UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q 
 
(Mark One)
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30,September 29, 2018
or
oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission File No. 1-9973
 
THE MIDDLEBY CORPORATION
(Exact name of registrant as specified in its charter)  
Delaware36-3352497
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
  
 
1400 Toastmaster Drive, Elgin, Illinois60120
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:(847) 741-3300
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o   
 
Indicate by check mark whether the Registrant has submitted electronically 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, 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 August 3,November 2, 2018, there were 55,723,62455,846,662 shares of the registrant's common stock outstanding.


THE MIDDLEBY CORPORATION
 
QUARTER ENDED JUNE 30,SEPTEMBER 29, 2018
  
INDEX
DESCRIPTIONPAGE
PART I.  FINANCIAL INFORMATION 
   
Item 1. 
   
 CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30,SEPTEMBER 29, 2018 and DECEMBER 30, 2017
   
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME JUNE 30,SEPTEMBER 29, 2018 and JULY 1,SEPTEMBER 30, 2017
   
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS JUNE 30,SEPTEMBER 29, 2018 and JULY 1,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)
 
ASSETSJun 30, 2018
 Dec 30, 2017
Sep 29, 2018
 Dec 30, 2017
Current assets: 
  
 
  
Cash and cash equivalents$92,284
 $89,654
$76,588
 $89,654
Accounts receivable, net of reserve for doubtful accounts of $13,472 and $13,182400,266
 328,421
Accounts receivable, net of reserve for doubtful accounts of $13,398 and $13,182410,150
 328,421
Inventories, net493,667
 424,639
512,824
 424,639
Prepaid expenses and other48,890
 55,427
50,142
 55,427
Prepaid taxes45,350
 33,748
28,876
 33,748
Total current assets1,080,457
 931,889
1,078,580
 931,889
Property, plant and equipment, net of accumulated depreciation of $156,504 and $142,278317,150
 281,915
Property, plant and equipment, net of accumulated depreciation of $161,762 and $142,278311,741
 281,915
Goodwill1,824,755
 1,264,810
1,823,258
 1,264,810
Other intangibles, net of amortization of $229,019 and $207,3341,292,771
 780,426
Other intangibles, net of amortization of $247,106 and $207,3341,275,142
 780,426
Long-term deferred tax assets40,807
 44,565
39,483
 44,565
Other assets46,263
 36,108
50,405
 36,108
Total assets$4,602,203
 $3,339,713
$4,578,609
 $3,339,713
      
LIABILITIES AND STOCKHOLDERS' EQUITY 
  
 
  
Current liabilities: 
  
 
  
Current maturities of long-term debt$6,297
 $5,149
$3,125
 $5,149
Accounts payable188,256
 146,333
197,750
 146,333
Accrued expenses361,501
 322,171
373,297
 322,171
Total current liabilities556,054
 473,653
574,172
 473,653
Long-term debt2,060,328
 1,023,732
1,955,243
 1,023,732
Long-term deferred tax liability102,636
 87,815
110,984
 87,815
Accrued pension benefits309,573
 334,511
298,628
 334,511
Other non-current liabilities72,456
 58,854
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; 62,612,865 and 62,619,865 shares issued in 2018 and 2017, respectively145
 145
Common stock, $0.01 par value; 62,735,903 and 62,619,865 shares issued in 2018 and 2017, respectively145
 145
Paid-in capital376,740
 374,922
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)(445,118) (445,118)
Retained earnings1,841,489
 1,697,618
1,914,394
 1,697,618
Accumulated other comprehensive loss(272,100) (266,419)(275,978) (266,419)
Total stockholders' equity1,501,156
 1,361,148
1,573,633
 1,361,148
Total liabilities and stockholders' equity$4,602,203
 $3,339,713
$4,578,609
 $3,339,713
 


See accompanying notes


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
Three Months Ended
Six Months EndedThree Months Ended Nine Months Ended
Jun 30, 2018
 Jul 1, 2017
 Jun 30, 2018
 Jul 1, 2017
Sep 29, 2018
 Sep 30, 2017
 Sep 29, 2018
 Sep 30, 2017
Net sales$668,128
 $579,343
 $1,252,928
 $1,109,640
$713,331
 $593,043
 $1,966,259
 $1,702,683
Cost of sales417,369
 344,735
 790,536
 665,582
452,171
 364,524
 1,242,707
 1,030,106
Gross profit250,759
 234,608
 462,392
 444,058
261,160
 228,519
 723,552
 672,577
Selling, general and administrative expenses135,008
 121,632
 257,956
 236,616
141,372
 114,857
 399,328
 351,473
Restructuring expenses4,441
 11,494
 6,134
 13,219
12,111
 4,218
 18,245
 17,437
Gain on sale of plant
 (12,042) 
 (12,042)
 
 
 (12,042)
Income from operations111,310
 113,524
 198,302
 206,265
107,677
 109,444
 305,979
 315,709
Interest expense and deferred financing amortization, net10,404
 5,702
 19,227
 11,507
19,143
 6,550
 38,370
 18,057
Net periodic pension benefit (other than service costs)(9,116) (8,612) (18,821) (16,950)(9,225) (8,813) (28,046) (25,763)
Other expense (income), net(542) 302
 631
 2,169
Other (income) expense, net(260) (1,068) 371
 1,101
Earnings before income taxes110,564
 116,132
 197,265
 209,539
98,019
 112,775
 295,284
 322,314
Provision for income taxes26,576
 38,563
 47,857
 61,268
25,114
 38,104
 72,971
 99,372
Net earnings$83,988
 $77,569
 $149,408
 $148,271
$72,905
 $74,671
 $222,313
 $222,942
              
Net earnings per share: 
  
     
  
    
Basic$1.51
 $1.35
 $2.69
 $2.59
$1.31
 $1.31
 $4.00
 $3.91
Diluted$1.51
 $1.35
 $2.69
 $2.59
$1.31
 $1.31
 $4.00
 $3.91
Weighted average number of shares 
  
     
  
    
Basic55,576
 57,299
 55,575
 57,201
55,577
 56,810
 55,575
 57,070
Dilutive common stock equivalents1

 
 
 

 
 
 
Diluted55,576
 57,299
 55,575
 57,201
55,577
 56,810
 55,575
 57,070
Comprehensive income$58,824
 $88,542
 $143,727
 $168,052
$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


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months EndedNine Months Ended
Jun 30, 2018
 Jul 1, 2017
Sep 29, 2018
 Sep 30, 2017
Cash flows from operating activities-- 
  
 
  
Net earnings$149,408
 $148,271
$222,313
 $222,942
Adjustments to reconcile net earnings to net cash provided by operating activities-- 
  
 
  
Depreciation and amortization38,622
 32,315
66,455
 49,276
Non-cash share-based compensation1,818
 6,505
5,268
 6,478
Deferred income taxes5,573
 17,579
13,312
 21,369
Gain on sale of plant
 (12.042)
 (12.042)
Impairment of equipment
 2.929
Impairment of property, plant and equipment783
 2.894
Non-cash restructuring5,179
 
Changes in assets and liabilities, net of acquisitions 
  
 
  
Accounts receivable, net(28,233) 17,257
(38,936) 13,834
Inventories, net392
 (25,607)(25,604) (19,967)
Prepaid expenses and other assets(3,829) (17,442)10,400
 (3,359)
Accounts payable13,618
 (10,832)24,625
 (17,639)
Accrued expenses and other liabilities(30,734) (72,897)(31,748) (58,894)
Net cash provided by operating activities146,635
 86,036
252,047
 204,892
Cash flows from investing activities-- 
  
 
  
Additions to property, plant and equipment(24,208) (31,708)(32,552) (42,434)
Proceeds on sale of property, plant and equipment
 14,278

 14,278
Purchase of Tradename(5,399) 
(5,399) 
Acquisitions, net of cash acquired(1,144,541) (119,262)(1,147,738) (159,458)
Net cash used in investing activities(1,174,148) (136,692)(1,185,689) (187,614)
Cash flows from financing activities-- 
  
 
  
Proceeds under Credit Facility1,466,974
 264,635
1,520,225
 489,484
Repayments under Credit Facility(431,081) (194,087)(588,911) (272,185)
Net repayments under international credit facilities(3,008) (1,130)(6,997) (1,062)
Net repayments under other debt arrangement(3) (17)(3) (26)
Payments of deferred purchase price(692) 
Repurchase of treasury stock
 (24,645)
 (224,996)
Net cash provided by financing activities1,032,882
 44,756
Net cash provided by (used by) financing activities923,622
 (8,785)
Effect of exchange rates on cash and cash equivalents(2,739) 2,288
(3,046) 4,748
Changes in cash and cash equivalents-- 
  
 
  
Net increase (decrease) in cash and cash equivalents2,630
 (3,612)
Net (decrease) increase in cash and cash equivalents(13,066) 13,241
Cash and cash equivalents at beginning of year89,654
 68,485
89,654
 68,485
Cash and cash equivalents at end of period$92,284
 $64,873
$76,588
 $81,726
      
Non-cash investing and financing activities:      
Stock issuance related to the acquisition of CVP Systems$
 $12,330
$
 $12,330
 

See accompanying notes


THE MIDDLEBY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,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 June 30,September 29, 2018 and December 30, 2017, the results of operations for the three and sixnine months ended June 30,September 29, 2018 and July 1,September 30, 2017 and cash flows for the sixnine months ended June 30,September 29, 2018 and July 1,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 $1.73.5 million and less than $3.00.1 million for the three months period ended June 30,September 29, 2018 and July 1,September 30, 2017, respectively. Non-cash share-based compensation expense was $1.8$5.3 million and $6.5 million for the sixnine months period ended June 30,September 29, 2018 and July 1,September 30, 2017, respectively.
C)Income Taxes
A tax provision of $47.9$73.0 million, at an effective rate of 24.3%24.7%, was recorded during the sixnine months period ended June 30,September 29, 2018, as compared to a $61.3$99.4 million tax provision at a 29.2%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". InDuring 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 the company recorded a provisional transition tax charge and a change in deferred tax accounts associated with the Tax Cuts and Jobs Act of 2017. These provisional amounts will be finalized in 2018.returns.






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
Fair Value
Level 1
 
Fair Value
Level 2
 
Fair Value
Level 3
 Total
As of June 30, 2018       
As of September 29, 2018       
Financial Assets:              
Interest rate swaps$
 $20,875
 $
 $20,875
$
 $26,485
 $
 $26,485
              
Financial Liabilities:              
Contingent consideration$
 $
 $4,237
 $4,237
$
 $
 $4,070
 $4,070
              
As of December 30, 2017              
Financial Assets:              
Interest rate swaps$
 $10,266
 $
 $10,266
$
 $10,266
 $
 $10,266
              
Financial Liabilities:              
Contingent consideration$
 $
 $1,780
 $1,780
$
 $
 $1,780
 $1,780
The contingent consideration as of June 30,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 $17.435.9 million and $11.317.4 million for the sixnine months ended June 30,September 29, 2018 and July 1,September 30, 2017, respectively. Cash payments totaling $53.361.3 million and $75.196.7 million were made for income taxes for the sixnine months ended June 30,September 29, 2018 and July 1,September 30, 2017, respectively.


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 assets6,424
 104
 6,528
Property, plant and equipment656
 (13) 643
Goodwill7,289
 997
 8,286
Other intangibles4,900
 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.


    



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 $17.9$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 assets5,973
 (1,435) 4,538
Property, plant and equipment238
 (91) 147
Goodwill20,297
 (695) 19,602
Other intangibles8,700
 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.


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 assets22,686
 (997) 21,689
Property, plant and equipment9,128
 (431) 8,697
Goodwill33,785
 4,330
 38,115
Other intangibles34,175
 225
 34,400
Other assets1,170
 (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.










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 following estimated fair valuesfinal allocation of assets acquired and liabilities assumed are provisional and are based onconsideration paid for the information that was availableQualServ acquisition is summarized as of the acquisition date to estimate the fair value of assets acquired and liabilities assumedfollows (in thousands):
(as initially reported) August 31, 2017 Preliminary Measurement Period Adjustments (as adjusted) August 31, 2017(as initially reported) August 31, 2017 Measurement Period Adjustments (as adjusted) August 31, 2017
Cash$1,130
 $
 $1,130
$1,130
 $
 $1,130
Current assets18,031
 (64) 17,967
18,031
 (64) 17,967
Property, plant and equipment4,785
 
 4,785
4,785
 
 4,785
Goodwill14,590
 (59) 14,531
14,590
 (1,399) 13,191
Other intangibles9,600
 
 9,600
9,600
 1,340
 10,940
Current liabilities(6,810) (130) (6,940)(6,810) (130) (6,940)
          
Net assets acquired and liabilities assumed$41,326
 $(253) $41,073
$41,326
 $(253) $41,073
The goodwill and $6.2$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 $3.3$9.1 million allocated to customer relationships, and $0.1 million allocated to backlog, which areis to be amortized over periodsa period of 6 years and 3 months, respectively.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.
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.















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 following estimated fair valuesfinal allocation of assets acquired and liabilities assumed are provisional and are based onconsideration paid for the information that was availableGlobe acquisition is summarized as of the acquisition date to estimate the fair value of assets acquired and liabilities assumedfollows (in thousands):
(as initially reported) October 17, 2017 Preliminary Measurement Period Adjustments (as adjusted) October 17, 2017(as initially reported) October 17, 2017 Measurement Period Adjustments (as adjusted) October 17, 2017
Cash$3,420
 $
 $3,420
$3,420
 $
 $3,420
Current assets17,197
 
 17,197
17,197
 (40) 17,157
Property, plant and equipment1,120
 
 1,120
1,120
 
 1,120
Goodwill67,176
 (8,083) 59,093
67,176
 (7,182) 59,994
Other intangibles43,444
 14,086
 57,530
43,444
 14,086
 57,530
Current liabilities(5,994) (398) (6,392)(5,994) (398) (6,392)
Long term deferred tax liability(16,456) (4,971) (21,427)(16,456) (5,832) (22,288)
Other non-current liabilities(1,907) (193) (2,100)(1,907) (193) (2,100)
          
Net assets acquired and liabilities assumed$108,000
 $441
 $108,441
$108,000
 $441
 $108,441
The long term deferred tax liability amounted to $21.4$22.3 million. The net liability is comprised of $21.6$21.7 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.2$0.6 million of deferred tax assetliabilities 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.
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.









    



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 assets3,428
 (111) 3,317
Property, plant and equipment447
 (27) 420
Goodwill30,072
 470
 30,542
Other intangibles11,491
 
 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 consideration751
 
 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 the third quarter of 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.






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 $25.8$25.4 million, net of cash acquired. The purchase price is subject to adjustment based upon aDuring the third quarter of 2018, the company finalized the working capital provision provided by the purchase agreement. The company expects to finalize thisagreement resulting in a refund from the third quarterseller of 2018.$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(as initially reported) February 16, 2018 Preliminary Measurement Period Adjustments (as adjusted) February 16, 2018
Cash$5
 $
 $5
$5
 $
 $5
Current assets5,301
 
 5,301
5,301
 (3) 5,298
Property, plant and equipment3,557
 
 3,557
3,557
 
 3,557
Goodwill12,686
 
 12,686
12,686
 (397) 12,289
Other intangibles8,081
 
 8,081
8,081
 
 8,081
Current liabilities(3,800) 
 (3,800)(3,800) 
 (3,800)
          
Net assets acquired and liabilities assumed$25,830
 $
 $25,830
$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 $0.4$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.






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. The purchase price is subject to adjustment based upon aDuring the third quarter of 2018, the company finalized the working capital provision provided by the purchase agreement. The company expects to finalize thisagreement, resulting in the third quarter of 2018.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(as initially reported) April 3, 2018
Preliminary Measurement Period Adjustments
(as adjusted) April 3, 2018
Cash$1,833
$1,833
 $
 $1,833
Current assets10,722
10,722
 
 10,722
Property, plant and equipment389
389
 
 389
Goodwill7,278
7,278
 
 7,278
Other intangibles2,584
2,584
 
 2,584
Other assets12
12
 
 12
Current portion of long-term debt(1,901)(1,901) 
 (1,901)
Current liabilities(8,076)(8,076) 
 (8,076)
Long term deferred tax liability(340)(340) 
 (340)
Other non-current liabilities(212)(212) 
 (212)
      
Net assets acquired and liabilities assumed$12,289
$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.









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 $53.9$53.7 million, net of cash acquired. The purchase price is subject to adjustment based upon aDuring the third quarter of 2018, the company finalized the working capital provision provided for by the purchase agreement. The company expects to finalize thisagreement resulting in a refund from the third quarterseller of 2018.$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(as initially reported) April 27, 2018
Preliminary Measurement Period Adjustments
(as adjusted) April 27, 2018
Cash$10,652
$10,652
 $(37) $10,615
Current assets7,656
7,656
 81
 7,737
Property, plant and equipment2,447
2,447
 
 2,447
Goodwill36,706
36,706
 (295) 36,411
Other intangibles19,806
19,806
 
 19,806
Current portion of long-term debt(1,210)(1,210) 
 (1,210)
Current liabilities(4,099)(4,099) 
 (4,099)
Long term deferred tax liability(4,995)(4,995) 
 (4,995)
Long-term debt(1,069)(1,069) 
 (1,069)
Other non-current liabilities(1,318)(1,318) 
 (1,318)
      
Net assets acquired and liabilities assumed$64,576
$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.



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 thirdfourth 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(as initially reported) May 10, 2018
Preliminary Measurement Period Adjustments
(as adjusted) May 10, 2018
Cash$3,308
$3,308
 $
 $3,308
Current assets6,579
6,579
 14
 6,593
Property, plant and equipment4,739
4,739
 
 4,739
Goodwill27,140
27,140
 (74) 27,066
Other intangibles13,136
13,136
 
 13,136
Other assets2
2
 
 2
Current portion of long-term debt(217)(217) 
 (217)
Current liabilities(5,146)(5,146) 52
 (5,094)
Long-term debt(1,608)(1,608) 
 (1,608)
Long term deferred tax liability(2,934)(2,934) 8
 (2,926)
Other non-current liabilities(2,169)(2,169) 
 (2,169)
      
Consideration paid at closing$42,830
$42,830
 $
 $42,830
      
Contingent consideration$3,454
3,454
 
 3,454
      
Net assets acquired and liabilities assumed$46,284
$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.


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(as initially reported) June 22, 2018
Preliminary Measurement Period Adjustments
(as adjusted) June 22, 2018
Cash$2,551
$2,551
 $64
 $2,615
Current assets71,162
71,162
 (523) 70,639
Property, plant and equipment21,187
21,187
 (112) 21,075
Goodwill491,339
491,339
 6,017
 497,356
Other intangibles484,210
484,210
 
 484,210
Other assets
 361
 361
Current liabilities(48,417)(48,417) (2,313) (50,730)
Long-term deferred tax liability
 380
 380
Other non-current liabilities(8,161)(8,161) 
 (8,161)
      
Net assets acquired and liabilities assumed$1,013,871
$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.



Pro Forma Financial Information
 
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the sixnine months ended June 30,September 29, 2018 and July 1,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): 
Six Months EndedNine Months Ended
June 30, 2018 July 1, 2017September 29, 2018 September 30, 2017
Net sales$1,415,669
 $1,432,093
$2,130,166
 $2,151,230
Net earnings142,566
 129,622
219,914
 198,430
      
Net earnings per share: 
  
 
  
Basic$2.57
 $2.27
$3.96
 $3.48
Diluted2.57
 2.27
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.


4)Recently Issued Accounting Standards
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 ana 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 Balance Sheet, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows.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 Balance Sheet, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows.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.

















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 right-of-use asset representsFASB issued multiple amendments to the lessee’s rightstandard which provide clarification, additional guidance, practical expedients and other improvements to use, or control the use of, a specified asset for the specified lease term.ASU. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This updateASU is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018. The ASU requires a modified retrospectivecompany plans to utilize the new optional transition approach for all leases existing at, or entered into after,method to use the effective date as the date of initial adoption.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 Balance Sheet, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows.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 Balance Sheet, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows.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 Balance Sheet, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows.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 Balance Sheet,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 StatementsFinancial Statements.







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 Comprehensive Income ordisclosures. 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 StatementsFinancial 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 Cash Flows.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.



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.



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 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
$328,421
 $(122) $328,299
Inventories, net424,639
 14,993
 439,632
424,639
 14,993
 439,632
Prepaid expenses and other55,427
 (4,018) 51,409
55,427
 (4,018) 51,409
Long-term deferred tax assets44,565
 1,319
 45,884
44,565
 1,319
 45,884
          
Liabilities & Stockholders' Equity          
Accrued expenses322,171
 16,557
 338,728
$322,171
 $16,557
 $338,728
Retained earnings1,697,618
 $(4,405) 1,693,213
$1,697,618
 $(4,405) $1,693,213
          















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 June 30, 2018Three Months Ended September 29, 2018
As Reported Balances without ASC 606 Effect of ChangeAs Reported Balances without ASC 606 Effect of Change
Net sales$668,128
 $667,697
 $431
$713,331
 $710,755
 $2,576
Cost of sales417,369
 417,452
 (83)452,171
 450,440
 1,731
Provision for income taxes26,576
 26,482
 94
25,114
 24,857
 257
Net earnings$83,988
 $83,567
 $421
$72,905
 $72,317
 $588
          
Basic earnings per share$1.51
 $1.50
  $1.31
 $1.30
  
Diluted earnings per share$1.51
 $1.50
  $1.31
 $1.30
  

Six Months Ended June 30, 2018Nine Months Ended September 29, 2018
As Reported Balances without ASC 606 Effect of ChangeAs Reported Balances without ASC 606 Effect of Change
Net sales$1,252,928
 $1,238,355
 $14,573
$1,966,259
 $1,949,110
 $17,149
Cost of sales790,536
 780,138
 10,398
1,242,707
 1,230,578
 12,129
Provision for income taxes47,857
 46,792
 1,065
72,971
 71,649
 1,322
Net earnings$149,408
 $146,298
 $3,110
$222,313
 $218,615
 $3,698
          
Basic earnings per share$2.69
 $2.63
  $4.00
 $3.93
  
Diluted earnings per share$2.69
 $2.63
  $4.00
 $3.93
  

Balance as of June 30, 2018Balance as of September 29, 2018
As Reported Balances without ASC 606 Effect of ChangeAs Reported Balances without ASC 606 Effect of Change
Assets          
Inventories, net$493,667
 $487,910
 $5,757
$512,824
 $507,677
 $5,147
Prepaid expenses and other48,890
 51,927
 (3,037)50,142
 51,895
 (1,753)
          
Liabilities          
Accrued expenses361,501
 365,744
 (4,243)373,297
 377,718
 (4,421)
Long-term deferred tax liability102,636
 102,246
 390
110,984
 110,768
 216
          
Equity          
Retained earnings$1,841,489
 $1,840,356
 $1,133
$1,914,394
 $1,913,583
 $811











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
Commercial
 Foodservice
 Food Processing Residential Kitchen Total
Three Months Ended June 30, 2018 
  
    
Three Months Ended September 29, 2018 
  
    
United States and Canada$289,523
 $59,306
 $103,420
 $452,249
$318,962
 $57,235
 $98,136
 $474,333
Asia37,959
 11,723
 2,060
 51,742
50,996
 6,464
 1,653
 59,113
Europe and Middle East75,352
 16,803
 53,819
 145,974
83,763
 19,194
 51,936
 154,893
Latin America11,283
 5,817
 1,063
 18,163
17,877
 5,364
 1,751
 24,992
Total$414,117
 $93,649
 $160,362
 $668,128
$471,598
 $88,257
 $153,476
 $713,331
              
Six Months Ended June 30, 2018 
  
    
Nine Months Ended September 29, 2018 
  
    
United States and Canada$544,636
 $126,241
 $181,980
 $852,857
$863,598
 $183,476
 $280,116
 $1,327,190
Asia66,991
 17,435
 3,579
 88,005
117,987
 23,899
 5,232
 147,118
Europe and Middle East141,963
 25,535
 108,874
 276,372
225,726
 44,729
 160,810
 431,265
Latin America20,431
 13,010
 2,253
 35,694
38,308
 18,374
 4,004
 60,686
Total$774,021
 $182,221
 $296,686
 $1,252,928
$1,245,619
 $270,478
 $450,162
 $1,966,259
              
Three Months Ended July 1, 2017       
Three Months Ended September 30, 2017       
United States and Canada$239,159
 $67,931
 $92,355
 $399,445
$243,233
 $61,612
 $89,821
 $394,666
Asia33,593
 5,976
 1,999
 41,568
38,755
 4,543
 2,078
 45,376
Europe and Middle East50,802
 9,371
 56,813
 116,986
61,327
 12,606
 57,774
 131,707
Latin America10,199
 9,090
 2,055
 21,344
11,513
 8,110
 1,671
 21,294
Total$333,753
 $92,368
 $153,222
 $579,343
$354,828
 $86,871
 $151,344
 $593,043
              
Six Months Ended July 1, 2017       
Nine Months Ended September 30, 2017       
United States and Canada$463,781
 $127,676
 $173,193
 $764,650
$707,014
 $189,288
 $263,014
 $1,159,316
Asia65,843
 10,399
 4,537
 80,779
104,598
 14,942
 6,615
 126,155
Europe and Middle East97,295
 16,489
 113,160
 226,944
158,622
 29,095
 170,934
 358,651
Latin America19,083
 15,080
 3,104
 37,267
30,596
 23,190
 4,775
 58,561
Total$646,002
 $169,644
 $293,994
 $1,109,640
$1,000,830
 $256,515
 $445,338
 $1,702,683














Contract Balances

Contract assets primarily relate to the Company'scompany'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):
Jun 30, 2018 At AdoptionSep 29, 2018 At Adoption
Contract assets$7,846
 $16,753
$8,945
 $16,753
Contract liabilities69,746
 47,647
$69,936
 $47,647
Non-current contract liabilities$10,468
 $1,859

During the sixnine months period ended June 30,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 sixnine months period ended June 30,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 $60.8$63.7 million during the sixnine months period ended June 30,September 29, 2018. The increase in the non-current contract liabilities primarily relates to companies acquired during the nine months period ended September 29, 2018. Substantially all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were no contract asset impairments during sixnine months period ended June 30,September 29, 2018.
6)    Other Comprehensive Income
The company reports changes in equity during a period, except those resulting from investments by owners and distributions to owners, in accordance with ASC 220, "Comprehensive Income".
Changes in accumulated other comprehensive income(1) were as follows (in thousands):
Currency Translation Adjustment Pension Benefit Costs Unrealized Gain/(Loss) Interest Rate Swap TotalCurrency Translation Adjustment Pension Benefit Costs Unrealized Gain/(Loss) Interest Rate Swap Total
Balance as of December 30, 2017$(69,721) $(203,063) $6,365
 $(266,419)$(69,721) $(203,063) $6,365
 $(266,419)
Adoption of ASU 2018-02 (2)

 487
 (1,619) (1,132)
 (487) 1,619
 1,132
Other comprehensive income before reclassification(20,161) 4,393
 10,971
 (4,797)(29,879) 7,041
 11,918
 (10,920)
Amounts reclassified from accumulated other comprehensive income
 
 248
 248

 
 229
 229
Net current-period other comprehensive income$(20,161) $4,880
 $9,600
 $(5,681)$(29,879) $6,554
 $13,766
 $(9,559)
Balance as of June 30, 2018$(89,882) $(198,183) $15,965
 $(272,100)
Balance as of September 29, 2018$(99,600) $(196,509) $20,131
 $(275,978)
(1) As of June 30,September 29, 2018 pension and interest rate swap amounts are net of tax of $(42.0)$(41.7) million and $5.4$6.8 million, respectively. During the sixnine months ended June 30,September 29, 2018, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $1.6$1.9 million and $1.1$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.


Components of other comprehensive income were as follows (in thousands):
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
Jun 30, 2018 Jul 1, 2017 Jun 30, 2018 Jul 1, 2017Sep 29, 2018 Sep 30, 2017 Sep 29, 2018 Sep 30, 2017
Net earnings$83,988
 $77,569
 $149,408
 $148,271
$72,905
 $74,671
 $222,313
 $222,942
Currency translation adjustment(41,963) 18,621
 (20,161) 29,456
(9,718) 15,441
 (29,879) 44,897
Pension liability adjustment, net of tax13,754
 (6,647) 4,880
 (9,174)1,674
 (5,664) 6,554
 (14,838)
Unrealized gain on interest rate swaps, net of tax3,045
 (1,001) 9,600
 (501)4,166
 (128) 13,766
 (629)
Comprehensive income$58,824
 $88,542
 $143,727
 $168,052
$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 June 30,September 29, 2018 and December 30, 2017 are as follows (in thousands): 
Jun 30, 2018 Dec 30, 2017Sep 29, 2018 Dec 30, 2017
Raw materials and parts$215,056
 $180,559
$233,061
 $180,559
Work-in-process57,092
 38,917
56,838
 38,917
Finished goods221,519
 205,163
222,925
 205,163
$493,667
 $424,639
$512,824
 $424,639
8)Goodwill
Changes in the carrying amount of goodwill for the sixnine months ended June 30,September 29, 2018 are as follows (in thousands):
Commercial
Foodservice
 
Food
Processing
 Residential Kitchen Total
Commercial
Foodservice
 
Food
Processing
 Residential Kitchen Total
Balance as of December 30, 2017$631,451
 $198,278
 $435,081
 $1,264,810
$631,451
 $198,278
 $435,081
 $1,264,810
Goodwill acquired during the year558,013
 19,964
 
 577,977
563,661
 19,567
 
 583,228
Measurement period adjustments to goodwill acquired in prior year(970) (468) 
 (1,438)(1,559) (468) 
 (2,027)
Exchange effect(8,797) (2,630) (5,167) (16,594)(11,941) (3,338) (7,474) (22,753)
Balance as of June 30, 2018$1,179,697
 $215,144
 $429,914
 $1,824,755
Balance as of September 29, 2018$1,181,612
 $214,039
 $427,607
 $1,823,258




9)Intangibles

Intangible assets consist of the following (in thousands):
 
June 30, 2018 December 30, 2017September 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

Estimated
Weighted Avg
Remaining
Life
 Gross
Carrying
Amount
 Accumulated
Amortization

 Estimated
Weighted Avg
Remaining
Life
 Gross
Carrying
Amount
 Accumulated
Amortization

Amortized intangible assets:                      
Customer lists8.2 $596,526
 $(190,030) 5.2 $330,496
 $(171,005)8.0 $602,376
 $(206,950) 5.2 $330,496
 $(171,005)
Backlog0.1 20,010
 (19,739) 0.8 19,689
 (18,081)0.0 19,910
 (19,910) 0.8 19,689
 (18,081)
Developed technology6.3 40,559
 (19,250) 4.2 22,485
 (18,248)6.1 40,559
 (20,246) 4.2 22,485
 (18,248)
  $657,095
 $(229,019)   $372,670
 $(207,334)  $662,845
 $(247,106)   $372,670
 $(207,334)
Indefinite-lived assets:   
  
    
  
   
  
    
  
Trademarks and tradenames  $864,695
  
   $615,090
  
  $859,403
  
   $615,090
  


The aggregate intangible amortization expense was $9.8$17.6 million and $10.5$9.1 million for the secondthird quarter periods ended June 30,September 29, 2018 and July 1,September 30, 2017, respectively. The aggregate intangible amortization expense was $21.3$38.8 million and $17.3$26.5 million for the sixnine months ended June 30,September 29, 2018 and July 1,September 30, 2017, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
 
Twelve Month Period Ending in Amortization Expense Amortization Expense
    
2019 $63,180
 $61,942
2020 58,686
 59,711
2021 56,172
 56,231
2022 53,462
 53,622
2023 46,392
 44,918
Thereafter 150,184
 139,315
 $428,076
 $415,739



10) Accrued Expenses
Accrued expenses consist of the following (in thousands):
Jun 30, 2018 Dec 30, 2017Sep 29, 2018 Dec 30, 2017
Accrued payroll and related expenses$70,998
 $67,935
Contract liabilities$69,746
 $31,069
69,936
 31,069
Accrued payroll and related expenses68,064
 67,935
Accrued warranty59,667
 52,834
59,644
 52,834
Accrued customer rebates32,184
 48,590
39,465
 48,590
Accrued professional fees18,004
 18,250
18,723
 18,250
Accrued product liability and workers compensation16,439
 11,976
Accrued sales and other tax15,831
 20,881
15,509
 20,881
Accrued agent commission12,221
 11,035
12,809
 11,035
Accrued product liability and workers compensation11,859
 11,976
Product recall5,459
 6,068
5,140
 6,068
Restructuring1,597
 1,715
2,679
 1,715
Other accrued expenses66,869
 51,818
61,955
 51,818
      
$361,501
 $322,171
$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):
Six Months EndedNine Months Ended
Jun 30, 2018Sep 29, 2018
Balance as of December 30, 2017$52,834
$52,834
Warranty reserve related to acquisitions5,485
5,730
Warranty expense31,167
45,208
Warranty claims(29,819)(44,128)
Balance as of June 30, 2018$59,667
Balance as of September 29, 2018$59,644




12)Financing Arrangements
Jun 30, 2018 Dec 30, 2017Sep 29, 2018 Dec 30, 2017
(in thousands)(in thousands)
Credit Facility$2,058,287
 $1,022,935
$1,954,013
 $1,022,935
Other international credit facilities8,163
 5,768
4,180
 5,768
Other debt arrangement175
 178
175
 178
Total debt$2,066,625
 $1,028,881
$1,958,368
 $1,028,881
Less: Current maturities of long-term debt6,297
 5,149
3,125
 5,149
Long-term debt$2,060,328
 $1,023,732
$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 June 30,September 29, 2018, the company had $2.12.0 billion of borrowings outstanding under the Credit Facility, including $2.0$1.9 billion of borrowings in U.S. Dollars, $87.6$80.0 million of borrowings denominated in Euro and $19.7$6.5 million of borrowings denominated in British Pounds. The company also had $9.712.3 million in outstanding letters of credit as of June 30,September 29, 2018, which reduces the borrowing availability under the Credit Facility. Remaining borrowing availability under this facility was $0.40.5 billion at June 30,September 29, 2018.
At June 30,September 29, 2018, borrowings under the Credit Facility accrued interest at a rate of 1.25%1.625% above LIBOR per annum or 0.25%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 3.35%3.81% forat 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 0.20%0.25% per annum as of June 30,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 June 30,September 29, 2018, these foreign credit facilities amounted to $8.2$4.2 million in U.S. Dollars with a weighted average per annum interest rate of approximately 4.08%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):
 Jun 30, 2018 Dec 30, 2017
 Carrying Value Fair Value Carrying Value Fair Value
Total debt$2,066,625
 $2,066,625
 $1,028,881
 $1,028,881
 Sep 29, 2018 Dec 30, 2017
 Carrying Value Fair Value Carrying Value Fair Value
Total debt$1,958,368
 $1,958,368
 $1,028,881
 $1,028,881
The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit Facility. At June 30,September 29, 2018, the company had outstanding floating-to-fixed interest rate swaps totaling $499.0$999.0 million notional amount carrying an average interest rate of 1.66%2.17% that mature in more than 12 months but less than 84 months.



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 terms of the 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 requires, among other things, the company to satisfy certain financial covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Facility) of 3.00 to 1.00 and (ii) a maximum Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBIDTA (each as defined in the Credit Facility) of 3.50 to 1.00, which may be adjusted to 4.00 to 1.00 for a four consecutive fiscal quarter period in connection with certain qualified acquisitions, subject to the terms and conditions contained in the Credit Facility. The 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 foreign and domestic subsidiaries. The 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. At June 30,September 29, 2018, the company was in compliance with all covenants pursuant to its borrowing agreements.
13)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, foreign exchange swaps and option purchase and sales contracts 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 fair value of the forward and option contracts was a lossgain of $1.20.4 million at the end of the secondthird quarter of 2018.
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 June 30,September 29, 2018, the fair value of these instruments was an asset of $20.926.5 million. The change in fair value of these swap agreements in the first sixnine months of 2018 was a gain of $9.413.6 million, net of taxes.
The following table summarizes the company’s fair value of interest rate swaps (in thousands):
 
Condensed Consolidated
Balance Sheet Presentation
 Jun 30, 2018
 Dec 30, 2017
Fair valueOther assets $20,875
 $10,266
 
Condensed Consolidated
Balance Sheet Presentation
 Sep 29, 2018
 Dec 30, 2017
Fair valueOther assets $26,485
 $10,266








The impact on earnings from interest rate swaps was as follows (in thousands):
  Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended
Presentation of Gain/(loss) Jun 30, 2018 Jul 1, 2017
 Jun 30, 2018 Jul 1, 2017Presentation of Gain/(loss) Sep 29, 2018 Sep 30, 2017
 Sep 29, 2018 Sep 30, 2017
Gain/(loss) recognized in accumulated other comprehensive incomeOther comprehensive income $4,338
 $(1,955) $10,958
 $(1,643)Other comprehensive income $5,389
 $(294) $16,347
 $(1,937)
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)Interest expense $248
 $(284) $236
 $(806)Interest expense $(7) $(81) $229
 $(887)
Gain/(loss) recognized in income (ineffective portion)Other expense $(161) $(8) $(113) $(15)Other expense $214
 $28
 $101
 $13
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 that are counterparties to such swap agreements and assesses their creditworthiness prior to entering into the interest rate swap agreements and throughout the term. 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.


14)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 foodservice equipment for the restaurant and institutional kitchen industry. This business segment has manufacturing facilities in Arkansas, California, Illinois, Michigan, New Hampshire, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Vermont, Washington, Australia, China, Denmark, Estonia, Italy, the Philippines, Poland, Sweden and the United Kingdom. Principal product lines of this group include conveyor ovens, combi-ovens, convection ovens, baking ovens, proofing ovens, deck ovens, speed cooking ovens, hydrovection ovens, ranges, fryers, rethermalizers, steam cooking equipment, food warming equipment, catering equipment, heated cabinets, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment, toasters, griddles, professional mixers, stainless steel fabrication, custom millwork, professional refrigerators, blast chillers, coldrooms, ice machines, freezers and coffee and beverage dispensing equipment. These products are sold and marketed under the brand names: Anets, Bear Varimixer, Beech, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield, Britannia, CTX, Carter-Hoffmann, Celfrost, Concordia, CookTek, Desmon, Doyon, Eswood, Firex, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, Induc, Jade, Joe Tap, Josper, L2F, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, QualServ, Southbend, Star, Sveba Dahlen, Taylor, Toastmaster, TurboChef, 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, Oklahoma, Texas, Virginia, Washington, Wisconsin, Denmark, France, Germany, India and the United Kingdom. Principal product lines of this group include batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing ovens, frying systems and automated thermal processing systems, grinders, slicers, reduction and emulsion systems, mixers, blenders, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions, forming equipment, automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment. These products are sold and marketed under the brand names: Alkar, Armor Inox, Auto-Bake, Baker Thermal Solutions, Burford, Cozzini, CVP Systems, Danfotech, Drake, Emico, Glimek, Hinds-Bock, Maurer-Atmos, MP Equipment, RapidPak, Scanico, Spooner Vicars, Stewart Systems and Thurne, Ve.Ma.C.
The Residential Kitchen Equipment Group manufactures, sells and distributes kitchen equipment for the residential market. This business segment has manufacturing facilities in California, Michigan, Mississippi, Wisconsin, France, Ireland, Romania and the United Kingdom. Principal product lines of this group are ranges, cookers, stoves, ovens, refrigerators, dishwashers, microwaves, cooktops, refrigerators, wine coolers, ice machines, ventilation equipment and outdoor equipment. These products are sold and marketed under the brand names: AGA, AGA Cookshop, Brigade, Fired Earth, Grange, Heartland, La Cornue, Leisure Sinks, Lynx, Marvel, Mercury, Rangemaster, Rayburn, Redfyre, Sedona, 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 Six Months EndedThree Months Ended Nine Months Ended
Jun 30, 2018 Jul 1, 2017 Jun 30, 2018 Jul 1, 2017Sep 29, 2018 Sep 30, 2017 Sep 29, 2018 Sep 30, 2017
Sales Percent Sales Percent Sales Percent Sales PercentSales Percent Sales Percent Sales Percent Sales Percent
Business Segments: 
  
  
  
         
  
  
  
        
Commercial Foodservice$414,117
 62.0% $333,753
 57.6% $774,021
 61.8% $646,002
 58.2%$471,598
 66.1% $354,828
 59.8% $1,245,619
 63.3% $1,000,830
 58.8%
Food Processing93,649
 14.0
 92,368
 15.9
 182,221
 14.5
 169,644
 15.3
88,257
 12.4
 86,871
 14.7
 270,478
 13.8
 256,515
 15.1
Residential Kitchen160,362
 24.0
 153,222
 26.5
 296,686
 23.7
 293,994
 26.5
153,476
 21.5
 151,344
 25.5
 450,162
 22.9
 445,338
 26.1
Total$668,128
 100.0% $579,343
 100.0% $1,252,928
 100.0% $1,109,640
 100.0%$713,331
 100.0% $593,043
 100.0% $1,966,259
 100.0% $1,702,683
 100.0%


The following table summarizes the results of operations for the company's business segments(1) (in thousands):
Commercial
 Foodservice
 Food Processing Residential Kitchen 
Corporate
and Other(2)
 Total
Commercial
 Foodservice
 Food Processing Residential Kitchen 
Corporate
and Other(2)
 Total
Three Months Ended June 30, 2018 
  
    
  
Three Months Ended September 29, 2018 
  
    
  
Net sales$414,117
 $93,649
 $160,362
 $
 $668,128
$471,598
 $88,257
 $153,476
 $
 $713,331
Income (loss) from operations (3,4)
100,008
 14,648
 16,520
 (19,866) 111,310
102,091
 13,831
 9,489
 (17,734) 107,677
Depreciation and amortization expense7,349
 3,129
 7,652
 468
 18,598
17,558
 2,209
 7,606
 460
 27,833
Net capital expenditures2,929
 460
 2,744
 1,418
 7,551
7,665
 318
 1,779
 (1,418) 8,344
                  
Six Months Ended June 30, 2018         
Nine Months Ended September 29, 2018         
Net sales$774,021
 $182,221
 $296,686
 $
 $1,252,928
$1,245,619
 $270,478
 $450,162
 $
 $1,966,259
Income (loss) from operations (3,4)
182,554
 25,326
 23,109
 (32,687) 198,302
284,645
 39,157
 32,598
 (50,421) 305,979
Depreciation and amortization expense15,349
 7,176
 15,161
 936
 38,622
32,907
 9,385
 22,767
 1,396
 66,455
Net capital expenditures8,706
 6,956
 7,642
 904
 24,208
16,371
 7,274
 9,421
 (514) 32,552
                  
Total assets$2,889,677
 $497,439
 $1,133,356
 $81,731
 $4,602,203
$2,907,387
 $492,151
 $1,111,546
 $67,525
 $4,578,609
                  
Three Months Ended July 1, 2017 
  
    
  
Three Months Ended September 30, 2017 
  
    
  
Net sales$333,753
 $92,368
 $153,222
 $
 $579,343
$354,828
 $86,871
 $151,344
 $
 $593,043
Income (loss) from operations (3,4,5)
95,007
 24,199
 13,394
 (19,076) 113,524
89,028
 19,975
 16,274
 (15,833) 109,444
Depreciation and amortization expense8,496
 1,657
 7,627
 478
 18,258
6,977
 2,101
 7,422
 461
 16,961
Net capital expenditures20,764
 1,308
 1,661
 (301) 23,432
7,978
 484
 2,813
 869
 12,144
                  
Six Months Ended July 1, 2017         
Nine Months Ended September 30, 2017         
Net sales$646,002
 $169,644
 $293,994
 $
 $1,109,640
$1,000,830
 $256,515
 $445,338
 $
 $1,702,683
Income (loss) from operations (3,4,5)
175,548
 42,188
 23,968
 (35,439) 206,265
264,576
 62,163
 40,242
 (51,272) 315,709
Depreciation and amortization expense13,478
 3,044
 14,834
 959
 32,315
20,455
 5,145
 22,256
 1,420
 49,276
Net capital expenditures26,749
 1,946
 2,943
 70
 31,708
34,727
 2,430
 5,756
 (479) 42,434
                  
Total assets$1,495,316
 $393,674
 $1,205,676
 $45,869
 $3,140,535
$1,559,757
 $393,272
 $1,211,388
 $36,726
 $3,201,143
                  

(1)Non-operating expenses are not allocated to the operating segments. Non-operating expenses consist of interest expense and deferred financing amortization, foreign exchange gains and losses and other income and expense items outside of income from operations.
(2)Includes corporate and other general company assets and operations.
(3)Restructuring expenses are allocated in operating income by segment. See note 16 for further details.
(4)Includes reclassifications due to adoption of ASU No. 2017-07. See note 15 for further details.
(5)Gain on sale of plant allocated to Commercial Foodservice.







Geographic Information
Long-lived assets, not including goodwill and other intangibles (in thousands):
Jun 30, 2018 Jul 1, 2017Sep 29, 2018 Sep 30, 2017
United States and Canada$262,382
 $202,789
$268,952
 $212,033
Asia12,575
 15,370
12,291
 15,705
Europe and Middle East128,584
 127,053
119,732
 125,892
Latin America679
 1,034
654
 982
Total international$141,838
 $143,457
$132,677
 $142,579
$404,220
 $346,246
$401,629
 $354,612

15)Employee Retirement Plans
(a)Pension Plans
(a)Pension Plans

U.S. Plans:

The company maintains a non-contributory defined benefit plan for its union employees at the Elgin, Illinois facility. Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on April 30, 2002, and no further benefits accrue to the participants beyond this date. Plan participants will receive or continue to receive payments for benefits earned on or prior to April 30, 2002 upon reaching retirement age.
 
The company maintains a non-contributory defined benefit plan for its employees at the Smithville, Tennessee facility, which was acquired as part of the Star acquisition. Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on April 1, 2008, and no further benefits accrue to the participants beyond this date. Plan participants will receive or continue to receive payments for benefits earned on or prior to April 1, 2008 upon reaching retirement age.
 
The company also maintains a retirement benefit agreement with its Chairman ("Chairman Plan"). The retirement benefits are based upon a percentage of the Chairman’s final base salary.

Non-U.S. Plans:

The company maintains a defined benefit plan for its employees at the Wrexham, the United Kingdom facility, which was acquired as part of the Lincat acquisition. Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on April 30, 2010 prior to Middleby’s acquisition of the company. No further benefits accrue to the participants beyond this date. Plan participants will receive or continue to receive payments for benefits earned on or prior to April 30, 2010 upon reaching retirement age.

The company maintains several pension plans related to AGA and its subsidiaries (collectively, the "AGA Group"), the most significant being the Aga Rangemaster Group Pension Scheme, which covers the majority of employees in the United Kingdom.  Membership in the plan on a defined benefit basis of pension provision was closed to new entrants in 2001.  The plan became open to new entrants on a defined contribution basis of pension provision in 2002, but was generally closed to new entrants on this basis during 2014. 

The other, much smaller, defined benefit pension plans operating within the AGA Group cover employees in France, Ireland and the United Kingdom.  All pension plan assets are held in separate trust funds although the net defined benefit pension obligations are included in the company's consolidated balance sheet.







The following table summarizes the company's net periodic pension benefit related to the AGA Group pension plans (in thousands):
 Three Months Ended Six Months Ended Three Months Ended Nine Months Ended
 June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017 September 29, 2018 September 30, 2017 September 29, 2018 September 30, 2017
Net Periodic Pension Benefit:  
  
      
  
    
Service cost $957
 $996
 $1,934
 $1,960
 $915
 $1,019
 $2,849
 $2,979
Interest cost 8,113
 8,017
 16,391
 15,781
 7,756
 8,205
 24,147
 23,986
Expected return on assets (18,895) (17,323) (38,173) (34,097) (18,062) (17,728) (56,235) (51,825)
Amortization of net (gain) loss 1,012
 743
 2,044
 1,463
 967
 761
 3,011
 2,224
Curtailment loss (gain) 677
 
 964
 
 136
 
 1,100
 
Pension settlement gain (23) (49) (47) (97) (22) (51) (69) (148)
 $(8,159) $(7,616) $(16,887) $(14,990) $(8,310) $(7,794) $(25,197) $(22,784)

The pension costs for all other plans of the company were not material during the period.
    
On December 31, 2017, the company adopted ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The service cost component is recognized within Selling, general and administrative expenses and the non-operating components of pension benefit are included within Net periodic pension benefit (other than service cost) in the Condensed Consolidated Statements of Comprehensive Income. The adoption of this standard resulted in a reclassification for the three months period ended July 1,September 30, 2017 and sixnine months period ended July 1,September 30, 2017, in which previously reported selling, general and administrative expenses was increased by $8.6$8.8 million and $17.0$25.8 million, respectively. Net incomeearnings and net earnings per share did not change as a result of the adoption of this standard.

(b)Defined Contribution Plans
(b)Defined Contribution Plans

The company maintains two separate defined contribution savings plans covering all employees in the United States. These two plans separately cover the union employees at the Elgin, Illinois facility and all other remaining union and non-union employees in the United States. The company also maintains defined contribution plans for its United Kingdom based employees.

16)Restructuring

Commercial Foodservice Equipment Group:

During the fiscal years 2018 and 2017, the company undertook cost reduction initiatives related to the Commercial Foodservice Equipment Group. These actions, which are not material to the company's operations, resulted in a charge of $1.0$1.2 million and $2.0$3.3 million in the three and sixnine months ended June 30,September 29, 2018 primarily for severance related to headcount reductions and consolidation of manufacturing operations. These expenses are reflected in restructuring expenses in the Condensed Consolidated Statements of Comprehensive Income. The company estimates that these restructuring initiatives will result in future cost savings of approximately $10.0 million annually. The realization of the savings began in 2017 and will continue into fiscal year 2018 and the restructuring costs in the future are not expected to be significant related to these actions.

Food Processing Equipment Group:

During the fiscal years 2018 and 2017, the company undertook cost reduction initiatives related to the entire Food Processing Equipment Group. These actions, which are not material to the company's operations, resulted in a charge of $0.2 million and $0.40.6 million in the three and sixnine months ended June 30,September 29, 2018 primarily for severance related to headcount reductions and is reflected in restructuring expenses in the consolidated statements of comprehensive income. The company estimates that these restructuring initiatives will result in future cost savings of approximately $4.0 million annually. The realization of the savings began in 2018 and will continue through the year and the restructuring costs in the future are not expected to be significant related to these actions.

    



Residential Kitchen Equipment Group:

During fiscal years 2018, 2017, 2016 and 2015, the company undertook acquisition integration initiatives related to the AGA Group within the Residential Kitchen Equipment Group. These initiatives included organizational restructuring, headcount reductions and consolidation and disposition of certain facilities and business operations, including the impairment of equipment.equipment and facilities. The company recorded additional expense of $3.0$10.7 million and $3.7$14.4 million in the three and sixnine months ended June 30,September 29, 2018, related to the AGA Group. The expense primarilycumulative expenses incurred to date for these initiatives is approximately $55.0 million.

During the third quarter, the company undertook additional restructuring efforts for Grange, a non-core business within the Residential Kitchen Group and elected to cease operations. This process is expected to be largely completed in the fourth quarter of 2018, and the company does not expect to incur significant additional charges related to additional headcount reductions in conjunctionthis restructuring. In connection with dispositionthis exit activity, the company has recorded charges of certain facilities$8.7 million.  Of this amount, $2.0 million primarily relates to charges for fixed assets and business operations. This expense is$3.2 million for working capital accounts, and $3.5 million for severance obligations and other closure costs.

These expenses are reflected in restructuring expenses in the Condensed Consolidated Statements of Comprehensive Income. The cumulative expenses incurred to date for these initiatives is approximately $44.3 million. The company estimated that the main restructuring initiatives in 2017 would result in future cost savings of approximately $20.0 million annually. The realization of the savings began in 2017 and will continue into fiscal year 2018, primarily related to the compensation and facility costs. The company anticipates that all severance obligations for the Residential Kitchen Equipment Group will be paid by the end of fiscal year 2018. The lease obligations extend through DecemberAugust 2019.

The costs and corresponding reserve balances for the Residential Kitchen Equipment Group are summarized as follows (in thousands):
 Severance/Benefits Facilities/Operations Other Total Severance/Benefits Facilities/Operations Other Total
Balance as of December 30, 2017 $3,698
 $1,467
 $157
 $5,322
 $3,698
 $1,467
 $157
 $5,322
Expenses (income) 3,721
 (47) 35
 3,709
Expenses 6,448
 3,202
 4,714
 14,364
Exchange (30) (11) 27
 (14) (60) (17) 20
 (57)
Payments/Utilization (4,256) (337) (32) (4,625) (6,879) (3,170) (3,727) (13,776)
Balance as of June 30, 2018 $3,133
 $1,072
 $187
 $4,392
Balance as of September 29, 2018 $3,207
 $1,482
 $1,164
 $5,853

17) Subsequent Event

On October 1, 2018, the company completed its acquisition of substantially all of the assets of M-TEK Corporation ("M-TEK") for a purchase price of approximately $20.0 million. M-TEK is a leading manufacturer of Modified Atmosphere Packing (MAP) systems for the food processing industry. M-TEK is located in Elgin, Illinois and has annual revenues of approximately $10.0 million.



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

Informational Notes
 
This report contains forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The company cautions readers that these projections are based upon future results or events and are highly dependent upon a variety of important factors which could cause such results or events to differ materially from any forward-looking statements which may be deemed to have been made in this report, or which are otherwise made by or on behalf of the company. Such factors include, but are not limited to, volatility in earnings resulting from goodwill impairment losses which may occur irregularly and in varying amounts; variability in financing costs; quarterly variations in operating results; dependence on key customers; international exposure; foreign exchange and political risks affecting international sales; ability to protect trademarks, copyrights and other intellectual property; changing market conditions; the impact of competitive products and pricing; the timely development and market acceptance of the company’s products; the availability and cost of raw materials; and other risks detailed herein and from time-to-time in the company’s SEC filings, including the company’s 2017 Annual Report on Form 10-K.
 
Net Sales Summary
(dollars in thousands)
 
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
Jun 30, 2018 Jul 1, 2017 Jun 30, 2018 Jul 1, 2017Sep 29, 2018 Sep 30, 2017 Sep 29, 2018 Sep 30, 2017
Sales Percent Sales Percent Sales Percent Sales PercentSales Percent Sales Percent Sales Percent Sales Percent
Business Segments: 
  
  
  
         
  
  
  
        
Commercial Foodservice$414,117
 62.0% $333,753
 57.6% $774,021
 61.8% $646,002
 58.2%$471,598
 66.1% $354,828
 59.8% $1,245,619
 63.3% $1,000,830
 58.8%
Food Processing93,649
 14.0
 92,368
 15.9
 182,221
 14.5
 169,644
 15.3
88,257
 12.4
 86,871
 14.7
 270,478
 13.8
 256,515
 15.1
Residential Kitchen160,362
 24.0
 153,222
 26.5
 296,686
 23.7
 293,994
 26.5
153,476
 21.5
 151,344
 25.5
 450,162
 22.9
 445,338
 26.1
Total$668,128
 100.0% $579,343
 100.0% $1,252,928
 100.0% $1,109,640
 100.0%$713,331
 100.0% $593,043
 100.0% $1,966,259
 100.0% $1,702,683
 100.0%
 

Results of Operations
 
The following table sets forth certain consolidated statements of earnings items as a percentage of net sales for the periods:
 
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
Jun 30, 2018 Jul 1, 2017 Jun 30, 2018 Jul 1, 2017Sep 29, 2018 Sep 30, 2017 Sep 29, 2018 Sep 30, 2017
Net sales100.0% 100.0% 100.0% 100.0%100.0% 100.0% 100.0% 100.0%
Cost of sales62.5
 59.5
 63.1
 60.0
63.4
 61.5
 63.2
 60.5
Gross profit37.5
 40.5
 36.9
 40.0
36.6
 38.5
 36.8
 39.5
Selling, general and administrative expenses20.2
 21.0
 20.6
 21.3
19.8
 19.4
 20.3
 20.6
Restructuring0.7
 2.0
 0.5
 1.2
1.7
 0.7
 0.9
 1.0
Gain on sale of plant
 (2.1) 
 (1.1)
 
 
 (0.7)
Income from operations16.6
 19.6
 15.8
 18.6
15.1
 18.4
 15.6
 18.6
Interest expense and deferred financing amortization, net1.6
 1.0
 1.5
 1.0
2.7
 1.1
 2.0
 1.1
Net periodic pension benefit (other than service costs)(1.4) (1.5) (1.5) (1.5)(1.3) (1.5) (1.4) (1.5)
Other expense, net(0.1) 0.1
 0.1
 0.2

 (0.2) 
 0.1
Earnings before income taxes16.5
 20.0
 15.7
 18.9
13.7
 19.0
 15.0
 18.9
Provision for income taxes4.0
 6.7
 3.8
 5.5
3.5
 6.4
 3.7
 5.8
Net earnings12.5% 13.3% 11.9%
13.4%10.2% 12.6% 11.3%
13.1%






Three Months Ended June 30,September 29, 2018 as compared to Three Months Ended July 1,September 30, 2017
 
NET SALES. Net sales for the three months period ended June 30,September 29, 2018 increased by $88.8$120.3 million or 15.3%20.3% to $668.1$713.3 million as compared to $579.3$593.0 million in the three months period ended July 1,September 30, 2017. Net sales increased by $84.1$118.0 million, or 14.5%19.9%, from acquisition growth, attributable to the fiscal 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico and the fiscal 2018 acquisitions of Hinds-Bock, Ve.Ma.C, Firex, Josper and Taylor. Excluding acquisitions, net sales increased $4.7$2.3 million, or 0.8%0.4%, from the prior year. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the three months period ended June 30,September 29, 2018 increaseddecreased net sales by approximately $6.7$5.2 million or 1.2%0.9%. The adoption of ASC 606 increased net sales by approximately $0.4$2.6 million. Excluding the impact of foreign exchange, acquisitions and the adoption of ASC 606, sales decreased 0.4%increased 0.8% for the year, including a net sales increase of 4.3%4.1% at the Commercial Foodservice Equipment Group, a net sales decrease of 21.9%14.3% at the Food Processing Equipment Group and a net sales increase of 2.1%1.8% at the Residential Kitchen Equipment Group.
 
Net sales of the Commercial Foodservice Equipment Group increased by $80.3$116.8 million, or 24.1%32.9%, to $414.1$471.6 million in the three months period ended June 30,September 29, 2018, as compared to $333.8$354.8 million in the prior year period. Net sales from the acquisitions of Sveba Dahlen, QualServ, L2F, Globe, Firex, Josper, and Taylor which were acquired on June 30, 2017, August 31, 2017, October 6, 2017, October 17, 2017, April 27, 2018, May 10, 2018, and June 22, 2018, respectively, accounted for an increase of $63.7$106.3 million during the three months period ended June 30,September 29, 2018. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $16.6$10.5 million, or 5.0%3.0%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales increased $14.5$14.7 million or 4.3%4.1% at the Commercial Foodservice Equipment Group. Sales increased primarily related to several rollouts with our major chain and retail customers. Domestically, the company realized a sales increase of $50.3$75.8 million, or 21.0%31.2%, to $289.5$319.0 million, as compared to $239.2$243.2 million in the prior year period. This includes an increase of $36.7$58.6 million from recent acquisitions. Excluding the acquisitions, the net increase in domestic sales was $13.6$17.2 million, or 5.7%7.1%. International sales increased $30.0$41.0 million, or 31.7%36.7%, to $124.6$152.6 million, as compared to $94.6$111.6 million in the prior year period. This includes an increase of $27.0$47.7 million from the recent acquisitions and increasedecrease of $2.1$4.2 million related to the favorableunfavorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales increasedecrease in international sales was $0.9$2.5 million, or 1.0%2.2%.

Net sales of the Food Processing Equipment Group increased by $1.2$1.4 million, or 1.3%1.6%, to $93.6$88.3 million in the three months period ended June 30,September 29, 2018, as compared to $92.4$86.9 million in the prior year period.  Net sales from the acquisitions of Burford, CVP Systems, Scanico, Hinds-Bock and Ve.Ma.C, which were acquired on May 1, 2017, June 30, 2017, December 7, 2017, February 16, 2018 and April 3, 2018, respectively, accounted for an increase of $20.4$11.7 million during the three months period ended June 30,September 29, 2018.  Excluding the impact of acquisitions, net sales of the Food Processing Equipment Group decreased $19.2$10.3 million, or 20.8%11.9%. The adoption of ASC 606 increased net sales by approximately $2.6 million. Excluding the impact of foreign exchange, acquisitions and the adoption of ASC 606, net sales decreased 21.9%14.3% at the Food Processing Equipment Group. Domestically, the company realized a sales decrease of $8.6$4.3 million, or 12.7%7.0%, to $59.3$57.3 million, as compared to $67.9$61.6 million in the prior year period. This includes an increase of $10.0$3.2 million from recent acquisitions. Excluding the acquisitions, the net decrease in domestic sales was $7.5 million, or 12.2%. International sales increased $9.8$5.7 million, or 40.0%22.5%, to $34.3$31.0 million, as compared to $24.5$25.3 million in the prior year period. This includes $10.4$8.5 million from recent acquisitions and increasedecrease of $0.6$0.5 million related to the favorableunfavorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales decrease in international sales was $2.3 million, or 9.1%. Revenue for the Food Processing Equipment Group has been affected by the timing and deferral of certain large orders which create quarterly volatility for the groupgroup.

Net sales of the Residential Kitchen Equipment Group increased by $7.2$2.2 million or 4.7%1.5%, to $160.4$153.5 million in the three months period ended June 30,September 29, 2018, as compared to $153.2$151.3 million in the prior year period. Excluding the impact of foreign exchange, net sales increased 2.1%1.8% at the Residential Kitchen Equipment Group. Domestically, the company realized a sales increase of $11.1$8.3 million, or 12.0%9.2%, to $103.4$98.1 million, as compared to $92.3$89.8 million in the prior year period. Sales at Viking increased by approximately 24%15% during the quarter. This increase continues to be offset by the temporary impact of consolidating our premium brands through company owned distribution and canceling certain third party distributors. International sales decreased $3.9$6.1 million or 6.4%9.9% to $57.0$55.4 million, as compared to $60.9$61.5 million in the prior year quarter. This includes a favorablean unfavorable impact of exchange rates of $4.0$0.5 million. The sales decrease reflects slower conditions in the UK market impacting the AGA and Rangemaster brands. Additionally, revenues at non-core businesses, acquired in connection with AGA, have been lower in connection withand have been impacted by restructuring initiatives to improve profitability.initiatives.








GROSS PROFIT. Gross profit increased to $250.8$261.2 million in the three months period ended June 30,September 29, 2018 from $234.6$228.5 million in the prior year period, primarily reflecting the impact of increased sales from acquisitions and favorableadoption of ASC 606, offset by the unfavorable impact of foreign exchanges rates of $2.3$1.4 million. The gross margin rate was 40.5%38.5% in the three months period ended July 1,September 30, 2017 as compared to 37.5%36.6% in the current year period. The gross margin rate excluding acquisitions, adoption of ASC 606 and the impact of foreign exchange was 39.1%.
 
Gross profit at the Commercial Foodservice Equipment Group increased by $24.4$35.3 million, or 17.8%25.2%, to $161.8$175.4 million in the three months period ended June 30,September 29, 2018, as compared to $137.4$140.1 million in the prior year period. Gross profit from the acquisitions of Sveba Dahlen, QualServ, L2F, Globe, Firex, Josper, and Taylor accounted for approximately $15.2$25.7 million of the increase in gross profit during the period. Excluding the recent acquisitions, gross profit increased by approximately $9.2$9.6 million on higher sales volumes. The impact of foreign exchange rates increaseddecreased gross profit by approximately $0.8$1.1 million. The gross margin rate decreased to 39.1%37.2%, as compared to 41.2%39.5% in the prior year period, due to lower margins at recent acquisitions. The gross margin rate excluding acquisitions and the impact of foreign exchange was 40.8%.

Gross profit at the Food Processing Equipment Group decreased by $5.2$4.6 million, or 13.5%13.1%, to $33.2$30.6 million in the three months period ended June 30,September 29, 2018, as compared to $38.4$35.2 million in the prior year period. Gross profit from the acquisitions of Burford, CVP Systems, Scanico, Hinds-Bock and Ve.Ma.C increased gross profit by $6.7$3.5 million. The adoption of ASC 606 increased gross profit by approximately $0.5$0.8 million. Excluding the recent acquisitions and adoption of ASC 606, gross profit decreased by approximately $12.4$8.9 million on lower sales volumes. The impact of foreign exchange rates increaseddecreased gross profit by approximately $0.4$0.1 million. The gross profit margin rate decreased to 35.5%34.7%, as compared to 41.6%40.5% in the prior year period, reflecting the impact of lower sales volumes and unfavorable product mix resulting from lesser sales of protein equipment which generally have higher margins.

Gross profit at the Residential Kitchen Equipment Group decreasedincreased by $3.2$2.6 million, or 5.3%4.8%, to $57.7$56.6 million in the three months period ended June 30,September 29, 2018, as compared to $60.9$54.0 million in the prior year period. The impact of foreign exchange rates increaseddecreased gross profit by approximately $1.1$0.2 million. The gross margin rate decreasedincreased to 36.0%36.9%, as compared to 39.8%35.7% in the prior year period, due primarily related to the impact ofhigher sales volumes for the domestic distribution changes and sales incentives related to the Viking brand.premium brands.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general and administrative expenses increased from $121.6$114.9 million in the three months period ended July 1,September 30, 2017 to $135.0$141.4 million in the three months period ended June 30,September 29, 2018.  As a percentage of net sales, selling, general, and administrative expenses were 21.0%19.4% in the three months period ended July 1,September 30, 2017, as compared to 20.2%19.8% in the three months period ended June 30,September 29, 2018.

Selling, general and administrative expenses reflect increased costs of $16.7$22.9 million associated with the fiscal 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico and the fiscal 2018 acquisitions of Hinds-Bock, Ve.Ma.C, Firex, Josper, and Taylor, including $2.6$8.7 million of intangible amortization expense. The unfavorableSelling, general and administrative expenses increased $3.5 million related to higher non-cash share based compensation, offset by the favorable impact of foreign exchange rates increased selling, general and administrative expenses by approximately $1.5 million. Excluding acquisitions and foreign exchange rates, as a percentage of net sales, selling, general, and administrative expenses were 17.5%. Professional fees increased primarily related to Taylor transaction costs and legal costs of approximately $4.5$1.0 million. Additionally, selling, general and administrative expenses decreased $5.6 million related to lower compensation costs, $1.3 million related to lower non-cash share based compensation, and $3.3 million related to lower intangible amortization expense.

RESTRUCTURING EXPENSES. Restructuring expenses decreased $7.1increased $7.9 million from $11.5$4.2 million in the three months period ended July 1,September 30, 2017 to $4.4$12.1 million in the three months period ended June 30,September 29, 2018. In the three months period ended July 1,September 30, 2017, restructuring expenses included cost reduction initiatives related to the AGA Group. In the three months period ended June 30,September 29, 2018, restructuring charges included cost reduction initiativesrelated primarily related to exiting operations of a non-core business in the Residential Kitchen Equipment Group, as well as headcount reductions at the Commercial Foodservice Equipment Group and additional cost reduction initiatives related to the AGA Group.
GAIN ON SALE OF PLANT. In the three months period ended July 1, 2017, the gain on sale of plant was $12.0 million related to the sale of a manufacturing facility within the Commercial Foodservice Equipment Group, proceeds of which were used to purchase a larger manufacturing facility to gain efficiencies in workflow and allow for future manufacturing consolidation efforts.

NON-OPERATING EXPENSES. Interest and deferred financing amortization costs were $10.4$19.1 million in the three months period ended June 30,September 29, 2018, as compared to $5.7$6.6 million in the prior year period, reflecting increased interest due to higher interest rates and higher debt balances related to the funding of acquisitions.








INCOME TAXES. A tax provision of $26.6$25.1 million, at an effective rate of 24.0%25.6%, was recorded during the three months period ended June 30,September 29, 2018, as compared to $38.6$38.1 million at an effective rate of 33.2%33.8%, 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 the U.S. domestic manufacturers deduction and favorable foreign tax rate differentials. InDuring the three 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 the company recorded a provisional transition tax charge and a change in deferred tax accounts associated with the Tax Cuts and Jobs Act of 2017. These provisional amounts will be finalized in 2018.returns.



SixNine Months Ended June 30,September 29, 2018 as compared to SixNine Months Ended July 1,September 30, 2017
 
NET SALES. Net sales for the sixnine months period ended June 30,September 29, 2018 increased by $143.3$263.6 million, or 12.9%15.5%, to $1,252.9$1,966.3 million as compared to $1,109.6$1,702.7 million in the sixnine months period ended July 1,September 30, 2017. Net sales increased by $148.1$266.1 million, or 13.3%15.6%, from acquisition growth, attributable to the fiscal 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico and the fiscal 2018 acquisitions of Hinds-Bock, Ve.Ma.C, Firex, Josper, and Taylor. Excluding the acquisitions, net sales decreased $4.8$2.5 million, or 0.4%0.1%, from the prior year. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the sixnine months period ended June 30,September 29, 2018 increased net sales by approximately $21.0$16.5 million, or 1.9%1.0%. The adoption of ASC 606 increased net sales by approximately $14.6$17.1 million primarily related to previously recognized revenue on long-term equipment sales contracts at the Food Processing Equipment Group. Excluding the impact of foreign exchange, acquisitions and the adoption of ASC 606, sales decreased 3.6%2.1% for the year, including a net sales increase of 1.6%2.5% at the Commercial Foodservice Equipment Group, a net sales decrease of 25.1%21.4% at the Food Processing Equipment Group and a net sales decrease of 2.9%1.3% at the Residential Kitchen Equipment Group.
 
Net sales of the Commercial Foodservice Equipment Group increased by $128.0$244.8 million, or 19.8%24.5%, to $774.0$1,245.6 million in the sixnine months period ended June 30,September 29, 2018, as compared to $646.0$1,000.8 million in the prior year period. Net sales from the acquisitions of Sveba Dahlen, QualServ, L2F, Globe, Firex, Josper, and Taylor which were acquired on June 30, 2017, August 31, 2017, October 6, 2017, October 17, 2017, April 27, 2018, May 10, 2018, and June 22, 2018, respectively, accounted for an increase of $109.7$216.0 million during the sixnine months period ended June 30,September 29, 2018. Excluding the impact of these acquisitions, net sales of the Commercial Foodservice Equipment Group increased $18.3$28.8 million, or 2.8%2.9%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales increased $10.6$24.7 million, or 1.6%2.5% at the Commercial Foodservice Equipment Group. Domestically, the company realized a sales increase of $87.9$156.6 million, or 19.2%22.1%, to $544.6$863.6 million, as compared to $456.7$707.0 million in the prior year period. This includes an increase of $66.0$124.7 million from the recent acquisitions. Excluding the acquisitions, the net increase in domestic sales was $21.9$31.9 million, or 4.8%4.5%. Domestic sales growth reflects the increase in sales with major chain restaurants and retail customers. International sales increased $40.1$88.2 million, or 21.2%30.0%, to $229.4$382.0 million, as compared to $189.3$293.8 million in the prior year period. This includes an increase of $43.7$91.3 million from the recent acquisitions and increase of $7.7$4.1 million related to the favorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales decrease in international sales was $11.3$7.2 million, or 6.0%2.5%. The decline in international revenues reflects lower sales in Australia and China due to generally slower market conditions and timing of orders from major restaurant chain customers.

Net sales of the Food Processing Equipment Group increased by $12.6$14.0 million, or 7.4%5.5%, to $182.2$270.5 million in the sixnine months period ended June 30,September 29, 2018, as compared to $169.6$256.5 million in the prior year period. Net sales from the acquisitions of Burford, CVP Systems, Scanico, Hinds-Bock and Ve.Ma.C, which were acquired on May 1, 2017, June 30, 2017, December 7, 2017, February 16, 2018 and April 3, 2018, respectively, accounted for an increase of $38.4$50.1 million during the sixnine months period ended June 30,September 29, 2018.  Excluding the impact of these acquisitions, net sales of the Food Processing Equipment Group decreased $25.8$36.1 million, or 15.2%14.1%. The adoption of ASC 606 increased net sales by approximately $17.1 million. Excluding the impact of foreign exchange, acquisitions and the adoption of ASC 606, net sales decreased $42.5$55.0 million, or 25.1%21.4% at the Food Processing Equipment Group. Domestically, the company realized a sales decrease of $2.9$5.8 million, or 2.2%3.1%, to $126.2$183.5 million, as compared to $129.1$189.3 million in the prior year period. This includes an increase of $19.6$22.8 million from the recent acquisitions. Excluding the acquisitions, and approximately $14.6the net decrease in domestic sales was $28.6 million, related to the adoption of ASC 606.or 15.1%. International sales increased $15.5$19.8 million, or 38.3%29.5%, to $56.0$87.0 million, as compared to $40.5$67.2 million in the prior year period. This includes an increase of $18.8$27.3 million from the recent acquisitions and an increase of $2.1$1.8 million related to the favorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales decrease in international sales was $7.5 million, or 11.2%. Revenues for the Food Processing Equipment Group have been affected by the timing and deferral of certain large orders which create quarterly volatility for the group.












Net sales of the Residential Kitchen Equipment Group increased by $2.7$4.9 million, or 0.9%1.1%, to $296.7$450.2 million in the sixnine months period ended June 30,September 29, 2018, as compared to $294.0$445.3 million in the prior year period. Excluding the impact of foreign exchange, net sales decreased 2.9%$5.7 million, or 1.3% at the Residential Kitchen Equipment Group. Domestically, the company realized a sales increase of $8.3$17.1 million, or 4.8%6.5%, to $182.0$280.1 million, as compared to $173.7$263.0 million in the prior year period. Sales at Viking increased by approximately 14%16% during the year. This increase was offset by the temporary impact of consolidating our premium brands through company owned distribution and canceling certain third party distributors. International sales decreased $5.6$12.2 million, or 4.7%6.7%, to $114.7$170.1 million, as compared to $120.3$182.3 million in the prior year quarter. This includes a favorable impact of exchange rates of $11.2$10.6 million. The sales decrease reflects slower conditions in the UK market impacting the AGA and Rangemaster brands. Additionally, revenues at non-core businesses, acquired in connection with AGA, have been lower in connection withand have been impacted by restructuring initiatives to improve profitability.

initiatives.


GROSS PROFIT. Gross profit increased to $462.4$723.6 million in the sixnine months period ended June 30,September 29, 2018 from $444.1$672.6 million in the prior year period, reflecting the impact of increased sales from the acquisitions, adoption of ASC 606 and favorable impact of foreign exchange rates of $7.2$6.1 million. The gross margin rate decreased from 40.0%39.5% in the sixnine months period ended July 1,September 30, 2017 as compared to 36.9%36.8% in the current year period. The gross margin rate excluding acquisitions, adoption of ASC 606 and the impact of foreign exchange was 38.8%.
 
Gross profit at the Commercial Foodservice Equipment Group increased by $35.1$70.3 million, or 13.2%17.3%, to $300.2$475.5 million in the sixnine months period ended June 30,September 29, 2018, as compared to $265.1$405.2 million in the prior year period. Gross profit from the acquisitions of Sveba Dahlen, QualServ, L2F, Globe, Firex, Josper, and Taylor accounted for approximately $25.5$51.2 million of the increase in gross profit during the period. Excluding the recent acquisitions, gross profit increased by approximately $9.6$19.1 million. The impact of foreign exchange rates increased gross profit by approximately $2.5$1.6 million. The gross margin rate decreased to 38.8%38.2%, as compared to 41.0%40.5% in the prior year period, due to lower margins at recent acquisitions. The gross margin rate excluding acquisitions and the impact of foreign exchange was 41.2%.

Gross profit at the Food Processing Equipment Group decreased by $7.6$12.3 million, or 11.0%11.8%, to $61.3$91.8 million in the sixnine months period ended June 30,September 29, 2018, as compared to $68.9$104.1 million in the prior year period. Gross profit from the acquisitions of Burford, CVP Systems, Scanico, Hinds-Bock and Ve.Ma.C increased gross profit by approximately $14.1$17.6 million during the period. The adoption of ASC 606 increased gross profit by approximately $4.2$5.0 million. Excluding the recent acquisitions and adoption of ASC 606, gross profit decreased by approximately $25.9$34.9 million on lower sales volumes. The impact of foreign exchange rates increased gross profit by approximately $1.1 million. The gross profit margin rate decreased to 33.6%33.9%, as compared to 40.6% in the prior year period reflecting the impact of lower volumes and unfavorable product mix resulting from lesser sales of protein equipment which generally have higher margins.

Gross profit at the Residential Kitchen Equipment Group decreased by $9.5$6.9 million, or 8.4%4.1%, to $103.4$160.0 million in the sixnine months period ended June 30,September 29, 2018, as compared to $112.9$166.9 million in the prior year period. The impact of foreign exchange rates increased gross profit by approximately $3.6$3.4 million. The gross margin rate decreased to 34.9%35.5%, as compared to 38.4%37.5% in the prior year period, due primarily to the impact of the domestic distribution changes and sales incentives related to the Viking brand.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general and administrative expenses increased from $236.6$351.5 million in the sixnine months period ended July 1,September 30, 2017 to $258.0$399.3 million in the sixnine months period ended June 30,September 29, 2018.  As a percentage of net sales, selling, general and administrative expenses were 21.3%20.6% in the sixnine months period ended July 1,September 30, 2017, as compared to 20.6%20.3% in the sixnine months period ended June 30,September 29, 2018.
Selling, general and administrative expenses reflect increased costs of $31.5$54.5 million associated with the 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico and the fiscal 2018 acquisitions of Hinds-Bock, Ve.Ma.C, Firex, Josper, and Taylor, including $6.8$15.6 million of intangible amortization expense. The unfavorable impact of foreign exchange rates increased selling, general and administrative expenses by approximately $4.9$4.0 million. Excluding acquisitions and foreign exchange rates, as a percentage of net sales, selling, general, and administrative expenses were 17.7%. Professional fees increased approximately $4.9 million primarily related to Taylor transaction costs and legal costs. Additionally, selling general and administrative expenses decreased $8.7$3.6 million related to lower compensation costs, $4.7$1.2 million related to lower non-cash share based compensation, and $2.9$3.2 million related to lower intangible amortization expense.



RESTRUCTURING EXPENSES. Restructuring expenses decreased $7.1increased $0.8 million from $13.2$17.4 million in the sixnine months period ended July 1,September 30, 2017 to $6.1$18.2 million in the sixnine months period ended June 30,September 29, 2018. In the sixnine months period ended July 1,September 30, 2017, restructuring expenses related cost reduction initiatives related to the AGA Group. Additionally, restructuring charges included cost reduction initiatives primarily related to headcount reductions at the Commercial Foodservice Equipment Group, Food Processing Equipment Group and Residential Kitchen Equipment Group. In the sixnine months period ended June 30,September 29, 2018, restructuring charges included cost reduction initiativesrelated primarily related to exiting operations of a non-core business in the Residential Kitchen Equipment Group as well as headcount reductions at the Commercial Foodservice Equipment Group and additional cost reduction initiatives related to the AGA Group.
 
GAIN ON SALE OF PLANT. In the sixnine months period ended July 1,September 30, 2017 the gain on sale of plant was $12.0 million related to the sale of a manufacturing facility within the Commercial Foodservice Equipment Group, proceeds of which were used to purchase a larger manufacturing facility to gain efficiencies in workflow and allow for future manufacturing consolidation efforts.



NON-OPERATING EXPENSES. Interest and deferred financing amortization costs were $19.2$38.4 million in the sixnine months period ended June 30,September 29, 2018, as compared to $11.5$18.1 million in the prior year period reflecting higher interest rates and higher debt balances related to the


funding of acquisitions. Other expense was $0.6 million in the six months period ended June 30, 2018, as compared to other expense of $2.2 million in the prior year period and consists mainly of foreign exchange gains and losses.

INCOME TAXES. A tax provision of $47.9$73.0 million, at an effective rate of 24.3%24.7%, was recorded during the sixnine months period ended June 30,September 29, 2018, as compared to $61.3$99.4 million at an effective rate of 29.2%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". InDuring 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 the company recorded a provisional transition tax charge and a change in deferred tax accounts associated with the Tax Cuts and Jobs Act of 2017. These provisional amounts will be finalized in 2018.returns.


Financial Condition and Liquidity
During the sixnine months ended June 30,September 29, 2018, cash and cash equivalents increaseddecreased by $2.6$13.1 million to $92.3$76.6 million at June 30,September 29, 2018 from $89.7 million at December 30, 2017. Net borrowings increased from $1.0 billion at December 30, 2017 to $2.1$2.0 billion at June 30, 2018.September 29, 2018, primarily as a result of acquisitions.
OPERATING ACTIVITIES. Net cash provided by operating activities was $146.6$252.0 million for the sixnine months ended June 30,September 29, 2018, compared to $86.0$204.9 million for the sixnine months ended July 1,September 30, 2017.
During the sixnine months ended June 30,September 29, 2018, changes in assets and liabilities reduced operating cash flows by $48.7$61.3 million. The changes included an increase in accounts receivable of $28.2$38.9 million due to increased sales volumes at the Commercial Foodservice Equipment Group and Viking indomestic premium brands within the Residential Kitchen Equipment Group. In addition to the increase in receivables increased at the Food Processing Equipment Group due to timing of large orders in the sixnine months ended June 30,September 29, 2018. Inventory increased $25.6 million and accounts payable increased by $24.6 million due to increased sales volume and order rates at the Commercial Foodservice Equipment Group and domestic premium brands within the Residential Kitchen Equipment Group. Changes also included a $30.7$31.7 million decrease in accrued expenses and other non-current liabilities primarily related to the payment of 2017 annual rebate programs at the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group and payment of 2017 incentive obligations.
INVESTING ACTIVITIES. During the sixnine months ended June 30,September 29, 2018, net cash used for investing activities amounted to $1.2 billion. This included $1.1 billion for the 2018 acquisitions of Hinds-Bock, JoeTap, Ve.Ma.C, Firex, Josper and Taylor, $5.4 million related to the purchase of a tradename and $24.2$32.6 million of additions and upgrades of production equipment and manufacturing facilities.
FINANCING ACTIVITIES. Net cash flows provided by financing activities were $1.0$0.9 billion during the sixnine months ended June 30,September 29, 2018. The company’s borrowing activities included $1.0$0.9 billion of net proceeds under its $2.5 billion Credit Facility and $3.0$7.0 million of net repayments under its foreign banking facilities.
At June 30,September 29, 2018, the company was in compliance with all covenants pursuant to its borrowing agreements. The company believes that its current capital resources, including cash and cash equivalents, cash generated from operations, funds available from its Credit Facility and access to the credit and capital markets will be sufficient to finance its operations, debt service obligations, capital expenditures, acquisitions, product development and integration expenditures for the foreseeable future.


Recently Issued Accounting Standards

See Part 1, Notes to Condensed Consolidated Financial Statements, Note 4 - Recent Issued Accounting Standards.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations are based upon the company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, the company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences could be material to our consolidated financial statements. There have been no changes in our critical accounting policies, which include revenue recognition, inventories, goodwill and other intangibles, pensions benefits, and income taxes, as discussed in our Annual Report on Form 10-K for the year ended December 30, 2017 (our “2017 Annual Report on Form 10-K”) other than those described below.
During the sixnine months period ended June 30,September 29, 2018, the company adopted ASC 606, "Revenue from Contracts with Customers". See Part 1, Notes to Condensed Consolidated Financial Statements, Note 5 - Revenue Recognition for additional information on the required disclosures related to the impact of adopting this guidance.

Goodwill and Indefinite-Life Intangibles
The company’s business acquisitions result in the recognition of goodwill and other intangible assets, which are a significant portion of the company’s total assets. The company recognizes goodwill and other intangible assets under the guidance of ASC Topic 350-10, “Intangibles - Goodwill and Other.”  Goodwill represents the excess of acquisition costs over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination. Identifiable intangible assets are recognized separately from goodwill and include trademarks and trade names, technology, customer relationships and other specifically identifiable assets. Trademarks and trade names are deemed to be indefinite-lived. Goodwill and indefinite-lived intangible assets are not amortized, but are subject to impairment testing.




Goodwill Valuations
On an annual basis on the first day of the fourth quarter, or more frequently if triggering events occur, the company compares the estimated fair value to the carrying value to determine if a potential goodwill impairment exists. The reporting units at which we test goodwill for impairment are our operating segments. These consist of the Commercial Foodservice Equipment Group, the Food Processing Equipment Group and the Residential Kitchen Equipment Group. If the fair value is less than its carrying value, an impairment loss, if any, is recorded for the difference between the implied fair value and the carrying value of goodwill.

In conducting a qualitative assessment, the company analyzes a variety of events or factors that may influence the fair value of the reporting unit including, but not limited to: the results of prior quantitative assessments performed; changes in the carrying amount of the reporting unit; actual and projected revenue and operating margin; relevant market data for both the company and its peer companies; industry outlooks; macroeconomic conditions; liquidity; changes in key personnel; and the company's competitive position. Significant judgment is used to evaluate the totality of these events and factors to make the determination of whether it is more likely than not that the fair value of the reporting unit or indefinite-life intangible is less than its carrying value.

In performing a quantitative assessment, we estimate each reporting unit's fair value under an income approach using a discounted cash flow model. The income approach uses each reporting unit's projection of estimated operating results and cash flows that are discounted using a market participant discount rate based on a weighted-average cost of capital. The financial projections reflect management's best estimate of economic and market conditions over the projected period including forecasted revenue growth, operating margins, tax rate, capital expenditures, depreciation, amortization and changes in working capital requirements. Other assumptions include discount rate and terminal growth rate. The estimated fair value of each reporting unit is compared to their respective carrying values. Additionally, we validate our estimates of fair value under the income approach by comparing the fair value estimate using a market approach. A market approach estimates fair value by applying cash flow multiples to the reporting unit's operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units. We consider the implied control premium and conclude whether it is reasonable based on other recent market transactions.




We performed a qualitative assessment as of October 1, 2017 over the Commercial Foodservice Equipment Group and the Food Processing Equipment Group reporting units and determined it is more likely than not that the fair value of our reporting units are greater than the carrying amounts.

We performed a quantitative assessment over the Residential Kitchen Equipment Group as of October 1, 2017 due to weaker than expected revenue performance and a corresponding reduction of future revenue expectations. Based on the results of our annual quantitative assessment conducted on October 1, 2017, we concluded that no impairment existed as the fair value of our Residential Kitchen Equipment Group reporting unit substantially exceeded its carrying value.
    
In estimating the fair value of specific intangible assets, management relies on a number of factors, including operating results, business plans, economic projections, anticipated future cash flows, comparable transactions and other market data. There are inherent uncertainties related to these factors and management’s judgment in applying them in the impairment tests of goodwill and other intangible assets. If actual results are not consistent with management's estimate and assumptions, a material impairment could have an adverse effect on the company's financial condition and results of operations.

Indefinite-Life Intangible Valuations
In performing a quantitative assessment of indefinite-life intangible assets other than goodwill, primarily trademarks and trade names, we estimate the fair value of these intangible assets using the relief-from-royalty method which requires assumptions related to projected revenues from our long-range plans; assumed royalty rates that could be payable if we did not own the trademark; and a discount rate using a market based weighted-average cost of capital. If the estimated fair value of the indefinite-life intangible asset is less than its carrying value, we would recognize an impairment loss.

Based on the quantitative assessment performed as of October 1, 2017, an impairment of our Viking tradename was determined to exist, primarily the result of weaker than expected revenue performance in the current year and a corresponding reduction of future revenue expectations. The impairment resulted from the decline in revenues attributable, in part, to the product recall announced in 2015 primarily related to products manufactured prior to the acquisition of Viking. The fair value of the Viking tradename was estimated to be $93.0 million as compared to the carrying value of $151.0 million and resulted in a $58.0 million indefinite-lived intangible asset impairment charge.

In performing the quantitative analysis on these trademark assets, significant assumptions used in our relief-from-royalty model included revenue growth rates, assumed royalty rates and the discount rate, which are discussed further below.



Revenue growth rates relate to projected revenues from our long-range plans and vary from brand to brand. Adverse changes in the operating environment or our inability to grow revenues at the forecasted rates may result in a material impairment charge. We performed a sensitivity analysis on the estimated fair values, noting a 1% reduction of forecasted revenues to the Viking trade name projections would result in an impairment charge of approximately $6 million.

In determining royalty rates for the valuation of our trademarks, we considered factors that affect the assumed royalty rates that would hypothetically be paid for the use of the trademarks. The most significant factors in determining the assumed royalty rates include the overall role and importance of the trademarks in the particular industry, the profitability of the products utilizing the trademarks, and the position of the trademarked products in the given market segment. Based on this analysis, we determined a royalty rate of 7% for our Viking trade name. We performed a sensitivity analysis on the estimated fair values for Viking, noting a 50 basis point reduction to the royalty rates would result in an impairment charge of approximately $7 million.

In developing discount rates for the valuation of our trademarks, we used the market based weighted average cost of capital, adjusted for higher relative level of risks associated with doing business in other countries, as applicable, as well as the higher relative levels of risks associated with intangible assets. Based on this analysis, we determined the discount rate to be 11.0% for Viking. We performed a sensitivity analysis on the estimated fair values for Viking, noting a 100 basis point increase to the discount rate would result in an impairment charge of approximately $10 million.

We performed a qualitative assessment as of October 1, 2017 over the other trademarks and trade names and determined it is more likely than not that the fair value of our other indefinite-life intangible assets are greater than the carrying amounts.





If actual results are not consistent with management's estimate and assumptions, a material impairment charge of our trademarks and trade names could occur, which could have an adverse effect on the company's financial condition and results of operations.



Item 3.   Quantitative and Qualitative Disclosures About Market Risk 
Interest Rate Risk 
The company is exposed to market risk related to changes in interest rates. The following table summarizes the maturity of the company’s debt obligations:
Twelve Month Period Ending 
Variable Rate
Debt
 
Variable Rate
Debt
    
2019 $6,297
 $3,125
2020 611
 362
2021 567
 1,954,356
2022 2,058,855
 325
2023 and thereafter 295
 200
 $2,066,625
 $1,958,368
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 June 30,September 29, 2018, the company had $2.1$2.0 billion of borrowings outstanding under the Credit Facility, including $2.0$1.9 billion of borrowings in U.S. Dollars, $87.6$80.0 million of borrowings denominated in Euro and $19.7$6.5 million of borrowings denominated in British Pounds. The company also had $9.7$12.3 million in outstanding letters of credit as of June 30,September 29, 2018, which reduces the borrowing availability under the Credit Facility. Remaining borrowing availability under this facility was $0.4$0.5 billion at June 30,September 29, 2018.
At June 30,September 29, 2018, borrowings under the Credit Facility accrued interest at a rate of 1.25%1.625% above LIBOR per annum or 0.25%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 3.35% for3.81% 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 0.20%0.25% per annum as of June 30,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 June 30,September 29, 2018, these foreign credit facilities amounted to $8.2$4.2 million in U.S. Dollars with a weighted average per annum interest rate of approximately 4.08%5.59%.
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 uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the revolving credit line. At June 30,September 29, 2018, the company had outstanding floating-to-fixed interest rate swaps totaling $499.0$999.0 million notional amount carrying an average interest rate of 1.66%2.17% that mature in more than 12 months but less than 84 months.









The terms of the 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 requires, among other things, the company to satisfy certain financial covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Facility) of 3.00 to 1.00 and (ii) a maximum Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBIDTA (each as defined in the Credit Facility) of 3.50 to 1.00, which may be adjusted to 4.00 to 1.00 for a four consecutive fiscal quarter period in connection with certain qualified acquisitions, subject to the terms and conditions contained in the Credit Facility. The 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 foreign and domestic subsidiaries. The 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. At June 30,September 29, 2018, the company was in compliance with all covenants pursuant to its borrowing agreements.
Financing Derivative Instruments 
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 June 30,September 29, 2018, the fair value of these instruments was an asset of $20.9$26.5 million. The change in fair value of these swap agreements in the first sixnine months of 2018 was a gain of $9.4$13.6 million, net of taxes. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted interest rates would not have a material impact on the company's financial position, results of operations and cash flows.
Foreign Exchange Derivative Financial Instruments
The company uses foreign currency forward, foreign exchange swaps and option purchase and sales contracts 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 potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted foreign exchange rates would not have a material impact on the company's financial position, results of operations and cash flows. The fair value of the forward and option contracts was a lossof $1.2gain of $0.4 million at the end of the secondthird quarter of 2018.
 


Item 4. Controls and Procedures
The company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of June 30,September 29, 2018, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the company's disclosure controls and procedures. Based on the foregoing, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of this period. 
During the quarter ended June 30,September 29, 2018, there has been no change in the company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.


PART II. OTHER INFORMATION
The company was not required to report the information pursuant to Items 1 through 6 of Part II of Form 10-Q for the sixnine months ended June 30,September 29, 2018, except as follows:
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
c) Issuer Purchases of Equity Securities 
 
Total
Number of
Shares
Purchased

 
Average
Price Paid
per Share

 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan or
Program

 
Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plan
or Program (1)

AprilJuly 1 to AprilJuly 28, 2018
 $
 
 2,373,800
AprilJuly 29 to May 26,August 25, 2018
 
 
 2,373,800
May 27August 26 to June 30,September 29, 2018
 
 
 2,373,800
Quarter ended June 30,September 29, 2018
 $
 
 2,373,800
(1) On November 7, 2017, the company's Board of Directors resolved to terminate the company's existing share repurchase program, effective as of such date, which was originally adopted in 1998, and approved a new stock repurchase program. This program authorizes the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock. As of June 30,September 29, 2018, the total number of shares authorized for repurchase under the program is 2,500,000. As of June 30,September 29, 2018, 126,200 shares had been purchased under the 19982017 stock repurchase program.   

  


Item 6. Exhibits
Exhibits – The following exhibits are filed herewith:
  
Exhibit 31.1 –  
  
Exhibit 31.2 –
  
Exhibit 32.1 –
  
Exhibit 32.2 –
  
Exhibit 101 –Financial statements on Form 10-Q for the quarter ended June 30,September 29, 2018, filed on August 9,November 8, 2018, formatted in Extensive Business Reporting Language (XBRL); (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of earnings, (iii) condensed statements of cash flows, (iv) notes to the condensed consolidated financial statements.



SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   THE MIDDLEBY CORPORATION
   (Registrant)
     
Date:August 9,November 8, 2018 By:/s/  Timothy J. FitzGerald
    Timothy J. FitzGerald
    Vice President,
    Chief Financial Officer

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