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EX-31.2 - EXHIBIT 31.2 - MIDDLEBY CORPmidd-ex312x2015100315x10q.htm
EX-31.1 - EXHIBIT 31.1 - MIDDLEBY CORPmidd-ex311x2015100315x10q.htm
EX-32.2 - EXHIBIT 32.2 - MIDDLEBY CORPmidd-ex322x2015100315x10q.htm
EX-32.1 - EXHIBIT 32.1 - MIDDLEBY CORPmidd-ex321x2015100315x10q.htm


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 October 3, 2015
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
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 
1400 Toastmaster Drive, Elgin, Illinois
60120
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone No., 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 or a smaller reporting company. See the definitions of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company 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 6, 2015 there were 57,317,332 shares of the registrant's common stock outstanding.




THE MIDDLEBY CORPORATION AND SUBSIDIARIES
 
QUARTER ENDED OCTOBER 3, 2015
  
INDEX
DESCRIPTION
PAGE
PART I.  FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS OCTOBER 3, 2015 and JANUARY 3, 2015
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OCTOBER 3, 2015 and SEPTEMBER 27, 2014
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OCTOBER 3, 2015 and SEPTEMBER 27, 2014
 
 
 
 
 
 
 
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 AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
 
ASSETS
Oct 3, 2015

 
Jan 3, 2015

Current assets:
 

 
 

Cash and cash equivalents
$
55,062

 
$
43,945

Accounts receivable, net of reserve for doubtful accounts of $8,611 and $9,091
296,611

 
229,875

Inventories, net
373,846

 
255,776

Prepaid expenses and other
35,944

 
27,980

Prepaid taxes
7,820

 
5,538

Current deferred taxes
54,433

 
51,017

Total current assets
823,716

 
614,131

Property, plant and equipment, net of accumulated depreciation of $99,469 and $82,998
209,889

 
129,697

Goodwill
977,247

 
808,491

Other intangibles, net of amortization of $131,127 and $111,846
669,700

 
492,031

Long-term deferred tax assets
8,768

 
2,925

Other assets
21,459

 
18,856

Total assets
$
2,710,779

 
$
2,066,131

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt
$
37,195

 
$
9,402

Accounts payable
181,768

 
98,327

Accrued expenses
300,737

 
220,585

Total current liabilities
519,700

 
328,314

Long-term debt
717,704

 
588,765

Long-term deferred tax liability
84,799

 
88,800

Other non-current liabilities
254,262

 
53,492

Stockholders' equity:
 

 
 

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

 

Common stock, $0.01 par value; 95,000,000 shares authorized; 62,179,596 and 62,088,592 shares issued in 2015 and 2014, respectively
144

 
144

Paid-in capital
324,491

 
310,409

Treasury stock, at cost; 4,862,264 and 4,816,912 shares in 2015 and 2014, respectively
(200,862
)
 
(196,026
)
Retained earnings
1,064,987

 
923,664

Accumulated other comprehensive loss
(54,446
)
 
(31,431
)
Total stockholders' equity
1,134,314

 
1,006,760

Total liabilities and stockholders' equity
$
2,710,779

 
$
2,066,131

 


See accompanying notes

1



THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
Oct 3, 2015

 
Sep 27, 2014

 
Oct 3, 2015

 
Sep 27, 2014

Net sales
$
449,004

 
$
404,289

 
$
1,291,891

 
$
1,201,543

Cost of sales
271,822

 
241,909

 
784,258

 
730,013

Gross profit
177,182

 
162,380

 
507,633

 
471,530

Selling and distribution expenses
44,477

 
42,006

 
136,918

 
137,078

General and administrative expenses
52,675

 
40,428

 
140,745

 
122,834

Gain on litigation settlement

 
(6,519
)
 

 
(6,519
)
Income from operations
80,030

 
86,465

 
229,970

 
218,137

Interest expense and deferred financing amortization, net
4,224

 
3,895

 
12,021

 
12,051

Other expense, net
1,941

 
993

 
6,136

 
2,053

Earnings before income taxes
73,865

 
81,577

 
211,813

 
204,033

Provision for income taxes
25,040

 
21,864

 
70,490

 
62,470

Net earnings
$
48,825

 
$
59,713

 
$
141,323

 
$
141,563

 
 
 
 
 
 
 
 
Net earnings per share:
 

 
 

 
 
 
 
Basic
$
0.86

 
$
1.05

 
$
2.48

 
$
2.50

Diluted
$
0.86

 
$
1.05

 
$
2.48

 
$
2.50

Weighted average number of shares
 

 
 

 
 
 
 
Basic
56,963

 
56,866

 
56,948

 
56,729

Dilutive common stock equivalents1
3

 
2

 
2

 
2

Diluted
56,966

 
56,868

 
56,950

 
56,731

Comprehensive income
$
35,077

 
$
47,108

 
$
118,308

 
$
132,372

 



















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

2



THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Nine Months Ended
 
Oct 3, 2015

 
Sep 27, 2014

Cash flows from operating activities--
 

 
 

Net earnings
$
141,323

 
$
141,563

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

 
 

Depreciation and amortization
33,983

 
31,934

Non-cash share-based compensation
11,686

 
11,635

Deferred taxes
(1,536
)
 
13,647

Changes in assets and liabilities, net of acquisitions
 

 
 

Accounts receivable, net
4,502

 
(20,786
)
Inventories, net
(25,596
)
 
(10,458
)
Prepaid expenses and other assets
3,800

 
6,660

Accounts payable
6,534

 
(151
)
Accrued expenses and other liabilities
(7,120
)
 
(9,662
)
Net cash provided by operating activities
167,576

 
164,382

Cash flows from investing activities--
 

 
 

Additions to property and equipment
(17,992
)
 
(10,107
)
Purchase of trade name
(1,000
)
 

Acquisition of Stewart
(2,500
)
 

Acquisition of Nieco
(4,200
)
 

Acquisition of Viking Distributors 2014

 
(38,485
)
Acquisition of Wunder-Bar, net of cash acquired

 
(445
)
Acquisition of Market Forge
(1,500
)
 
(10,240
)
Acquisition of PES

 
(15,000
)
Acquisition of Concordia, net of cash acquired
80

 
(12,515
)
Acquisition of U-Line, net of cash acquired
275

 

Acquisition of Desmon, net of cash acquired
(13,947
)
 

Acquisition of Goldstein Eswood
(27,406
)
 

Acquisition of Marsal
(5,500
)
 

Acquisition of Thurne
(9,872
)
 

Acquisition of Induc
(10,622
)
 

Acquisition of AGA, net of cash acquired
(185,731
)
 

Net cash used in investing activities
(279,915
)
 
(86,792
)
Cash flows from financing activities--
 

 
 

Net proceeds (repayments) under current revolving credit facilities
129,000

 
(63,400
)
Net proceeds under foreign bank loan
(1,385
)
 
7,481

Net repayments under other debt arrangement
(26
)
 
(26
)
Repurchase of treasury stock
(4,836
)
 
(44,283
)
Excess tax benefit related to share-based compensation
2,396

 
24,947

Net cash provided by (used in) financing activities
125,149

 
(75,281
)
Effect of exchange rates on cash and cash equivalents
(1,693
)
 
(1,051
)
Changes in cash and cash equivalents--
 

 
 

Net increase in cash and cash equivalents
11,117

 
1,258

Cash and cash equivalents at beginning of year
43,945

 
36,894

Cash and cash equivalents at end of period
$
55,062

 
$
38,152

 

See accompanying notes

3



THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 3, 2015
(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. 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 2014 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2015
In the opinion of management, the financial statements contain all adjustments necessary to present fairly the financial position of the company as of October 3, 2015 and January 3, 2015, the results of operations for the three and nine months ended October 3, 2015 and September 27, 2014 and cash flows for the nine months ended October 3, 2015 and September 27, 2014.

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 and post-retirement obligations. Actual results could differ from the company's estimates.
B)
Non-Cash Share-Based Compensation
The company estimates the fair value of market-based stock awards and stock options at the time of grant and recognizes compensation cost over the vesting period of the awards and options. Non-cash share-based compensation expense was $4.3 million and $4.9 million for the third quarter periods ended October 3, 2015 and September 27, 2014, respectively. Non-cash share-based compensation expense was $11.7 million and $11.6 million for the nine months ended October 3, 2015 and September 27, 2014, respectively.
During the first quarter ended April 4, 2015, the company issued 100,704 restricted shares under its 2011 Stock Incentive Plan. These amounts are contingent on the attainment of certain performance objectives. The aggregate grant-date fair value of these awards was $10.9 million, based on the closing share price of the company's stock at the date of the grant.
C)
Income Taxes
As of January 3, 2015, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $12.5 million (of which $12.2 million would impact the effective tax rate if recognized) plus approximately $1.7 million of accrued interest and $3.0 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. As of October 3, 2015, the company recognized a tax expense of $2.6 million for unrecognized tax benefits related to current year tax exposures.
It is reasonably possible that the amounts of unrecognized tax benefits associated with state, federal and foreign tax positions may decrease over the next twelve months due to expiration of a statute or completion of an audit. The company believes that it is reasonably possible that approximately $1.3 million of its currently remaining unrecognized tax benefits may be recognized over the next twelve months as a result of lapses of statutes of limitations.



4



A summary of the tax years that remain subject to examination in the company’s major tax jurisdictions are: 
United States - federal
2012 – 2014
United States - states
2005 – 2014
Australia
2011 – 2014
Brazil
2010 – 2014
Canada
2009 – 2014
China
2005 – 2014
Czech Republic
2013 – 2014
Denmark
2012 – 2014
France
2011 – 2014
Germany
2012 – 2014
India
2013 – 2014
Ireland
2009 – 2014
Italy
2010 – 2014
Luxembourg
2011 – 2014
Mexico
2010 – 2014
Netherlands
2000 – 2014
Philippines
2012 – 2014
Romania
2005 – 2014
Scotland
2011 – 2014
South Korea
2010 – 2011
Spain
2011 – 2014
Sweden
2008 – 2014
Switzerland
2008 – 2014
Taiwan
2010 – 2012
United Kingdom
2011 – 2014
 

5




D)
Fair Value Measures 
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 October 3, 2015
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
    Interest rate swaps
$

 
$
1,436

 
$

 
$
1,436

    Contingent consideration
$

 
$

 
$
12,289

 
$
12,289

 
 
 
 
 
 
 
 
As of January 3, 2015
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
    Interest rate swaps
$

 
$
810

 
$

 
$
810

    Contingent consideration
$

 
$

 
$
14,558

 
$
14,558

The contingent consideration as of October 3, 2015 relates to the earnout provisions recorded in conjunction with the acquisitions of Spooner Vicars, PES, Concordia, Desmon, Goldstein Eswood and Induc.
The contingent consideration as of January 3, 2015 relates to the earnout provisions recorded in conjunction with the acquisitions of Stewart, Nieco, Spooner Vicars, Market Forge, PES and Concordia.
The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings of the acquired businesses, 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 $11.0 million and $11.1 million for the nine months ended October 3, 2015 and September 27, 2014, respectively. Cash payments totaling $64.7 million and $20.2 million were made for income taxes for the nine months ended October 3, 2015 and September 27, 2014, respectively.


6



2)
Acquisitions and Purchase Accounting
The company operates in a highly fragmented industry and has completed numerous acquisitions over the past several years as a component of its growth strategy. The company has acquired industry leading brands and technologies to position itself as a leader in the commercial foodservice equipment, food processing equipment and residential kitchen equipment industries.
The company has accounted for all business combinations using the acquisition method to record a new cost basis for the identifiable assets acquired and liabilities assumed. The difference between the purchase price and the fair value of the identifiable 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.
Viking
On December 31, 2012 (subsequent to the 2012 fiscal year end), the company completed its acquisition of all of the capital stock of Viking Range Corporation, ("Viking"), a leading manufacturer of kitchen equipment for the residential market, for a purchase price of approximately $361.7 million, net of cash acquired. During the third quarter of 2013, the company finalized the working capital provision provided by the purchase agreement resulting in a return from the seller of $11.2 million.
The final allocation of cash paid for the Viking acquisition is summarized as follows (in thousands): 
 
(as initially reported) Dec 31, 2012
 
Measurement Period Adjustments
 
(as adjusted) Dec 31, 2012
Cash
$
6,900

 
$
(121
)
 
$
6,779

Current assets
40,794

 
(2,385
)
 
38,409

Property, plant and equipment
76,693

 
(20,446
)
 
56,247

Goodwill
144,833

 
(32,752
)
 
112,081

Other intangibles
152,500

 
44,500

 
197,000

Other assets
12,604

 
865

 
13,469

Current liabilities
(52,202
)
 
(886
)
 
(53,088
)
Other non-current liabilities
(2,386
)
 
(1
)
 
(2,387
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
379,736

 
$
(11,226
)
 
$
368,510

The goodwill and $151.0 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350 "Intangibles - Goodwill and Other." Other intangibles also includes $44.0 million allocated to customer relationships and $2.0 million allocated to backlog which are being amortized over periods of 6 years and 3 months, respectively. Goodwill and other intangibles of Viking are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes. Certain acquired assets included in other assets were classified as held for sale at the date of acquisition and were sold during the second quarter of 2013.






 

7



Viking Distributors 2013
Subsequent to the acquisition of Viking, the company, through Viking, purchased certain assets of four of Viking's former distributors ("Viking Distributors 2013"). The aggregate purchase price of these transactions as of June 29, 2013 was approximately $23.6 million. This included $8.7 million in forgiveness of liabilities owed to Viking resulting from pre-existing relationships with Viking.
The final allocation of cash paid for the Viking Distributors 2013 is summarized as follows (in thousands): 
 
(as initially reported) Jun 29, 2013

Measurement Period Adjustments

(as adjusted) Jun 29, 2013
Current assets
$
21,390

 
$
(3,599
)
 
$
17,791

Property, plant and equipment
1,318

 

 
1,318

Goodwill
1,709

 
3,599

 
5,308

Current liabilities
(804
)
 

 
(804
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
23,613

 
$

 
$
23,613

 
 
 
 
 
 
Forgiveness of liabilities owed to Viking
(8,697
)
 

 
(8,697
)
 
 
 
 
 
 
Consideration paid at closing
$
14,916

 
$

 
$
14,916

The goodwill is subject to the non-amortization provisions of ASC 350 and is allocated to the Residential Kitchen Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.


8



Celfrost

On October 15, 2013, the company completed its acquisition of substantially all of the assets of Celfrost Innovations Pvt. Ltd. ("Celfrost"), a preferred commercial foodservice equipment supplier in India with a broad line of cold side products such as professional refrigerators, coldrooms, ice machines and freezers marketed under the Celfrost brand for a purchase price of approximately $11.2 million. An additional deferred payment of $0.4 million was made in the fourth quarter of 2014 as provided for in the purchase agreement. Additional deferred payments of approximately $0.7 million in aggregate are also due to the seller in equal installments on the second and third anniversary of the acquisition.
The final allocation of cash paid for the Celfrost acquisition is summarized as follows (in thousands):
 
(as initially reported) Oct 15, 2013
 
Measurement Period Adjustments
 
(as adjusted) Oct 15, 2013
Current assets
$
5,638

 
$
(124
)
 
$
5,514

Property, plant and equipment
182

 

 
182

Goodwill
5,943

 
1,718

 
7,661

Other intangibles
4,333

 

 
4,333

Other assets
4

 

 
4

Current liabilities
(3,979
)
 
(1,594
)
 
(5,573
)
Other non-current liabilities
(875
)
 

 
(875
)
 
 
 
 
 
 
Consideration paid at closing
$
11,246

 
$

 
$
11,246

 
 
 
 
 
 
Deferred payments
1,067

 

 
1,067

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
12,313

 
$

 
$
12,313

The goodwill and $2.3 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $1.9 million allocated to customer relationships and $0.1 million allocated to backlog which are being amortized over periods of 7 years and 3 months, respectively. Goodwill and other intangibles of Celfrost are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.


9



Wunder-Bar

On December 17, 2013, the company completed its acquisition of all of the capital stock of Automatic Bar Controls, Inc. ("Wunder-Bar"), a leading manufacturer of beverage dispensing systems for the commercial foodservice industry, for a purchase price of approximately $74.1 million, net of cash acquired. During the third quarter of 2014, the company finalized the working capital provision provided by the purchase agreement resulting in a return from the seller of $0.1 million. In July 2014, the company purchased additional assets related to Wunder-Bar for approximately $0.8 million. An additional deferred payment of approximately $0.6 million is also payable to the seller pursuant to the purchase agreement.
The final allocation of cash paid for the Wunder-Bar acquisition is summarized as follows (in thousands):

(as initially reported) Dec 17, 2013
 
Measurement Period Adjustments
 
(as adjusted) Dec 17, 2013
Cash
$
857

 
$

 
$
857

Current deferred tax asset
50

 
188

 
238

Current assets
13,127

 
656

 
13,783

Property, plant and equipment
1,735

 
(312
)
 
1,423

Goodwill
45,056

 
(3,251
)
 
41,805

Other intangibles
30,000

 
3,060

 
33,060

Other assets

 
290

 
290

Current liabilities
(5,013
)
 
865

 
(4,148
)
Long-term deferred tax liability
(10,811
)
 
(1,280
)
 
(12,091
)
Other non-current liabilities
(1
)
 
(365
)
 
(366
)
 
 
 
 
 
 
Consideration paid at closing
$
75,000

 
$
(149
)
 
$
74,851

 
 
 
 
 
 
Additional assets acquired post closing

 
848

 
848

Deferred payments

 
586

 
586

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
75,000

 
$
1,285

 
$
76,285


The current deferred tax assets and long term deferred tax liabilities amounted to $0.2 million and $12.1 million, respectively. These net assets are comprised of $0.2 million of assets arising from the difference between the book and tax basis of tangible asset and liability accounts, net of $12.1 million of deferred tax liabilities related to the difference between the book and tax basis of identifiable intangible assets.
 
The goodwill and $12.7 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $20.2 million allocated to customer relationships and $0.2 million allocated to backlog which are to be amortized over a period of 14 years and 3 months, respectively. Goodwill and other intangibles of Wunder-Bar are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.



10



Market Forge
On January 7, 2014, the company completed its acquisition of certain assets of Market Forge Industries, Inc. (“Market Forge”), a leading manufacturer of steam cooking equipment for the commercial foodservice industry, for a purchase price of approximately $7.0 million. During the first quarter of 2014, the company finalized the working capital provision provided for by the purchase agreement resulting in an additional payment to the seller of $0.2 million. Additional deferred payments of $3.0 million in aggregate were paid to the seller during the second and third quarters of 2014. An additional contingent payment of $1.5 million was paid to the seller during the first quarter of 2015 upon the achievement of certain financial targets for the fiscal year 2014.
The final allocation of cash paid for the Market Forge acquisition is summarized as follows (in thousands):
 
(as initially reported) Jan 7, 2014
 
Measurement Period Adjustments
 
(as adjusted) Jan 7, 2014
Current assets
$
2,051

 
$
(100
)
 
$
1,951

Property, plant and equipment
120

 

 
120

Goodwill
5,252

 
654

 
5,906

Other intangibles
4,191

 

 
4,191

Current liabilities
(4,374
)
 
(554
)
 
(4,928
)
 
 
 
 
 
 
Consideration paid at closing
$
7,240

 
$

 
$
7,240

 
 
 
 
 
 
Deferred payments
3,000

 

 
3,000

Contingent consideration
1,374

 
126

 
1,500

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
11,614

 
$
126

 
$
11,740

The goodwill and $2.9 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $1.1 million allocated to customer relationships, $0.2 million allocated to developed technology and less than $0.1 million allocated to backlog, which are to be amortized over periods of 4 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Market Forge are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.



11



Viking Distributors 2014
The company, through Viking, purchased certain assets of two of Viking's former distributors ("Viking Distributors 2014"). The aggregate purchase price of these transactions as of January 31, 2014 was approximately $44.5 million. This included $6.0 million in forgiveness of liabilities owed to Viking resulting from pre-existing relationships with Viking.
The final allocation of cash paid for the Viking Distributors 2014 acquisition is summarized as follows (in thousands):
 
(as initially reported) Jan 31, 2014
 
Measurement Period Adjustments
 
(as adjusted) Jan 31, 2014
Current assets
$
35,909

 
$
(8,101
)
 
$
27,808

Property, plant and equipment
2,000

 
(291
)
 
1,709

Goodwill
7,552

 
8,647

 
16,199

Current liabilities
(1,005
)
 
(255
)
 
(1,260
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
44,456

 
$

 
$
44,456

 
 
 
 
 
 
Forgiveness of liabilities owed to Viking
(5,971
)
 

 
(5,971
)


 
 
 
 
Consideration paid at closing
$
38,485

 
$

 
$
38,485

The goodwill is subject to the non-amortization provisions of ASC 350 and is allocated to the Residential Kitchen Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.


12



Process Equipment Solutions
On March 31, 2014, the company completed its acquisition of substantially all of the assets of Processing Equipment Solutions, Inc. ("PES"), a leading manufacturer of water jet cutting equipment for the food processing industry, for a purchase price of approximately $15.0 million. An additional payment is also due upon the achievement of certain financial targets. During the third quarter of 2014, the company finalized the working capital provision provided by the purchase agreement resulting in no adjustment to the original purchase price.
The final allocation of cash paid for the PES acquisition is summarized as follows (in thousands):
 
(as initially reported) Mar 31, 2014
 
Measurement Period Adjustments
 
(as adjusted) Mar 31, 2014
Current assets
$
2,211

 
$
(153
)
 
$
2,058

Property, plant and equipment
3,493

 

 
3,493

Goodwill
10,792

 
332

 
11,124

Other intangibles
1,600

 
18

 
1,618

Other assets
21

 
(21
)
 

Current liabilities
(816
)
 

 
(816
)
Other non-current liabilities
(2,301
)
 
(176
)
 
(2,477
)
 
 
 
 
 
 
Consideration paid at closing
$
15,000

 
$

 
$
15,000

 
 
 
 
 
 
Contingent consideration
2,301

 
176

 
2,477

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
17,301

 
$
176

 
$
17,477

The goodwill is subject to the non-amortization provisions of ASC 350. Other intangibles includes $1.0 million allocated to customer relationships, $0.6 million allocated to developed technology and less than $0.1 million allocated to backlog, which are being amortized over periods of 5 years, 5 years and 3 months, respectively. Goodwill and other intangibles of PES are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
The PES 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 within the first quarter of 2017, if PES exceeds certain sales targets for fiscal 2014, 2015 and 2016. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $2.5 million.

13



Concordia
On September 8, 2014, the company completed its acquisition of all of the capital stock of Concordia Coffee Company, Inc. ("Concordia"), a leading manufacturer of automated and self-service coffee and espresso machines for the commercial foodservice industry, for a purchase price of approximately $12.5 million, net of cash acquired. An additional payment is also due upon the achievement of certain financial targets. During the first quarter of 2015, the company finalized the working capital provision provided by the purchase agreement resulting in a return from the seller of $0.1 million.
The final allocation of cash paid for the Concordia acquisition is summarized as follows (in thousands):
 
(as initially reported) Sep 8, 2014
 
Measurement Period Adjustments
 
(as adjusted) Sep 8, 2014
Cash
$
345

 
$

 
$
345

Current deferred tax asset

 
726

 
726

Current assets
3,767

 
(497
)
 
3,270

Goodwill
11,255

 
(5,720
)
 
5,535

Other intangibles
4,500

 
(1,200
)
 
3,300

Long-term deferred tax asset

 
3,264

 
3,264

Current liabilities
(2,296
)
 
(842
)
 
(3,138
)
Other non-current liabilities
(4,710
)
 
4,189

 
(521
)
 
 
 
 
 
 
Consideration paid at closing
$
12,861

 
$
(80
)
 
$
12,781

 
 
 
 
 
 
Contingent consideration
4,710

 
(4,189
)
 
521

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
17,571

 
$
(4,269
)
 
$
13,302

The current and long term deferred tax assets amounted to $0.7 million and $3.3 million, respectively. These net assets are comprised of $4.1 million related to federal net operating loss carry forwards, $1.1 million of assets arising from the difference between the book and tax basis of tangible asset and liability accounts, net of $1.2 million of deferred tax liabilities related to the difference between the book and tax basis of identifiable intangible assets. Federal net operating loss carry forwards are subject to carry forward limitations for income tax purposes.
The goodwill and $1.1 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles include $2.2 million allocated to customer relationships, which is being amortized over a period of 10 years. Goodwill and other intangibles of Concordia are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The Concordia 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 within the first quarter of 2017 if Concordia exceeds certain sales targets for fiscal years 2015 and 2016. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $0.5 million.




14



U-Line
On November 5, 2014, the company completed its acquisition of all of the capital stock of U-Line Corporation ("U-Line"), a leading manufacturer of premium residential built-in modular ice making, refrigeration and wine preservation products for the residential industry, for a purchase price of approximately $142.0 million, net of cash acquired. During the first quarter of 2015, the company finalized the working capital provision provided by the purchase agreement resulting in a return 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) Nov 5, 2014
 
Preliminary Measurement Period Adjustments
 
(as adjusted) Nov 5, 2014
Cash
$
12,764

 
$

 
$
12,764

Current deferred tax asset
657

 
114

 
771

Current assets
12,237

 

 
12,237

Property, plant and equipment
3,376

 

 
3,376

Goodwill
89,501

 
7,170

 
96,671

Other intangibles
57,500

 
(6,800
)
 
50,700

Current liabilities
(6,032
)
 
(1,973
)
 
(8,005
)
Long-term deferred tax liability
(13,095
)
 
4,673

 
(8,422
)
Other non-current liabilities
(2,111
)
 
(3,459
)
 
(5,570
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
154,797

 
$
(275
)
 
$
154,522

The current deferred tax assets and long term deferred tax liabilities amounted to $0.8 million and $8.4 million, respectively. These net assets are comprised of $5.7 million related to federal and state net operating loss carry forwards, $1.6 million of assets arising from the difference between the book and tax basis of tangible asset and liability accounts, net of $14.9 million of deferred tax liabilities related to the difference between the book and tax basis of identifiable intangible assets. Federal and state net operating loss carry forwards are subject to carry forward limitations for income tax purposes.
The goodwill and $35.1 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles includes $12.7 million allocated to customer relationships and $2.9 million allocated to backlog, which are being amortized over a period of 9 years and 5 months, respectively. Goodwill and other intangibles of U-Line are allocated to the Residential Kitchen 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.








15



Desmon
On January 7, 2015, the company completed its acquisition of all of the capital stock of Desmon Food Service Equipment Company ("Desmon"), a leading manufacturer of blast chillers and refrigeration for the commercial foodservice industry located in Nusco, Italy, for a purchase price of approximately $14.4 million, net of cash acquired. An additional payment is also due upon the achievement of certain financial targets. 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 2015.
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) Jan 7, 2015
 
Preliminary Measurement Period Adjustments
 
(as adjusted) Jan 7, 2015
Cash
$
441

 
$

 
$
441

Current deferred tax asset
535

 

 
535

Current assets
8,639

 
(418
)
 
8,221

Property, plant and equipment
7,989

 

 
7,989

Goodwill
7,175

 
676

 
7,851

Other intangibles
3,129

 

 
3,129

Current liabilities
(8,668
)
 
(46
)
 
(8,714
)
Long-term deferred tax liability
(2,389
)
 

 
(2,389
)
Other non-current liabilities
(2,463
)
 
(212
)
 
(2,675
)
 
 
 
 
 
 
Consideration paid at closing
$
14,388

 
$

 
$
14,388

 
 
 
 
 
 
Contingent consideration
2,416

 
212

 
2,628

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
16,804

 
$
212

 
$
17,016

The current deferred tax assets and long term deferred tax liabilities amounted to $0.5 million and $2.4 million, respectively. These net liabilities are comprised of $1.0 million of deferred tax liabilities related to the difference between the book and tax basis of identifiable intangible assets, $1.1 million of liabilities arising from the difference between the book and tax basis of tangible asset and liability accounts, net of $0.2 million of assets related to foreign net operating loss carry forwards.
The goodwill and $2.2 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $0.7 million allocated to customer relationships, $0.1 million allocated to developed technology and $0.1 million allocated to backlog, which are to be amortized over periods of 4 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Desmon are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The Desmon 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 within the second quarter of each of the fiscal years 2016, 2017 and 2018, respectively, if Desmon exceeds certain sales targets for fiscal 2015, 2016 and 2017, respectively. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $2.6 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.

16



Goldstein Eswood
On January 30, 2015, the company completed its acquisition of substantially all of the assets of J. Goldstein & Co. Pty. Ltd. ("Goldstein") and Eswood Australia Pty. Ltd. ("Eswood" and together with Goldstein, "Goldstein Eswood") for a purchase price of approximately $27.4 million. Goldstein is a leading manufacturer of cooking equipment including ranges, ovens, griddles, fryers and warming equipment and Eswood is a leading manufacturer of dishwashing equipment, both for the commercial foodservice industry and located in Smithfield, Australia. An additional payment is also due upon the achievement of certain financial targets. During the third quarter of 2015, the company finalized the working capital provision provided by the purchase agreement resulting in no adjustment to the original purchase price.
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) Jan 30, 2015
 
Preliminary Measurement Period Adjustments
 
(as adjusted) Jan 30, 2015
Current assets
$
8,036

 
$

 
$
8,036

Property, plant and equipment
8,690

 

 
8,690

Goodwill
8,493

 
133

 
8,626

Other intangibles
5,648

 

 
5,648

Current liabilities
(1,806
)
 

 
(1,806
)
Other non-current liabilities
(1,655
)
 
(133
)
 
(1,788
)
 
 
 
 
 
 
Consideration paid at closing
$
27,406

 
$

 
$
27,406

 
 
 
 
 
 
Contingent consideration
1,655

 
133

 
1,788

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
29,061

 
$
133

 
$
29,194

The goodwill and $4.0 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $1.4 million allocated to customer relationships, $0.1 million allocated to developed technology and less than $0.1 million allocated to backlog, which are to be amortized over periods of 4 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Goldstein Eswood are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
The Goldstein Eswood 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 within the second quarter of each of the fiscal years 2016 and 2017, respectively, if Goldstein Eswood exceeds certain sales targets for fiscal 2015 and 2016, respectively. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $1.8 million.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair values. 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.






17



Marsal
On February 10, 2015, the company completed its acquisition of certain assets of Marsal & Sons, Inc. ("Marsal"), a leading manufacturer of deck ovens for the commercial foodservice industry, for a purchase price of approximately $5.5 million. The purchase price is subject to adjustment based upon a working capital provision provided by the purchase agreement. During the second quarter of 2015, the company finalized the working capital provision provided by the purchase agreement resulting in no adjustment to the purchase price.
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) Feb 10, 2015
 
Preliminary Measurement Period Adjustments
 
(as adjusted) Feb 10, 2015
Current assets
$
455

 
$

 
$
455

Property, plant and equipment
201

 
(6
)
 
195

Goodwill
3,012

 
6

 
3,018

Other intangibles
2,027

 

 
2,027

Current liabilities
(195
)
 

 
(195
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
5,500

 
$

 
$
5,500

The goodwill and $1.3 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $0.5 million allocated to customer relationships, $0.1 million allocated to developed technology and less than $0.1 million allocated to backlog, which are to be amortized over periods of 4 years, 5 years and 3 months, respectively. Goodwill and other intangibles of Marsal are allocated to the Commercial Foodservice 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.













18



Thurne
On April 7, 2015, the company completed its acquisition of certain assets of the High Speed Slicing business unit of Marel ("Thurne"), a leading manufacturer of slicing equipment for the food processing industry located in Norwich, United Kingdom, for a purchase price of approximately $12.7 million. During the second quarter of 2015, the company finalized the working capital provision provided for by the purchase agreement resulting in a refund from the seller of $2.8 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) Apr 7, 2015
 
Preliminary Measurement Period Adjustments
 
(as adjusted) Apr 7, 2015
Current assets
$
3,419

 
$

 
$
3,419

Property, plant and equipment
3,334

 

 
3,334

Goodwill
609

 

 
609

Other intangibles
3,625

 

 
3,625

Current liabilities
(1,115
)
 

 
(1,115
)
 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
9,872

 
$

 
$
9,872

The goodwill and $2.0 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $0.9 million allocated to customer relationships, $0.2 million allocated to developed technology and $0.6 million allocated to backlog, which are to be amortized over periods of 5 years, 5 years, and 6 months, respectively. Goodwill and other intangibles of Thurne 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.















19



Induc
On May 30, 2015, the company completed its acquisition of certain assets of the Induc Commercial Electronics Co. Ltd. ("Induc"), a leading manufacturer of induction cooking equipment for the commercial foodservice industry located in Qingdoa, China, for a purchase price of approximately $10.6 million. An additional deferred payment of approximately $1.4 million is also due to the seller on the second anniversary of the acquisition. An additional payment is also due upon the achievement of certain financial targets. 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 2015.
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 30, 2015
 
Preliminary Measurement Period Adjustments
 
(as adjusted) May 30, 2015
Current assets
$
1,705

 
$
(342
)
 
$
1,363

Property, plant and equipment
536

 
255

 
791

Goodwill
13,496

 
(2,590
)
 
10,906

Other intangibles
1,500

 
812

 
2,312

Other assets
32

 
(32
)
 

Current liabilities
(854
)
 
854

 

Other non-current liabilities
(5,793
)
 
1,043

 
(4,750
)
 
 
 
 
 
 
   Consideration paid at closing
$
10,622

 
$

 
$
10,622

 
 
 
 
 
 
Deferred payment
1,516

 
(165
)
 
1,351

Contingent consideration
4,276

 
(878
)
 
3,398

 
 
 
 
 
 
Net assets acquired and liabilities assumed
$
16,414

 
$
(1,043
)
 
$
15,371

The goodwill and $1.5 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $0.8 million allocated to customer relationships, which is to be amortized over a period of 5 years, Goodwill and other intangibles of Induc are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
The Induc 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 within the first quarter of each of the fiscal years 2018, 2019 and 2020, respectively, if Induc exceeds certain sales and earnings targets for fiscal 2017, 2018 and 2019, respectively. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $3.4 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.






20



AGA
On September 23, 2015, the company completed its acquisition of all of the capital stock of AGA Rangemaster Group plc ("AGA") a leading manufacturer of residential kitchen equipment including ranges, ovens and refrigeration for a purchase price of approximately $185.7 million, net of cash acquired. AGA is headquartered in Leamington Spa, United Kingdom. Additionally, the company incurred $7.3 million of transaction expenses, which are reflected in the general and administrative expenses in the consolidated statements of earnings for such period.
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) Sep 23, 2015
Cash
$
15,316

Current assets
163,216

Property, plant and equipment
61,423

Goodwill
144,645

Other intangibles
190,000

Long-term deferred tax asset
5,306

Other assets
1,573

Current maturities of long-term debt
(30,703
)
Current liabilities
(147,279
)
Long-term debt
(138
)
Other non-current liabilities
(202,312
)
 
 
Net assets acquired and liabilities assumed
$
201,047

The long-term deferred tax asset amounted to $5.3 million. These net assets are comprised of $39.7 million of assets related to pension liabilities, $3.7 million of assets related to foreign net operating loss, net of $38.0 million of deferred tax liabilities related to the difference between the book and tax basis of identifiable intangible assets and $0.1 million of deferred tax liabilities related to the difference between the book and tax basis of tangible asset and liability accounts.
The goodwill and $130.0 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $60.0 million allocated to customer relationships, which is to be amortized over a period of 8 years. Goodwill and other intangibles of AGA are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The company estimated the fair value of the assets and liabilities of AGA 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. Acquired goodwill represents the premium paid over the fair value of assets acquired and liabilities assumed.





21



Pro Forma Financial Information
 
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the years ended October 3, 2015 and September 27, 2014, assumes the 2015 acquisitions of Desmon, Goldstein Eswood, Marsal, Thurne, Induc and AGA and the 2014 acquisitions of Market Forge, PES, Concordia and U-Line were completed on December 29, 2013 (first day of fiscal year 2014). The following pro forma results include adjustments to reflect additional interest expense to fund the acquisition, 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):
 
 
October 3, 2015
 
September 27, 2014
Net sales
$
1,578,911

 
$
1,270,340

Net earnings
133,919

 
148,114

 
 
 
 
Net earnings per share:
 

 
 

Basic
2.35

 
2.60

Diluted
2.35

 
2.60

 
The supplemental pro forma financial information presented above has been prepared for comparative purposes and is not necessarily indicative of either the results of operations that would have occurred had the acquisitions of these companies been effective on December 29, 2013 nor are they indicative of any future results. Also, the pro forma financial information does not reflect the costs which the company has incurred or may incur to integrate PES, Concordia, U-Line, Desmon, Goldstein Eswood, Marsal, Thurne, Induc and AGA.
3)
Stock Split
In June 2014, the company’s Board of Directors approved a three-for-one split of the company’s common stock in the form of a stock dividend.  The stock dividend was paid on June 27, 2014 to shareholders of record as of June 16, 2014.  The company’s stock began trading on a split-adjusted basis on June 27, 2014. The stock split effectively tripled the number of shares outstanding at June 27, 2014. 
4)
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.
5)
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. This update changes the criteria for determining which disposals can be presented as discontinued operations and requires expanded disclosures. Under ASU No. 2014-08, a disposal of a component of an entity or group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity’s operations and financial results. This update is effective for annual and corresponding interim reporting periods beginning on or after December 15, 2014. The adoption of this guidance did not have an impact on the company's financial position, results of operations or cash flows.

22



In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. This update amends the current guidance on revenue recognition related to contracts with customers. Under ASU No. 2014-09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015 the FASB decided to delay the effective date of the new revenue standard to be effective for interim and annual periods beginning on or after December 15, 2017 for public companies and December 15, 2018 for private companies. Companies may elect to adopt the standard at the original effective date for public entities, that is, for interim and annual periods beginning on or after December 15, 2016, but not earlier. The guidance can be applied using one of two retrospective application methods. The company is evaluating the impact of adopting this new standard on the consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation”. This update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update is effective for annual and corresponding interim reporting periods beginning on or after December 15, 2015. Early adoption is permitted. The company is evaluating the impact the application of this ASU will have, if any, on the company’s financial position, results of operations and cash flows.
In January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items". This update eliminates the concept of extraordinary items from the current guidance. This update is effective for annual and corresponding interim reporting periods beginning after December 15, 2015. Early adoption is permitted provided the guidance is applied from the beginning of the fiscal year of adoption. Retrospective application is encouraged for all prior periods presented in the financial statements. The company is evaluating the impact the application of this ASU will have, if any, on the company’s financial position, results of operations and cash flows.
In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs to be recorded as a direct reduction of the debt liability on the balance sheet rather than as an asset. The standard is effective for fiscal years beginning after December 15, 2015 and early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The company does not expect the adoption of this standard to have a material impact on its consolidated balance sheets.
In April 2015, the FASB issued ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets". This ASU is intended to provide a practical expedient for the measurement date of defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not fall on a calendar month-end (e.g., companies with a 52/53-week fiscal year) to measure pension and post-retirement benefit plan assets and obligations as of the calendar month-end date closest to the fiscal year-end. The FASB also provided a similar practical expedient for interim remeasurements for significant events. This ASU requires perspective application and is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted. The company is evaluating the impact the application of this ASU will have, if any, on the company’s financial position, results of operations and cash flows.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively.  Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date.  The ASU is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The company does not expect the adoption of this standard to have a material impact on its financial condition, results of operations or cash flows.




23



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 January 3, 2015
$
(24,655
)
 
$
(6,540
)
 
$
(236
)
 
$
(31,431
)
Other comprehensive income before reclassification
(22,686
)
 
42

 
404

 
(22,240
)
Amounts reclassified from accumulated other comprehensive income

 

 
(775
)
 
(775
)
Net current-period other comprehensive income
$
(22,686
)
 
$
42

 
$
(371
)
 
$
(23,015
)
Balance as of October 3, 2015
$
(47,341
)
 
$
(6,498
)
 
$
(607
)
 
$
(54,446
)
(1) All amounts are net of tax.
Components of other comprehensive income were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
Oct 3, 2015
 
Sep 27, 2014
 
Oct 3, 2015
 
Sep 27, 2014
Net earnings
$
48,825

 
$
59,713

 
$
141,323

 
$
141,563

Currency translation adjustment
(13,564
)
 
(13,167
)
 
(22,686
)
 
(9,737
)
Pension liability adjustment, net of tax
17

 
33

 
42

 
14

Unrealized gain on interest rate swaps, net of tax
(201
)
 
529

 
(371
)
 
532

Comprehensive income
$
35,077

 
$
47,108

 
$
118,308

 
$
132,372

7)
Inventories
Inventories are composed of material, labor and overhead and are stated at the lower of cost or market. Costs for inventories at two of the company's manufacturing facilities have been determined using the last-in, first-out ("LIFO") method. These inventories under the LIFO method amounted to $35.0 million at October 3, 2015 and $30.2 million at January 3, 2015 and represented approximately 9.4% and 11.8% of the total inventory at each respective period. The amount of LIFO reserve at October 3, 2015 and January 3, 2015 was not material. Costs for all other 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 October 3, 2015 and January 3, 2015 are as follows: 
 
Oct 3, 2015
 
Jan 3, 2015
 
(in thousands)
Raw materials and parts
$
148,272

 
$
126,121

Work-in-process
37,724

 
17,828

Finished goods
187,850

 
111,827

 
$
373,846

 
$
255,776


24



8)
Goodwill
Changes in the carrying amount of goodwill for the nine months ended October 3, 2015 are as follows (in thousands):
 
Commercial
Foodservice
 
Food
Processing
 
Residential Kitchen
 
Total
Balance as of January 3, 2015
$
450,890

 
$
134,512

 
$
223,089

 
$
808,491

Goodwill acquired during the year
30,401

 
609

 
144,645

 
175,655

Measurement period adjustments to goodwill acquired in prior year
(1,126
)
 
63

 
7,170

 
6,107

Exchange effect
(4,971
)
 
(3,139
)
 
(4,896
)
 
(13,006
)
Balance as of October 3, 2015
$
475,194

 
$
132,045

 
$
370,008

 
$
977,247

9)
Accrued Expenses
Accrued expenses consist of the following:
 
Oct 3, 2015
 
Jan 3, 2015
 
(in thousands)
Accrued payroll and related expenses
$
60,770

 
$
50,844

Advanced customer deposits
57,835

 
20,367

Accrued warranty
36,437

 
28,786

Accrued customer rebates
35,458

 
32,357

Accrued product liability and workers compensation
14,332

 
14,582

Accrued professional services
11,706

 
7,053

Accrued agent commission
11,285

 
11,207

Accrued sales and other tax
11,272

 
7,660

Product recall
10,028

 
12,125

Other accrued expenses
51,614

 
35,604

 
$
300,737

 
$
220,585

10)
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:
 
Nine Months Ended
 
Oct 3, 2015
 
(in thousands)
Balance as of January 3, 2015
$
28,786

Warranty reserve related to acquisitions
4,398

Warranty expense
33,217

Warranty claims
(29,964
)
Balance as of October 3, 2015
$
36,437


25



11)
Financing Arrangements
 
Oct 3, 2015
 
Jan 3, 2015
 
(in thousands)
Senior secured revolving credit line
$
716,500

 
$
587,500

Foreign loans
37,915

 
10,384

Other debt arrangement
484

 
283

     Total debt
$
754,899

 
$
598,167

Less:  Current maturities of long-term debt
37,195

 
9,402

     Long-term debt
$
717,704

 
$
588,765

On August 7, 2012, the company entered into a new senior secured multi-currency credit facility. Terms of the company’s senior credit agreement provide for $1.0 billion of availability under a revolving credit line. As of October 3, 2015, the company had $716.5 million of borrowings outstanding under this facility. The company also had $6.9 million in outstanding letters of credit as of October 3, 2015, which reduces the borrowing availability under the revolving credit line. Remaining borrowing availability under this facility was $276.6 million at October 3, 2015.
At October 3, 2015, borrowings under the senior secured credit facility were assessed at an interest rate of 1.25% above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds Rate. At October 3, 2015 the average interest rate on the senior debt amounted to 1.43%. The interest rates on borrowings under the senior secured credit facility may be adjusted quarterly based on the company’s indebtedness ratio on a rolling four-quarter basis. Additionally, a commitment fee based upon the indebtedness ratio is charged on the unused portion of the revolving credit line. This variable commitment fee amounted to 0.23% as of October 3, 2015.
In August 2006, the company completed its acquisition of Houno A/S in Denmark. This acquisition was funded in part with locally established debt facilities with borrowings in Danish Krone.  These facilities included a revolving credit facility and term loan. At October 3, 2015, these facilities amounted to $3.7 million in U.S. dollars, including $2.7 million outstanding under a revolving credit facility and $1.0 million under a term loan. The interest rate on the revolving credit facility is assessed at 1.25% above Euro LIBOR, which amounted to 1.55% on October 3, 2015. At October 3, 2015, the interest rate assessed on the term loan was 4.55%. The term loan matures in 2022.
In April 2008, the company completed its acquisition of Giga Grandi Cucine S.r.l in Italy. This acquisition was funded in part with locally established debt facilities with borrowings denominated in Euro.  At October 3, 2015, these facilities amounted to $1.0 million in U.S. dollars.  The interest rate on the credit facilities is variable based on the three-month Euro LIBOR. At October 3, 2015, the average interest rate on these facilities was approximately 2.83%. The facilities are secured by outstanding accounts receivable collectible within six months.
In October 2013, the company completed its acquisition of substantially all of the assets of Celfrost Innovations Pvt. Ltd. in India.  At the time of the acquisition a local credit facility, denominated in Indian Rupee, was established to fund local working capital needs. At October 3, 2015, the facility amounted to $2.5 million in U.S. dollars. At October 3, 2015, borrowings under the facility were assessed at an interest rate at 1.25% above the Reserve Bank of India's base rate for long-term borrowings. At October 3, 2015, the average interest rate on this facility was approximately 10.25%
In March 2014, Cozzini do Brazil LTDA entered into a local credit facility, denominated in Brazilian Real, to fund local working capital needs.   At October 3, 2015, the facility amounted to $2.4 million in U.S. dollars and was assessed an interest rate of 1.50% above the Brazilian central bank CDI Rate. At October 3, 2015, the interest rate assessed on this facility was 12.58%. This local credit facility matures on March 28, 2016.
In January 2015, the company completed its acquisition of Desmon Food Service Equipment Company in Italy. This acquisition was funded in part with locally established debt facilities with borrowings denominated in Euro.  At October 3, 2015, these facilities amounted to $0.1 million in U.S. dollars, including $0.1 million outstanding on a local working capital loan and less than $0.1 million outstanding under a term loan. The interest rate on the working capital loan was 1.63% and the interest rate on the term loan was 0.50%. Both the working capital loan and the term loan mature on December 31, 2016.



26



In September 2015, the company completed its acquisition of AGA Rangemaster Group plc in the United Kingdom. At the time of acquisition, local credit facilities with borrowings, denominated in Euro and USD, were established to fund local working capital needs. At October 3, 2015, these facilities amounted to $28.2 million in U.S. Dollars, including $27.6 million outstanding on local working capital loans and $0.6 million outstanding under the term loan. At October 3, 2015, the average interest rate was approximately 1.98% on the working capital loans and 0.76% on the term loan.
The company’s debt is reflected on the balance sheet at cost. Based on current market conditions, the company believes its interest rate margins on its existing debt are consistent with current market conditions and therefore the carrying value of debt approximates fair value. However, as the interest rate margin is based upon numerous factors, including but not limited to the credit rating of the borrower, the duration of the loan, the structure and restrictions under the debt agreement, current lending policies of the counterparty, and the company’s relationships with its lenders, there is no readily available market data to ascertain the current market rate for an equivalent debt instrument. As a result, the current interest rate margin is based upon the company’s best estimate based upon discussions with its lenders.
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 at October 3, 2015 to achieve sufficient cash inflows to cover the cash outflows under the company’s senior 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 senior revolving credit facility in August 2017. 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):
 
Oct 3, 2015
 
Jan 3, 2015
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Total debt
$
754,899

 
$
754,899

 
$
598,167

 
$
598,167

The company believes that its current capital resources, including cash and cash equivalents, cash expected to be generated from operations, funds available from its current lenders and access to the credit and capital markets will be sufficient to finance its operations, debt service obligations, capital expenditures, product development and expenditures for the foreseeable future.
The company has historically entered into interest rate swap agreements to effectively fix the interest rate on a portion of its outstanding debt. The agreements swap one-month LIBOR for fixed rates. As of October 3, 2015, the company had the following interest rate swaps in effect:
 
 
Fixed
 
 
 
 
Notional
 
Interest
 
Effective
 
Maturity
Amount
 
Rate
 
Date
 
Date
$25,000,000
 
2.520%
 
2/23/2011
 
2/23/2016
$15,000,000
 
1.185%
 
9/12/2011
 
9/12/2016
$15,000,000
 
0.458%
 
2/11/2013
 
10/11/2015
$25,000,000
 
0.635%
 
2/11/2013
 
8/11/2016
$25,000,000
 
0.789%
 
2/11/2013
 
3/11/2017
$25,000,000
 
0.803%
 
2/11/2013
 
5/11/2017
$35,000,000
 
0.880%
 
2/11/2013
 
7/11/2017
$10,000,000
 
1.480%
 
9/11/2013
 
7/11/2017
$15,000,000
 
0.920%
 
3/11/2014
 
7/11/2017
$25,000,000
 
0.950%
 
3/11/2014
 
7/11/2017



27



The terms of the senior secured credit facility limit the ability of the company and its subsidiaries to, with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make restricted payments; enter into certain transactions with affiliates; and require, among other things, a maximum ratio of indebtedness to EBITDA of 3.5 and a fixed charge coverage ratio (as defined in the senior secured credit facility) of 1.25. The senior secured credit facility is secured by substantially all of the assets of Middleby Marshall, the company and the company's domestic subsidiaries and is unconditionally guaranteed by, subject to certain exceptions, the company and certain of the company's direct and indirect material domestic subsidiaries. The senior secured credit facility contains certain customary events of default, including, but not limited to, the failure to make required payments; bankruptcy and other insolvency events; the failure to perform certain covenants; the material breach of a representation or warranty; non-payment of certain other indebtedness; the entry of undischarged judgments against the company or any subsidiary for the payment of material uninsured amounts; the invalidity of the company guarantee or any subsidiary guaranty; and a change of control of the company. The credit agreement also provides that if a material adverse change in the company’s business operations or conditions occurs, the lender could declare an event of default. Under terms of the agreement, a material adverse effect is defined as (a) a material adverse change in, or a material adverse effect upon, the operations, business properties, condition (financial and otherwise) or prospects of the company and its subsidiaries taken as a whole; (b) a material impairment of the ability of the company to perform under the loan agreements and to avoid any event of default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the company of any loan document. A material adverse effect is determined on a subjective basis by the company's creditors. At October 3, 2015, the company was in compliance with all covenants pursuant to its borrowing agreements.
12)
Financial Instruments
ASC 815 “Derivatives and Hedging” requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If a derivative does qualify as a hedge under ASC 815, changes in the fair value will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments or recognized in other accumulated comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a hedge's change in fair value will be immediately recognized in earnings.
Foreign Exchange: The company uses foreign currency forward and option contracts with terms of less than one year to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The following table summarizes the forward and option contracts outstanding at October 3, 2015. The fair value of the forward and option contracts was a gain of $0.8 million at the end of the third quarter of 2015.
Sell
 
Purchase
 
Maturity
5,000,000

 
Euro Dollars
 
5,599,700

 
US Dollars
 
December 30, 2015
5,000,000

 
Euro Dollars
 
5,595,750

 
US Dollars
 
December 30, 2015
5,000,000

 
Euro Dollars
 
5,601,000

 
US Dollars
 
December 30, 2015
5,300,000

 
Euro Dollars
 
5,937,060

 
US Dollars
 
December 30, 2015
3,500,000

 
British Pounds
 
4,729,538

 
Euro Dollars
 
December 30, 2015
4,000,000

 
British Pounds
 
5,407,415

 
Euro Dollars
 
December 30, 2015
5,000,000

 
British Pounds
 
6,754,931

 
Euro Dollars
 
December 30, 2015
3,796,697

 
Euro Dollars
 
2,805,000

 
British Pounds
 
December 30, 2015
7,500,000

 
Australian Dollars
 
5,241,750

 
US Dollars
 
December 30, 2015
12,900,000

 
Australian Dollars
 
9,024,518

 
US Dollars
 
December 30, 2015
12,500,000

 
Australian Dollars
 
8,737,500

 
US Dollars
 
December 30, 2015
11,500,000

 
Canadian Dollars
 
8,685,801

 
US Dollars
 
December 30, 2015
2,300,000

 
Australian Dollars
 
1,608,505

 
US Dollars
 
December 30, 2015
10,000,000

 
Brazilian Reais
 
2,748,763

 
US Dollars
 
December 17, 2015
20,167,500

 
Brazilian Reais
 
5,000,000

 
US Dollars
 
August 23, 2016

28



Interest Rate: The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of October 3, 2015, the fair value of these instruments was a liability of $1.4 million. The change in fair value of these swap agreements in the first nine months of 2015 was a loss of $0.4 million, net of taxes.
The following tables summarize the company’s fair value of interest rate swaps (in thousands):
 
Condensed Consolidated
Balance Sheet Presentation
 
Oct 3, 2015

 
Jan 3, 2015

Fair value
Other non-current liabilities
 
$
(1,436
)
 
$
(810
)

The impact on earnings from interest rate swaps was as follows (in thousands):
 
 
 
Three Months Ended
 
Nine Months Ended
 
Presentation of Gain/(loss)
 
Oct 3, 2015

 
Sep 27, 2014

 
Oct 3, 2015
 
Sep 27, 2014

Gain/(loss) recognized in accumulated other comprehensive income
Other comprehensive income
 
$
(768
)
 
$
343

 
$
(2,069
)
 
$
(768
)
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)
Interest expense
 
$
(477
)
 
$
(538
)
 
$
(1,451
)
 
$
(1,653
)
Gain/(loss) recognized in income (ineffective portion)
Other expense
 
$
(23
)
 
$
25

 
$
(8
)
 
$
8

Interest rate swaps are subject to default risk to the extent the counterparties are unable to satisfy their settlement obligations under the interest rate swap agreements. The company reviews the credit profile of the financial institutions and assesses its creditworthiness prior to entering into the interest rate swap agreements. The interest rate swap agreements typically contain provisions that allow the counterparty to require early settlement in the event that the company becomes insolvent or is unable to maintain compliance with its covenants under its existing debt agreements.

29



13)
Segment Information
The company operates in three reportable operating segments defined by management reporting structure and operating activities.
The Commercial Foodservice Equipment Group manufactures, sells, and distributes cooking equipment for the restaurant and institutional kitchen industry. This business segment has manufacturing facilities in California, Illinois, Michigan, New Hampshire, North Carolina, Tennessee, Texas, Vermont, Washington, Australia, China, Denmark, Italy, the Philippines and the United Kingdom. Principal product lines of this group include conveyor ovens, ranges, steamers, convection ovens, combi-ovens, broilers and steam cooking equipment, induction cooking systems, baking and proofing ovens, charbroilers, catering equipment, fryers, toasters, hot food servers, food warming equipment, griddles, coffee and beverage dispensing equipment, professional refrigerators, coldrooms, ice machines, freezers and kitchen processing and ventilation equipment. These products are sold and marketed under the brand names: Anets, Beech, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield, Britannia, CTX, Carter-Hoffmann, Celfrost, Concordia, CookTek, Desmon, Doyon, Eswood, Frifri, Giga, Goldstein, Holman, Houno, IMC, Induc, Jade, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, Southbend, Star, Toastmaster, TurboChef, Viking, Wells and Wunder-Bar.
The Food Processing Equipment Group manufactures preparation, cooking, packaging, food handling and food safety equipment for the food processing industry. This business segment has manufacturing operations in Georgia, Illinois, Iowa, North Carolina, Texas, Virginia, Wisconsin, Australia, France, Germany and the United Kingdom. Principal product lines of this group include batch ovens, belt ovens, continuous processing ovens, frying systems, automated thermal processing systems, automated loading and unloading systems, meat presses, breading, battering, mixing, water cutting systems, forming, grinding and slicing equipment, food suspension, reduction and emulsion systems, defrosting equipment, packaging and food safety equipment. These products are sold and marketed under the brand names: Alkar, Armor Inox, Auto-Bake, Baker Thermal Solutions, Cozzini, Danfotech, Drake, Maurer-Atmos, MP Equipment, RapidPak, Spooner Vicars, Stewart Systems and Thurne.
The Residential Kitchen Equipment Group manufactures, sells and distributes kitchen equipment for the residential market. This business segment has manufacturing facilities in Michigan, Mississippi, Wisconsin, France, Ireland, Romania, and the United Kingdom. Principal product lines of this group are ranges, cookers, ovens, refrigerators, dishwashers, microwaves, cooktops and outdoor equipment. These products are sold and marketed under the brand names of AGA, AGA Cookshop, Brigade, Divertimenti, Falcon, Fired Earth, Grange, Heartland, Jade, La Cornue, Leisure Sinks, Marvel, Mercury, Rangemaster, Rayburn, Redfyre, Stanley, TurboChef, U-Line and Viking.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The chief operating decision maker evaluates individual segment performance based on operating income.
Net Sales Summary
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
Oct 3, 2015
 
Sep 27, 2014
 
Oct 3, 2015
 
Sep 27, 2014
 
Sales
 
Percent
 
Sales
 
Percent
 
Sales
 
Percent
 
Sales
 
Percent