31,129

 
$
(728
)
 
$
30,401

The long term deferred tax liability amounted to $3.6 million. The net liability is comprised of $5.0 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets, net of $0.6 million of deferred tax asset related to federal and state net operating loss carryforwards and $0.8 million of deferred tax asset arising from the difference between the book and tax basis of identifiable tangible asset and liability accounts.
The goodwill and $6.2 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $5.7 million allocated to customer relationships, $0.8 million allocated to developed technology and $0.3 million allocated to backlog, which are to be amortized over periods of 5 years, 7 years and 3 months, respectively. Goodwill and other intangibles of CVP Systems are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.

7



Sveba Dahlen
On June 30, 2017, the company completed its acquisition of all of the capital stock of Sveba Dahlen Group ("Sveba Dahlen"), a developer and manufacturer of ovens and baking equipment for the commercial foodservice and industrial baking industries headquartered in Fristad, Sweden, for a purchase price of $81.4 million, net of cash acquired.
The final allocation of consideration paid for the Sveba Dahlen acquisition is summarized as follows (in thousands):
 
(as initially reported) June 30, 2017
 
Measurement Period Adjustments
 
(as adjusted) June 30, 2017
Cash
$
4,569

 
$

 
$
4,569

Current assets
22,686

 
(997
)
 
21,689

Property, plant and equipment
9,128

 
(431
)
 
8,697

Goodwill
33,785

 
4,330

 
38,115

Other intangibles
34,175

 
225

 
34,400

Other assets
1,170

 
(280
)
 
890

Current portion of long-term debt

 
(14
)
 
(14
)
Current liabilities
(11,782
)
 
(342
)
 
(12,124
)
Long-term debt

 
(140
)
 
(140
)
Long term deferred tax liability
(7,751
)
 
(626
)
 
(8,377
)
Other non-current liabilities
(42
)
 
(1,725
)
 
(1,767
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
85,938

 
$

 
$
85,938

The long term deferred tax liability amounted to $8.4 million. The liability is comprised of $7.5 million of deferred tax liability related to the difference between the book and tax basis of identifiable assets and $0.9 million of deferred tax liabilities arising from the difference between the book and tax basis of tangible asset and liability accounts.
The goodwill and $21.1 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $12.8 million allocated to customer relationships and $0.5 million allocated to backlog, which are to be amortized over periods of 6 years and 3 months, respectively. Goodwill and other intangibles of Sveba Dahlen are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.









8



QualServ
On August 31, 2017, the company completed its acquisition of substantially all of the assets of QualServ Solutions LLC ("QualServ"), a global commercial kitchen design, manufacturing, engineering, project management and equipment solutions provider located in Fort Smith, Arkansas, for a purchase price of $39.9 million, net of cash acquired. During the first quarter of 2018, the company finalized the working capital provision provided by the purchase agreement resulting in a refund from the seller of $0.3 million.
The final allocation of consideration paid for the QualServ acquisition is summarized as follows (in thousands):
 
(as initially reported) August 31, 2017
 
Measurement Period Adjustments
 
(as adjusted) August 31, 2017
Cash
$
1,130

 
$

 
$
1,130

Current assets
18,031

 
(64
)
 
17,967

Property, plant and equipment
4,785

 

 
4,785

Goodwill
14,590

 
(1,399
)
 
13,191

Other intangibles
9,600

 
1,340

 
10,940

Current liabilities
(6,810
)
 
(130
)
 
(6,940
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
41,326

 
$
(253
)
 
$
41,073

The goodwill and $1.8 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $9.1 million allocated to customer relationships, which is to be amortized over a period of 7 years. Goodwill and other intangibles of QualServ are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.















9



Globe
On October 17, 2017, the company completed its acquisition of all of the capital stock of Globe Food Equipment Company ("Globe"), a leading brand in slicers and mixers for the commercial foodservice industry located in Dayton, Ohio, for a purchase price of $105.0 million, net of cash acquired. During the first quarter of 2018, the company finalized the working capital provision provided by the purchase agreement resulting in an additional payment to the seller of $0.4 million.
The final allocation of consideration paid for the Globe acquisition is summarized as follows (in thousands):
 
(as initially reported) October 17, 2017
 
Measurement Period Adjustments
 
(as adjusted) October 17, 2017
Cash
$
3,420

 
$

 
$
3,420

Current assets
17,197

 
(40
)
 
17,157

Property, plant and equipment
1,120

 

 
1,120

Goodwill
67,176

 
(7,182
)
 
59,994

Other intangibles
43,444

 
14,086

 
57,530

Current liabilities
(5,994
)
 
(398
)
 
(6,392
)
Long term deferred tax liability
(16,456
)
 
(5,832
)
 
(22,288
)
Other non-current liabilities
(1,907
)
 
(193
)
 
(2,100
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
108,000

 
$
441

 
$
108,441

The long term deferred tax liability amounted to $22.3 million. The net liability is comprised of $21.7 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.6 million of deferred tax liabilities related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.
The goodwill and $28.8 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $28.7 million allocated to customer relationships, which is to be amortized over a period of 9 years. Goodwill and other intangibles of Globe are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.










    
    


10



Scanico
On December 7, 2017, the company completed its acquisition of all of the capital stock of Scanico, a leading manufacturer of industrial cooling and freezing equipment for the food processing industry located in Aalborg, Denmark, for a purchase price of $34.5 million, net of cash acquired. During the first quarter of 2018, the company finalized the working capital provision provided by the purchase agreement resulting in an additional payment to the seller of $0.3 million. An additional payment is also due upon the achievement of certain financial targets.
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 value of assets acquired and liabilities assumed (in thousands):
 
(as initially reported) December 7, 2017
 
Preliminary Measurement Period Adjustments
 
(as adjusted) December 7, 2017
Cash
$
6,766

 
$

 
$
6,766

Current assets
3,428

 
(111
)
 
3,317

Property, plant and equipment
447

 
(27
)
 
420

Goodwill
30,072

 
470

 
30,542

Other intangibles
11,491

 

 
11,491

Current liabilities
(7,987
)
 
(28
)
 
(8,015
)
Long term deferred tax liability
(3,305
)
 
30

 
(3,275
)
 
 
 
 
 
 
Consideration paid at closing
$
40,912

 
$
334

 
$
41,246

 
 
 
 
 
 
Contingent consideration
751

 

 
751

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
41,663

 
$
334

 
$
41,997

The long term deferred tax liability amounted to $3.3 million. The net liability is comprised of $2.5 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 liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.
The goodwill and $6.6 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $2.0 million allocated to customer relationships, $0.9 million allocated to developed technology and $2.0 million allocated to backlog, which are to be amortized over periods of 5 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Scanico are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The Scanico purchase agreement includes an earnout provision providing for a contingent payment due to the sellers to the extent certain financial targets are exceeded. This earnout is payable during 2018, if Scanico exceeds certain sales and earnings targets for the twelve months ended June 30, 2018. The contractual obligation associated with this contingent earnout provision recognized on the acquisition date is $0.8 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. 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.





11



Hinds-Bock
On February 16, 2018, the company completed its acquisition of all of the capital stock of Hinds-Bock Corporation ("Hinds-Bock"), a leading manufacturer of solutions for filling and depositing bakery and food product located in Bothell, Washington, for a purchase price of $25.4 million, net of cash acquired. During the third quarter of 2018, the company finalized the working capital provision provided by the purchase agreement resulting in a refund from the seller of $0.4 million.
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 value of assets acquired and liabilities assumed (in thousands):
 
(as initially reported) February 16, 2018
 
Preliminary Measurement Period Adjustments
 
(as adjusted) February 16, 2018
Cash
$
5

 
$

 
$
5

Current assets
5,301

 
(3
)
 
5,298

Property, plant and equipment
3,557

 

 
3,557

Goodwill
12,686

 
(397
)
 
12,289

Other intangibles
8,081

 

 
8,081

Current liabilities
(3,800
)
 

 
(3,800
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
25,830

 
$
(400
)
 
$
25,430

The goodwill and $3.8 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $3.4 million allocated to customer relationships, $0.4 million allocated to developed technology and $0.5 million allocated to backlog, which are to be amortized over periods of 5 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Hinds-Bock are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets 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. 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.





12



Ve.Ma.C
On April 3, 2018, the company completed its acquisition of all of the capital stock of Ve.Ma.C S.r.l. ("Ve.Ma.C"), a leading designer and manufacturer of handling, automation and robotics solutions for protein food processing lines located in Castelnuovo Rangone, Italy, for a purchase price of approximately $10.5 million, net of cash acquired. During the third quarter of 2018, the company finalized the working capital provision provided by the purchase agreement, resulting in no additional payment by either party.
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 value of assets acquired and liabilities assumed (in thousands):
 
(as initially reported) April 3, 2018

Preliminary Measurement Period Adjustments

(as adjusted) April 3, 2018
Cash
$
1,833

 
$

 
$
1,833

Current assets
10,722

 

 
10,722

Property, plant and equipment
389

 

 
389

Goodwill
7,278

 

 
7,278

Other intangibles
2,584

 

 
2,584

Other assets
12

 

 
12

Current portion of long-term debt
(1,901
)
 

 
(1,901
)
Current liabilities
(8,076
)
 

 
(8,076
)
Long term deferred tax liability
(340
)
 

 
(340
)
Other non-current liabilities
(212
)
 

 
(212
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
12,289

 
$

 
$
12,289

The long term deferred tax liability amounted to $0.3 million. The net liability is comprised of $0.7 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.4 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 $1.0 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $0.6 million allocated to customer relationships, $0.3 million allocated to developed technology and $0.7 million allocated to backlog, which are to be amortized over periods of 5 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Ve.Ma.C are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are not 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. 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.








13



Firex
On April 27, 2018, the company completed its acquisition of all of the capital stock of Firex S.r.l. ("Firex"), a leading manufacturer of steam cooking equipment for the commercial foodservice industry located in Sedico, Italy, for a purchase price of approximately $53.7 million, net of cash acquired. During the third quarter of 2018, the company finalized the working capital provision provided for by the purchase agreement resulting in a refund from the seller of $0.3 million.
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 value of assets acquired and liabilities assumed (in thousands):
 
(as initially reported) April 27, 2018

Preliminary Measurement Period Adjustments

(as adjusted) April 27, 2018
Cash
$
10,652

 
$
(37
)
 
$
10,615

Current assets
7,656

 
81

 
7,737

Property, plant and equipment
2,447

 

 
2,447

Goodwill
36,706

 
(295
)
 
36,411

Other intangibles
19,806

 

 
19,806

Current portion of long-term debt
(1,210
)
 

 
(1,210
)
Current liabilities
(4,099
)
 

 
(4,099
)
Long term deferred tax liability
(4,995
)
 

 
(4,995
)
Long-term debt
(1,069
)
 

 
(1,069
)
Other non-current liabilities
(1,318
)
 

 
(1,318
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
64,576

 
$
(251
)
 
$
64,325

The long term deferred tax liability amounted to $5.0 million. The net liability is comprised of $5.4 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.4 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 $9.5 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $9.7 million allocated to customer relationships, $0.2 million allocated to developed technology and $0.4 million allocated to backlog, which are to be amortized over periods of 7 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Firex are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not 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. 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.


14



Josper
On May 10, 2018, the company completed its acquisition of all of the issued share capital of Josper S.A. ("Josper"), a leading manufacturer of charcoal grill and oven cooking equipment for commercial foodservice and residential applications located in Pineda de Mar, Spain, for a purchase price of approximately $39.5 million, net of cash acquired. The purchase price is subject to adjustment based upon a working capital provision provided by the purchase agreement. The company expects to finalize this in the fourth quarter of 2018. An additional payment is also due upon the achievement of certain financial targets.
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 value of assets acquired and liabilities assumed (in thousands):
 
(as initially reported) May 10, 2018

Preliminary Measurement Period Adjustments

(as adjusted) May 10, 2018
Cash
$
3,308

 
$

 
$
3,308

Current assets
6,579

 
14

 
6,593

Property, plant and equipment
4,739

 

 
4,739

Goodwill
27,140

 
(74
)
 
27,066

Other intangibles
13,136

 

 
13,136

Other assets
2

 

 
2

Current portion of long-term debt
(217
)
 

 
(217
)
Current liabilities
(5,146
)
 
52

 
(5,094
)
Long-term debt
(1,608
)
 

 
(1,608
)
Long term deferred tax liability
(2,934
)
 
8

 
(2,926
)
Other non-current liabilities
(2,169
)
 

 
(2,169
)
 
 
 
 
 
 
Consideration paid at closing
$
42,830

 
$

 
$
42,830

 
 
 
 
 
 
Contingent consideration
3,454

 

 
3,454

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
46,284

 
$

 
$
46,284

The long term deferred tax liability amounted to $2.9 million. The net liability is comprised of $2.8 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.1 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.
The goodwill and $6.3 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $6.4 million allocated to customer relationships, $0.2 million allocated to developed technology and $0.3 million allocated to backlog, which are to be amortized over periods of 5 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Josper are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The Josper purchase agreement includes an earnout provision providing for a contingent payment due to the sellers to the extent certain financial targets are exceeded. This earnout is payable in 2019, 2020 and 2021, if Josper exceeds certain earnings targets for the twelve months ended December 31, 2018, December 31, 2019 and December 31, 2020, respectively. The contractual obligation associated with this contingent earnout provision recognized on the acquisition date is $3.5 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. 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.

15



Taylor
On June 22, 2018, the company completed its acquisition of all of the capital stock of the Taylor Company ("Taylor"), a world leader in beverage solutions, soft serve and ice cream dispensing equipment, frozen drink machines, and automated double-sided grills, located in Rockton, Illinois, for a purchase price of approximately $1.0 billion. Additionally, the company incurred approximately $3.0 million of transaction expenses, which are reflected in the selling, general and administrative expenses in the consolidated statements of comprehensive income. The purchase price is subject to adjustment based upon a working capital provision provided by the purchase agreement. The company expects to finalize this in the fourth quarter of 2018. Net sales for the three months period ended September 29, 2018 increased by $118.0 million related to prior and current year acquisitions, primarily related to the Taylor acquisition.
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 value of assets acquired and liabilities assumed (in thousands):
 
(as initially reported) June 22, 2018

Preliminary Measurement Period Adjustments

(as adjusted) June 22, 2018
Cash
$
2,551

 
$
64

 
$
2,615

Current assets
71,162

 
(523
)
 
70,639

Property, plant and equipment
21,187

 
(112
)
 
21,075

Goodwill
491,339

 
6,017

 
497,356

Other intangibles
484,210

 

 
484,210

Other assets

 
361

 
361

Current liabilities
(48,417
)
 
(2,313
)
 
(50,730
)
Long-term deferred tax liability

 
380

 
380

Other non-current liabilities
(8,161
)
 

 
(8,161
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
1,013,871

 
$
3,874

 
$
1,017,745

The goodwill and $230.0 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $237.5 million allocated to customer relationships, $15.0 million allocated to developed technology, and $1.7 million of existing developed oven technology, which are to be amortized over periods of 10 years, 7 years and 5 years, respectively. Goodwill and other intangibles of Taylor are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. A significant portion of the assets are expected to be deductible for tax purposes.
The company estimated the fair value of the assets and liabilities of Taylor on a preliminary basis at the time of acquisition based on third-party appraisals used to assist in determining the fair market value for acquired tangible and intangible assets.  Changes to these allocations will occur as additional information becomes available. The company is in the process of obtaining third-party valuations related to the fair value of tangible and intangible assets, in addition to determining and recording the tax effects of the transaction to include all assets/liabilities since those are recorded at fair value. 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. Acquired goodwill represents the premium paid over the fair value of assets acquired and liabilities assumed.


16



Pro Forma Financial Information
 
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the nine months ended September 29, 2018 and September 30, 2017, assumes the 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico and the 2018 acquisitions of Hinds-Bock, Ve.Ma.C, Josper, Firex and Taylor were completed on January 1, 2017 (first day of fiscal year 2017). 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): 
 
Nine Months Ended
 
September 29, 2018
 
September 30, 2017
Net sales
$
2,130,166

 
$
2,151,230

Net earnings
219,914

 
198,430

 
 
 
 
Net earnings per share:
 

 
 

Basic
$
3.96

 
$
3.48

Diluted
3.96

 
3.48

 
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.

17



4)    Recently Issued Accounting Standards

Accounting Pronouncements - Recently Adopted

In May 2014, the Financial Accounts Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, “Revenue from Contracts with Customers”. This update amends the current guidance on revenue recognition related to contracts with customers and requires additional disclosures. We adopted this guidance on December 31, 2017 using the modified retrospective method. Under this method, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The cumulative adjustment to the opening balance of retained earnings was $4.4 million. For additional information related to the impact of adopting this guidance, see Note 5 of the Condensed Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments". The amendments in ASU-15 address eight specific cash flow classification issues to reduce current and potential future diversity in practice. The adoption of this guidance did not have a material impact on the company's Condensed Consolidated Statements of Cash Flows.

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires companies to account for the income tax effect of intercompany sales and transfers of assets other than inventory when the transfer occurs. Under previous guidance the income tax effects of intercompany transfers of assets were deferred until the asset had been sold to an outside party or otherwise recognized. The adoption of this guidance did not have an impact on the company's Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business". The amendments in ASU-01 clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The adoption of this guidance did not have a material impact on the company's Condensed Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The amendments in ASU-07 require that an employer report the service costs component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic pension cost and net periodic postretirement benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. We adopted this guidance retrospectively on December 31, 2017 using the practical expedient which permits utilizing amounts previously disclosed in its employee retirement plans note as the prior period estimation basis for the required retrospective presentation requirements. For additional information on the adoption of this guidance, see Note 15 of the Condensed Consolidated Financial Statements.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". This guidance allows for the reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income to retained earnings. The adoption of this guidance did not have a material impact on the company's Condensed Consolidated Balance Sheet.
















18



Accounting Pronouncements - To be adopted

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". The amendments under this pronouncement will change the way all leases with a duration of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or operating lease liability. The FASB issued multiple amendments to the standard which provide clarification, additional guidance, practical expedients and other improvements to the ASU. The ASU is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018. The company plans to utilize the new optional transition method to use the effective date as the date of initial application on transition. As a result the company will not adjust its comparative period financial information or make the new required leases disclosures for periods before the effective date. The company is currently planning to elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and is evaluating other practical expedients available under the guidance. The company has developed a project plan for implementation and has made progress in surveying the company's business, assessing the company's portfolio of leases and compiling a central repository of all leases. The company has also selected a lease accounting software solution to support the new reporting requirements. Significant progress has been made on extracting and loading lease data elements required for lease accounting into the software solution. The company expects to recognize significant right-of-use assets upon adoption and lease liabilities on its Condensed Consolidated Balance Sheet. The company is evaluating the overall impact this standard will have on its policies and procedures pertaining to its existing and future lease arrangements, disclosure requirements and the company's Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 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. This ASU is effective for annual reporting periods, and interim reporting periods, beginning after December 15, 2019. Early adoption is permitted for testing dates after January 1, 2017. The company is evaluating the application of this ASU on the company's annual impairment test. The company does not expect the adoption of this ASU to have a material impact on its Condensed Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities". The amendments in ASU-12 provide new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments included in the effectiveness will be recorded in other comprehensive income (OCI) and amounts deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported. This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2018 with early adoption permitted. The company is currently evaluating the impacts the ASU will have on its Condensed Consolidated Financial Statements.

In June 2018, the FASB issued ASU 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting". The amendments in ASU-08 simplify several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2018 with early adoption permitted. The company does not expect the adoption of this ASU to have a material impact on its 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 the topic in order to clarify and improve the cost-benefit nature of disclosures. This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2019 with early adoption permitted. The company does not expect the adoption of this ASU to have a material impact on its Condensed Consolidated Financial Statements.






19



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 ASU 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 ASU will have on its 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. This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2019 with early adoption permitted. The company does not expect the adoption of this ASU to have a material impact on its Condensed Consolidated Financial Statements.


20



5)
Revenue Recognition

Accounting Policy

On December 31, 2017, we adopted the new accounting standard ASU No. 2014-09, “Revenue from Contracts with Customers" (ASC 606) using the modified retrospective method to contracts that were not completed as of December 30, 2017. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings.

The adoption of ASC 606 represents a change in accounting principle that will also provide readers with enhanced revenue recognition disclosures. Revenue is recognized when the control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and represents the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The company’s contracts can have multiple performance obligations or just a single performance obligation. For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using the company’s best estimate of the standalone selling price of each distinct good or service in the contract.

Within the Commercial Foodservice Equipment and Residential Foodservice Equipment Groups, the estimated standalone selling price of equipment is based on observable prices. Within the Food Processing Equipment Group, the company estimates the standalone selling price based on expected cost to manufacture the good or complete the service plus an appropriate profit margin.

Control may pass to the customer over time or at a point in time. 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 our long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. Installation services provided in connection with the delivery of the equipment are also generally recognized as those services are rendered. Over time transfer of control is measured using an appropriate input measure (e.g., costs incurred or direct labor hours incurred in relation to total estimate). These measures include forecasts based on the best information available and therefore reflect the company's judgment to faithfully depict the transfer of the goods.

Contract Estimates
Accounting for long-term contracts within the Food Processing Equipment group involves the use of various techniques to estimate total contract revenue and costs. For the company’s long-term contracts, estimated profit for the equipment performance obligations is recognized as the equipment is manufactured and assembled. Profit on the equipment performance obligations is estimated as the difference between the total estimated revenue and expected costs to complete a contract. Contract cost estimates are based on labor productivity and availability, the complexity of the work to be performed; the cost and availability of materials and labor, and the performance of subcontractors.

Contracts within the Commercial Foodservice and Residential Foodservice Equipment groups may contain variable consideration in the form of volume rebate programs. The company’s estimate of variable consideration is based on its experience with similarly situated customers using the portfolio approach.

Practical Expedients and Policy Elections

The company has taken advantage of the following practical expedients:
The company does not disclose information about remaining performance obligations that have original expected durations of one year or less.
The company generally expenses sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses.
As the company’s standard payment terms are less than one year, the company does not assess whether a contract has a significant financing component.

21




The company has made the following accounting policy elections permitted by ASC 606:
The company treats shipping and handling activities performed after the customer obtains control of the good as a contract fulfillment activity.
Sales, use and value added taxes assessed by governmental authorities are excluded from the measurement of the transaction price within the company’s contracts with its customers.

Adoption of ASC 606

As a result of the adoption of ASC 606, the company has changed its accounting policy for revenue recognition as detailed below.

Equipment
Under the company’s historical accounting policies, revenue under long-term sales contracts within the Food Processing Equipment Group was recognized using the percentage of completion method. Upon adoption, a number of contracts that were not completed as of December 31, 2017 did not meet the requirements for recognition of revenue over time under ASC 606. As such the revenue is deferred and recognized at a point in time.
Installation Services
Under the company’s historical accounting policies, the company used the completed contract method for installation services associated with equipment sold within the Food Processing Equipment Group. Under ASC 606, the Company recognizes revenue from installation services over the period the services are rendered.
The cumulative effect of the changes made to our December 30, 2017 Condensed Consolidated Balance Sheet for the adoption of ASC 606 using the modified retrospective method to contracts that were not completed as of December 30, 2017 were as follows (in thousands):
 
Balance at
December 30, 2017 (as reported)
 
Adjustments due to ASC 606
 
Balance at
December 30, 2017 (as adjusted)
Balance Sheet
 
 
 
 
 
Assets
 
 
 
 
 
Accounts receivable
$
328,421

 
$
(122
)
 
$
328,299

Inventories, net
424,639

 
14,993

 
439,632

Prepaid expenses and other
55,427

 
(4,018
)
 
51,409

Long-term deferred tax assets
44,565

 
1,319

 
45,884

 
 
 
 
 
 
Liabilities & Stockholders' Equity
 
 
 
 
 
Accrued expenses
$
322,171

 
$
16,557

 
$
338,728

Retained earnings
$
1,697,618

 
$
(4,405
)
 
$
1,693,213

 
 
 
 
 
 













22




In accordance with the requirements of ASC 606, the adoption of ASC 606 had no impact on cash provided by operating activities within the company's Condensed Consolidated Statement of Cash Flows. The impact of adoption on our Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Balance Sheet are as follows (in thousands):
 
Three Months Ended September 29, 2018
 
As Reported
 
Balances without ASC 606
 
Effect of Change
Net sales
$
713,331

 
$
710,755

 
$
2,576

Cost of sales
452,171

 
450,440

 
1,731

Provision for income taxes
25,114

 
24,857

 
257

Net earnings
$
72,905

 
$
72,317

 
$
588

 
 
 
 
 
 
Basic earnings per share
$
1.31

 
$
1.30

 
 
Diluted earnings per share
$
1.31

 
$
1.30

 
 

 
Nine Months Ended September 29, 2018
 
As Reported
 
Balances without ASC 606
 
Effect of Change
Net sales
$
1,966,259

 
$
1,949,110

 
$
17,149

Cost of sales
1,242,707

 
1,230,578

 
12,129

Provision for income taxes
72,971

 
71,649

 
1,322

Net earnings
$
222,313

 
$
218,615

 
$
3,698

 
 
 
 
 
 
Basic earnings per share
$
4.00

 
$
3.93

 
 
Diluted earnings per share
$
4.00

 
$
3.93

 
 

 
Balance as of September 29, 2018
 
As Reported
 
Balances without ASC 606
 
Effect of Change
Assets
 
 
 
 
 
Inventories, net
$
512,824

 
$
507,677

 
$
5,147

Prepaid expenses and other
50,142

 
51,895

 
(1,753
)
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accrued expenses
373,297

 
377,718

 
(4,421
)
Long-term deferred tax liability
110,984

 
110,768

 
216

 
 
 
 
 
 
Equity
 
 
 
 
 
Retained earnings
$
1,914,394

 
$
1,913,583

 
$
811











23



Disaggregation of Revenue

We disaggregate our net sales by reportable operating segment and geographical location as we believe it best depicts how the nature, timing and uncertainty of our 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 our long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. The following table summarizes our net sales by reportable operating segment and geographical location (in thousands):
 
Commercial
 Foodservice
 
Food Processing
 
Residential Kitchen
 
Total
Three Months Ended September 29, 2018
 

 
 

 
 
 
 

United States and Canada
$
318,962

 
$
57,235

 
$
98,136

 
$
474,333

Asia
50,996

 
6,464

 
1,653

 
59,113

Europe and Middle East
83,763

 
19,194

 
51,936

 
154,893

Latin America
17,877

 
5,364

 
1,751

 
24,992

Total
$
471,598

 
$
88,257

 
$
153,476

 
$
713,331

 
 
 
 
 
 
 
 
Nine Months Ended September 29, 2018
 

 
 

 
 
 
 

United States and Canada
$
863,598

 
$
183,476

 
$
280,116

 
$
1,327,190

Asia
117,987

 
23,899

 
5,232

 
147,118

Europe and Middle East
225,726

 
44,729

 
160,810

 
431,265

Latin America
38,308

 
18,374

 
4,004

 
60,686

Total
$
1,245,619

 
$
270,478

 
$
450,162

 
$
1,966,259

 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
 
 
 
 
 
 
United States and Canada
$
243,233

 
$
61,612

 
$
89,821

 
$
394,666

Asia
38,755

 
4,543

 
2,078

 
45,376

Europe and Middle East
61,327

 
12,606

 
57,774

 
131,707

Latin America
11,513

 
8,110

 
1,671

 
21,294

Total
$
354,828

 
$
86,871

 
$
151,344

 
$
593,043

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
United States and Canada
$
707,014

 
$
189,288

 
$
263,014

 
$
1,159,316

Asia
104,598

 
14,942

 
6,615

 
126,155

Europe and Middle East
158,622

 
29,095

 
170,934

 
358,651

Latin America
30,596

 
23,190

 
4,775

 
58,561

Total
$
1,000,830

 
$
256,515

 
$
445,338

 
$
1,702,683














24



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 new revenue standard as contract assets are conditioned upon the company's future satisfaction of a performance obligation. Accounts receivable, in contracts, are unconditional rights to consideration.

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

The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):
 
Sep 29, 2018
 
At Adoption
Contract assets
$
8,945

 
$
16,753

Contract liabilities
$
69,936

 
$
47,647

Non-current contract liabilities
$
10,468

 
$
1,859


During the nine months period ended September 29, 2018, the company reclassified $11.5 million to receivable which was included in the contract asset balance at the beginning of the period. During the nine months period ended September 29, 2018, the company recognized revenue of $42.1 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 $63.7 million during the nine months period ended September 29, 2018. The increase in the non-current contract liabilities primarily relates to companies acquired during the nine months period ended September 29, 2018. Substantially all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were no contract asset impairments during nine months period ended September 29, 2018.
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 30, 2017
$
(69,721
)
 
$
(203,063
)
 
$
6,365

 
$
(266,419
)
Adoption of ASU 2018-02 (2)

 
(487
)
 
1,619

 
1,132

Other comprehensive income before reclassification
(29,879
)
 
7,041

 
11,918

 
(10,920
)
Amounts reclassified from accumulated other comprehensive income

 

 
229

 
229

Net current-period other comprehensive income
$
(29,879
)
 
$
6,554

 
$
13,766

 
$
(9,559
)
Balance as of September 29, 2018
$
(99,600
)
 
$
(196,509
)
 
$
20,131

 
$
(275,978
)
(1) As of September 29, 2018 pension and interest rate swap amounts are net of tax of $(41.7) million and $6.8 million, respectively. During the nine months ended September 29, 2018, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $1.9 million and $2.6 million, respectively.
(2) As of December 31, 2017, the company adopted ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". This guidance allowed for the reclassification of $1.1 million of stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income to retained earnings.

25



Components of other comprehensive income were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
Sep 29, 2018
 
Sep 30, 2017
 
Sep 29, 2018
 
Sep 30, 2017
Net earnings
$
72,905

 
$
74,671

 
$
222,313

 
$
222,942

Currency translation adjustment
(9,718
)
 
15,441

 
(29,879
)
 
44,897

Pension liability adjustment, net of tax
1,674

 
(5,664
)
 
6,554

 
(14,838
)
Unrealized gain on interest rate swaps, net of tax
4,166

 
(128
)
 
13,766

 
(629
)
Comprehensive income
$
69,027

 
$
84,320

 
$
212,754

 
$
252,372

7)
Inventories
Inventories are composed of material, labor and overhead and are stated at the lower of cost or market. Costs for inventory have been determined using the first-in, first-out ("FIFO") method. The company estimates reserves for inventory obsolescence and shrinkage based on its judgment of future realization. Inventories at September 29, 2018 and December 30, 2017 are as follows (in thousands): 
 
Sep 29, 2018
 
Dec 30, 2017
Raw materials and parts
$
233,061

 
$
180,559

Work-in-process
56,838

 
38,917

Finished goods
222,925

 
205,163

 
$
512,824

 
$
424,639

8)
Goodwill
Changes in the carrying amount of goodwill for the nine months ended September 29, 2018 are as follows (in thousands):
 
Commercial
Foodservice
 
Food
Processing
 
Residential Kitchen
 
Total
Balance as of December 30, 2017
$
631,451

 
$
198,278

 
$
435,081

 
$
1,264,810

Goodwill acquired during the year
563,661

 
19,567

 

 
583,228

Measurement period adjustments to goodwill acquired in prior year
(1,559
)
 
(468
)
 

 
(2,027
)
Exchange effect
(11,941
)
 
(3,338
)
 
(7,474
)
 
(22,753
)
Balance as of September 29, 2018
$
1,181,612

 
$
214,039

 
$
427,607

 
$
1,823,258



26




9)
Intangibles

Intangible assets consist of the following (in thousands):
 
 
September 29, 2018
 
December 30, 2017
 
Estimated
Weighted Avg
Remaining
Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization

 
Estimated
Weighted Avg
Remaining
Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization

Amortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Customer lists
8.0
 
$
602,376

 
$
(206,950
)
 
5.2
 
$
330,496

 
$
(171,005
)
Backlog
0.0
 
19,910

 
(19,910
)
 
0.8
 
19,689

 
(18,081
)
Developed technology
6.1
 
40,559

 
(20,246
)
 
4.2
 
22,485

 
(18,248
)
 
 
 
$
662,845

 
$
(247,106
)
 
 
 
$
372,670

 
$
(207,334
)
Indefinite-lived assets:
 
 
 

 
 

 
 
 
 

 
 

Trademarks and tradenames
 
 
$
859,403

 
 

 
 
 
$
615,090

 
 



The aggregate intangible amortization expense was $17.6 million and $9.1 million for the third quarter periods ended September 29, 2018 and September 30, 2017, respectively. The aggregate intangible amortization expense was $38.8 million and $26.5 million for the nine months ended September 29, 2018 and September 30, 2017, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
 
Twelve Month Period Ending in
 
Amortization Expense
 
 
 
2019
 
$
61,942

2020
 
59,711

2021
 
56,231

2022
 
53,622

2023
 
44,918

Thereafter
 
139,315

 
 
$
415,739



27



10) Accrued Expenses
Accrued expenses consist of the following (in thousands):
 
Sep 29, 2018
 
Dec 30, 2017
Accrued payroll and related expenses
$
70,998

 
$
67,935

Contract liabilities
69,936

 
31,069

Accrued warranty
59,644

 
52,834

Accrued customer rebates
39,465

 
48,590

Accrued professional fees
18,723

 
18,250

Accrued product liability and workers compensation
16,439

 
11,976

Accrued sales and other tax
15,509

 
20,881

Accrued agent commission
12,809

 
11,035

Product recall
5,140

 
6,068

Restructuring
2,679

 
1,715

Other accrued expenses
61,955

 
51,818

 
 
 
 
 
$
373,297

 
$
322,171

11)
Warranty Costs
In the normal course of business the company issues product warranties for specific product lines and provides for the estimated future warranty cost in the period in which the sale is recorded.  The estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are based on the best available information, actual claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.
A rollforward of the warranty reserve is as follows (in thousands):
 
Nine Months Ended
 
Sep 29, 2018
Balance as of December 30, 2017
$
52,834

Warranty reserve related to acquisitions
5,730

Warranty expense
45,208

Warranty claims
(44,128
)
Balance as of September 29, 2018
$
59,644




28



12)
Financing Arrangements
 
Sep 29, 2018
 
Dec 30, 2017
 
(in thousands)
Credit Facility
$
1,954,013

 
$
1,022,935

Other international credit facilities
4,180

 
5,768

Other debt arrangement
175

 
178

     Total debt
$
1,958,368

 
$
1,028,881

Less:  Current maturities of long-term debt
3,125

 
5,149

     Long-term debt
$
1,955,243

 
$
1,023,732

On July 28, 2016, the company entered into an amended and restated five-year $2.5 billion multi-currency senior secured revolving credit agreement (the "Credit Facility"), with the potential under certain circumstances to increase the amount of the Credit Facility to $3.0 billion. As of September 29, 2018, the company had $2.0 billion of borrowings outstanding under the Credit Facility, including $1.9 billion of borrowings in U.S. Dollars, $80.0 million of borrowings denominated in Euro and $6.5 million of borrowings denominated in British Pounds. The company also had $12.3 million in outstanding letters of credit as of September 29, 2018, which reduces the borrowing availability under the Credit Facility. Remaining borrowing availability under this facility was $0.5 billion at September 29, 2018.
At September 29, 2018, borrowings under the Credit Facility accrued interest at a rate of 1.625% above LIBOR per annum or 0.625% above the highest of the prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.00%. The average interest rate per annum on the debt under the Credit Facility was equal to 3.81% at the end of the period. The interest rates on borrowings under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt less Unrestricted Cash to Pro Forma EBITDA (the “Leverage Ratio”) on a rolling four-quarter basis. Additionally, a commitment fee based upon the Leverage Ratio is charged on the unused portion of the commitments under the Credit Facility. This variable commitment fee was equal to 0.25% per annum as of September 29, 2018.
In addition, the company has other international credit facilities to fund working capital needs outside the United States and the United Kingdom. At September 29, 2018, these foreign credit facilities amounted to $4.2 million in U.S. Dollars with a weighted average per annum interest rate of approximately 5.59%.
The company’s debt is reflected on the balance sheet at cost. The company believes its interest rate margins on its existing debt are consistent with current market conditions and therefore the carrying value of debt reflects the fair value. The interest rate margin is based on the company's Leverage Ratio.
The company estimated the fair value of its loans by calculating the upfront cash payment a market participant would require to assume the company’s obligations. The upfront cash payment is the amount that a market participant would be able to lend to achieve sufficient cash inflows to cover the cash outflows under the company’s senior secured revolving credit facility assuming the facility was outstanding in its entirety until maturity. Since the company maintains its borrowings under a revolving credit facility and there is no predetermined borrowing or repayment schedule, for purposes of this calculation the company calculated the fair value of its obligations assuming the current amount of debt at the end of the period was outstanding until the maturity of the company’s Credit Facility in July 2021. Although borrowings could be materially greater or less than the current amount of borrowings outstanding at the end of the period, it is not practical to estimate the amounts that may be outstanding during future periods. The carrying value and estimated aggregate fair value, a level 2 measurement, based primarily on market prices, of debt is as follows (in thousands):
 
Sep 29, 2018
 
Dec 30, 2017
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Total debt
$
1,958,368

 
$
1,958,368