NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(
Unaudited
)
|
|
1)
|
Summary of Significant Accounting Policies
|
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
March 31, 2018
and
December 30, 2017
, the results of operations for the
three months ended
March 31, 2018
and
April 1, 2017
and cash flows for the
three months ended
March 31, 2018
and
April 1, 2017
.
Certain prior year amounts have been reclassified to be consistent with current year presentation, including the non-operating components of pension benefit previously reporting 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
$0.1 million
and
$3.5 million
for the
first
quarter periods ended
March 31, 2018
and
April 1, 2017
, respectively.
A tax provision of
$21.3 million
, at an effective rate of
24.5%
, was recorded during the
three months period ended March 31, 2018
, as compared to a
$22.7 million
tax provision at a
24.3%
in the prior year quarter. In comparison to the prior year quarter, 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". In 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.
Accounting Standards Codification ("ASC") 820 "Fair Value Measurements and Disclosures" defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 – Unobservable inputs based on our own assumptions.
The company’s financial liabilities that are measured at fair value and are categorized using the fair value hierarchy are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Level 1
|
|
Fair Value
Level 2
|
|
Fair Value
Level 3
|
|
Total
|
As of March 31, 2018
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
16,946
|
|
|
$
|
—
|
|
|
$
|
16,946
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
803
|
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
As of December 30, 2017
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
10,266
|
|
|
$
|
—
|
|
|
$
|
10,266
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,780
|
|
|
$
|
1,780
|
|
The contingent consideration as of
March 31, 2018
relates to the earnout provision recorded in conjunction with the acquisition of Scanico A/S ("Scanico"). The contingent consideration as of
December 30, 2017
relates to the earnout provisions recorded in conjunction with the acquisitions of Desmon Food Service Equipment Company ("Desmon") and Scanico.
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
$7.2 million
and
$5.8 million
for the
three months ended
March 31, 2018
and
April 1, 2017
, respectively. Cash payments totaling
$5.7 million
and
$6.2 million
were made for income taxes for the
three months ended
March 31, 2018
and
April 1, 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
$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 cash paid for the Burford acquisition is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(as initially reported) May 1, 2017
|
|
Measurement Period Adjustments
|
|
(as adjusted) May 1, 2017
|
Cash
|
$
|
2,514
|
|
|
$
|
—
|
|
|
$
|
2,514
|
|
Current assets
|
6,424
|
|
|
104
|
|
|
6,528
|
|
Property, plant and equipment
|
656
|
|
|
(13
|
)
|
|
643
|
|
Goodwill
|
7,289
|
|
|
774
|
|
|
8,063
|
|
Other intangibles
|
4,900
|
|
|
1,840
|
|
|
6,740
|
|
Current liabilities
|
(2,254
|
)
|
|
(924
|
)
|
|
(3,178
|
)
|
Long term deferred tax liability
|
(1,840
|
)
|
|
450
|
|
|
(1,390
|
)
|
Other non-current liabilities
|
—
|
|
|
(2,580
|
)
|
|
(2,580
|
)
|
|
|
|
|
|
|
Net assets acquired and liabilities assumed
|
$
|
17,689
|
|
|
$
|
(349
|
)
|
|
$
|
17,340
|
|
The long term deferred tax liability amounted to
$1.4 million
. The net 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
$0.6 million
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 "Intangibles - Goodwill and Other". 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
$30.3 million
, net of cash acquired. The purchase price included
$17.9 million
in cash and
106,254
shares of Middleby common stock valued at
$12.3 million
. 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 second quarter of 2018.
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 30, 2017
|
|
Preliminary Measurement Period Adjustments
|
|
(as adjusted) June 30, 2017
|
Cash
|
$
|
621
|
|
|
$
|
—
|
|
|
$
|
621
|
|
Current assets
|
5,973
|
|
|
(1,435
|
)
|
|
4,538
|
|
Property, plant and equipment
|
238
|
|
|
(91
|
)
|
|
147
|
|
Goodwill
|
20,297
|
|
|
432
|
|
|
20,729
|
|
Other intangibles
|
8,700
|
|
|
4,350
|
|
|
13,050
|
|
Current liabilities
|
(1,532
|
)
|
|
(514
|
)
|
|
(2,046
|
)
|
Long term deferred tax liability
|
(3,168
|
)
|
|
(633
|
)
|
|
(3,801
|
)
|
Other non-current liabilities
|
—
|
|
|
(2,362
|
)
|
|
(2,362
|
)
|
|
|
|
|
|
|
Net assets acquired and liabilities assumed
|
$
|
31,129
|
|
|
$
|
(253
|
)
|
|
$
|
30,876
|
|
The long term deferred tax liability amounted to
$3.8 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
$0.4 million
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.
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.
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 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 30, 2017
|
|
Preliminary Measurement Period Adjustments
|
|
(as adjusted) June 30, 2017
|
Cash
|
$
|
4,569
|
|
|
$
|
—
|
|
|
$
|
4,569
|
|
Current assets
|
22,686
|
|
|
(744
|
)
|
|
21,942
|
|
Property, plant and equipment
|
9,128
|
|
|
(332
|
)
|
|
8,796
|
|
Goodwill
|
33,785
|
|
|
(2,898
|
)
|
|
30,887
|
|
Other intangibles
|
34,175
|
|
|
7,775
|
|
|
41,950
|
|
Other assets
|
1,170
|
|
|
(3
|
)
|
|
1,167
|
|
Current portion of long-term debt
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
Current liabilities
|
(11,782
|
)
|
|
681
|
|
|
(11,101
|
)
|
Long-term debt
|
—
|
|
|
(140
|
)
|
|
(140
|
)
|
Long term deferred tax liability
|
(7,751
|
)
|
|
(2,600
|
)
|
|
(10,351
|
)
|
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
$10.4 million
. The liability is comprised of
$9.2 million
of deferred tax liability related to the difference between the book and tax basis of identifiable assets and
$1.2 million
of liabilities arising from the difference between the book and tax basis of tangible asset and liability accounts.
The goodwill and
$22.2 million
of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include
$18.1 million
allocated to customer relationships and
$1.6 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.
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.
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 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) August 31, 2017
|
|
Preliminary Measurement Period Adjustments
|
|
(as adjusted) August 31, 2017
|
Cash
|
$
|
1,130
|
|
|
$
|
—
|
|
|
$
|
1,130
|
|
Current assets
|
18,031
|
|
|
(64
|
)
|
|
17,967
|
|
Property, plant and equipment
|
4,785
|
|
|
—
|
|
|
4,785
|
|
Goodwill
|
14,590
|
|
|
(59
|
)
|
|
14,531
|
|
Other intangibles
|
9,600
|
|
|
—
|
|
|
9,600
|
|
Current liabilities
|
(6,810
|
)
|
|
(130
|
)
|
|
(6,940
|
)
|
|
|
|
|
|
|
Net assets acquired and liabilities assumed
|
$
|
41,326
|
|
|
$
|
(253
|
)
|
|
$
|
41,073
|
|
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
$3.3 million
allocated to customer relationships and
$0.1 million
allocated to backlog, which are to be amortized over periods of
6
years and
3
months, respectively. 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 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) October 17, 2017
|
|
Preliminary Measurement Period Adjustments
|
|
(as adjusted) October 17, 2017
|
Cash
|
$
|
3,420
|
|
|
$
|
—
|
|
|
$
|
3,420
|
|
Current assets
|
17,197
|
|
|
—
|
|
|
17,197
|
|
Property, plant and equipment
|
1,120
|
|
|
—
|
|
|
1,120
|
|
Goodwill
|
67,176
|
|
|
1,032
|
|
|
68,208
|
|
Other intangibles
|
43,444
|
|
|
—
|
|
|
43,444
|
|
Current liabilities
|
(5,994
|
)
|
|
(398
|
)
|
|
(6,392
|
)
|
Long term deferred tax liability
|
(16,456
|
)
|
|
—
|
|
|
(16,456
|
)
|
Other non-current liabilities
|
(1,907
|
)
|
|
(193
|
)
|
|
(2,100
|
)
|
|
|
|
|
|
|
Net assets acquired and liabilities assumed
|
$
|
108,000
|
|
|
$
|
441
|
|
|
$
|
108,441
|
|
The long term deferred tax liability amounted to
$16.5 million
. The net liability is comprised of
$16.3 million
of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and
$0.2 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
$28.2 million
of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include
$14.9 million
allocated to customer relationships and
$0.3 million
allocated to backlog, which are to be amortized over periods of
5
years and
3
months, respectively. 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
$34.1 million
, net of cash acquired. The purchase price is subject to adjustment based upon a working capital provision provided for by the purchase agreement. The company expects to finalize this in the second 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) December 7, 2017
|
|
Preliminary Measurement Period Adjustments
|
|
(as adjusted) December 7, 2017
|
Cash
|
$
|
6,766
|
|
|
$
|
—
|
|
|
$
|
6,766
|
|
Current assets
|
3,428
|
|
|
(111
|
)
|
|
3,317
|
|
Property, plant and equipment
|
447
|
|
|
(26
|
)
|
|
421
|
|
Goodwill
|
30,072
|
|
|
136
|
|
|
30,208
|
|
Other intangibles
|
11,491
|
|
|
—
|
|
|
11,491
|
|
Current liabilities
|
(7,987
|
)
|
|
(29
|
)
|
|
(8,016
|
)
|
Long term deferred tax liability
|
(3,305
|
)
|
|
30
|
|
|
(3,275
|
)
|
|
|
|
|
|
|
Consideration paid at closing
|
$
|
40,912
|
|
|
$
|
—
|
|
|
$
|
40,912
|
|
|
|
|
|
|
|
Contingent consideration
|
751
|
|
|
—
|
|
|
751
|
|
|
|
|
|
|
|
Net assets acquired and liabilities assumed
|
$
|
41,663
|
|
|
$
|
—
|
|
|
$
|
41,663
|
|
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 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 expect to finalize this in the second quarter of 2018.
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
|
Cash
|
$
|
5
|
|
Current assets
|
5,301
|
|
Property, plant and equipment
|
3,557
|
|
Goodwill
|
12,686
|
|
Other intangibles
|
8,081
|
|
Current liabilities
|
(3,800
|
)
|
|
|
Net assets acquired and liabilities assumed
|
$
|
25,830
|
|
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 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 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.
Pro Forma Financial Information
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the
three months ended
March 31, 2018
and
April 1, 2017
, assumes the 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico and the 2018 acquisition of Hinds-Bock 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):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2018
|
|
April 1, 2017
|
Net sales
|
$
|
587,242
|
|
|
$
|
597,078
|
|
Net earnings
|
67,081
|
|
|
65,750
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
|
|
Basic
|
1.21
|
|
|
1.15
|
|
Diluted
|
1.21
|
|
|
1.15
|
|
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.
From time to time, the company is subject to proceedings, lawsuits and other claims related to products, suppliers, employees, customers and competitors. The company maintains insurance to partially cover product liability, workers compensation, property and casualty, and general liability matters. The company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of accrual required, if any, for these contingencies is made after assessment of each matter and the related insurance coverage. The required accrual may change in the future due to new developments or changes in approach such as a change in settlement strategy in dealing with these matters. The company does not believe that any pending litigation will have a material effect on its financial condition, results of operations or cash flows.
|
|
4)
|
Recently Issued Accounting Standards
|
Accounting Pronouncements - Recently Adopted
In 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 an 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.
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.
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 of 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 represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. 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 update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018. The ASU requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial adoption. The company has developed a project plan for implementation and is currently in process of surveying the company's business, assessing the company's portfolio of leases, compiling a central repository of all leases and evaluating technology solutions. 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.
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.
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 30, 2017 (as reported)
|
|
Adjustments due to ASC 606
|
|
Balance at
December 30, 2017 (as adjusted)
|
|
(in thousands)
|
Balance Sheet
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Accounts receivable
|
$
|
328,421
|
|
|
$
|
(122
|
)
|
|
$
|
328,299
|
|
Inventories, net
|
424,639
|
|
|
14,993
|
|
|
439,632
|
|
Prepaid expenses and other
|
55,427
|
|
|
(4,018
|
)
|
|
51,409
|
|
Long-term deferred tax assets
|
44,565
|
|
|
1,319
|
|
|
45,884
|
|
|
|
|
|
|
|
Liabilities & Stockholders' Equity
|
|
|
|
|
|
Accrued expenses
|
322,171
|
|
|
16,557
|
|
|
338,728
|
|
Retained earnings
|
$
|
1,697,618
|
|
|
$
|
(4,405
|
)
|
|
$
|
1,693,213
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
As Reported
|
|
Balances without ASC 606
|
|
Effect of Change
|
|
(in thousands)
|
Net sales
|
$
|
584,800
|
|
|
$
|
570,658
|
|
|
$
|
14,142
|
|
Cost of sales
|
373,167
|
|
|
362,686
|
|
|
10,481
|
|
Provision for income taxes
|
21,281
|
|
|
20,310
|
|
|
971
|
|
Net earnings
|
$
|
65,420
|
|
|
$
|
62,731
|
|
|
$
|
2,689
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
1.18
|
|
|
$
|
1.13
|
|
|
|
Diluted earnings per share
|
$
|
1.18
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2018
|
|
As Reported
|
|
Balances without ASC 606
|
|
Effect of Change
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
Inventories, net
|
$
|
459,151
|
|
|
$
|
453,710
|
|
|
$
|
5,441
|
|
Prepaid expenses and other
|
48,464
|
|
|
51,630
|
|
|
(3,166
|
)
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Accrued expenses
|
305,132
|
|
|
310,104
|
|
|
4,180
|
|
Long-term deferred tax liability
|
91,433
|
|
|
90,816
|
|
|
(456
|
)
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Retained earnings
|
$
|
1,757,500
|
|
|
$
|
1,756,051
|
|
|
$
|
(1,449
|
)
|
Disaggregation of Revenue
We disaggregate our net sales by reportable operation 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Foodservice
|
|
Food Processing
|
|
Residential Kitchen
|
|
Total
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
$
|
255,113
|
|
|
$
|
66,935
|
|
|
$
|
78,560
|
|
|
$
|
400,608
|
|
Asia
|
29,032
|
|
|
5,712
|
|
|
1,519
|
|
|
36,263
|
|
Europe and Middle East
|
66,611
|
|
|
8,732
|
|
|
55,055
|
|
|
130,398
|
|
Latin America
|
9,148
|
|
|
7,193
|
|
|
1,190
|
|
|
17,531
|
|
Total
|
$
|
359,904
|
|
|
$
|
88,572
|
|
|
$
|
136,324
|
|
|
$
|
584,800
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 1, 2017
|
|
|
|
|
|
|
|
United States and Canada
|
$
|
224,622
|
|
|
$
|
59,745
|
|
|
$
|
80,838
|
|
|
$
|
365,205
|
|
Asia
|
32,250
|
|
|
4,423
|
|
|
2,538
|
|
|
39,211
|
|
Europe and Middle East
|
46,493
|
|
|
7,118
|
|
|
56,347
|
|
|
109,958
|
|
Latin America
|
8,884
|
|
|
5,990
|
|
|
1,049
|
|
|
15,923
|
|
Total
|
$
|
312,249
|
|
|
$
|
77,276
|
|
|
$
|
140,772
|
|
|
$
|
530,297
|
|
Contract Balances:
Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in prepaid expenses and other in the Condensed Consolidated Balance Sheet. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Accounts receivable are not considered contract assets under the new revenue standard as contract assets are conditioned upon the company's future satisfaction of a performance obligation. Accounts receivable, in contracts, are unconditional rights to consideration.
Contract liabilities relate to advance consideration received from customers for which revenue has not been recognized. Current contract liabilities are recorded in accrued expenses in the Condensed Consolidated Balance Sheet. 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:
|
|
|
|
|
|
|
|
|
|
Mar 31, 2018
|
|
At Adoption
|
|
(in thousands)
|
Contract assets
|
$
|
11,315
|
|
|
$
|
16,753
|
|
Contract liabilities
|
51,276
|
|
|
47,647
|
|
During the
three months period ended March 31, 2018
, the company reclassified
$7.9 million
to receivable of which was included in the contract asset balance at the beginning of the period. During the
three months period ended March 31, 2018
, the company recognized revenue of
$40.8 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
$42.4 million
during the
three months period ended March 31, 2018
. There were no contract asset impairments during
three months period ended March 31, 2018
.
6) Other Comprehensive Income
The company reports changes in equity during a period, except those resulting from investments by owners and distributions to owners, in accordance with ASC 220, "Comprehensive Income".
Changes in accumulated other comprehensive income
(1)
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustment
|
|
Pension Benefit Costs
|
|
Unrealized Gain/(Loss) Interest Rate Swap
|
|
Total
|
Balance as of December 30, 2017
|
$
|
(69,721
|
)
|
|
$
|
(203,063
|
)
|
|
$
|
6,365
|
|
|
$
|
(266,419
|
)
|
Adoption of ASU 2018-02
(2)
|
—
|
|
|
487
|
|
|
(1,619
|
)
|
|
(1,132
|
)
|
Other comprehensive income before reclassification
|
21,802
|
|
|
(9,361
|
)
|
|
8,186
|
|
|
20,627
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
(12
|
)
|
Net current-period other comprehensive income
|
$
|
21,802
|
|
|
$
|
(8,874
|
)
|
|
$
|
6,555
|
|
|
$
|
19,483
|
|
Balance as of March 31, 2018
|
$
|
(47,919
|
)
|
|
$
|
(211,937
|
)
|
|
$
|
12,920
|
|
|
$
|
(246,936
|
)
|
(1) As of
March 31, 2018
pension and interest rate swap amounts are net of tax of
$(44.9) million
and
$4.3 million
, respectively. During the
three months ended
March 31, 2018
, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of
$(1.3) million
and
$0.1 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
|
|
Mar 31, 2018
|
|
Apr 1, 2017
|
Net earnings
|
$
|
65,420
|
|
|
$
|
70,702
|
|
Currency translation adjustment
|
21,802
|
|
|
10,835
|
|
Pension liability adjustment, net of tax
|
(8,874
|
)
|
|
(2,527
|
)
|
Unrealized gain on interest rate swaps, net of tax
|
6,555
|
|
|
500
|
|
Comprehensive income
|
$
|
84,903
|
|
|
$
|
79,510
|
|
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
March 31, 2018
and
December 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
Mar 31, 2018
|
|
Dec 30, 2017
|
|
(in thousands)
|
Raw materials and parts
|
$
|
193,565
|
|
|
$
|
180,559
|
|
Work-in-process
|
49,065
|
|
|
38,917
|
|
Finished goods
|
216,521
|
|
|
205,163
|
|
|
$
|
459,151
|
|
|
$
|
424,639
|
|
Changes in the carrying amount of goodwill for the
three months ended
March 31, 2018
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Foodservice
|
|
Food
Processing
|
|
Residential Kitchen
|
|
Total
|
Balance as of December 30, 2017
|
$
|
631,451
|
|
|
$
|
198,278
|
|
|
$
|
435,081
|
|
|
$
|
1,264,810
|
|
Goodwill acquired during the year
|
2,802
|
|
|
12,686
|
|
|
—
|
|
|
15,488
|
|
Measurement period adjustments to goodwill acquired in prior year
|
934
|
|
|
132
|
|
|
—
|
|
|
1,066
|
|
Exchange effect
|
618
|
|
|
1,269
|
|
|
10,645
|
|
|
12,532
|
|
Balance as of March 31, 2018
|
$
|
635,805
|
|
|
$
|
212,365
|
|
|
$
|
445,726
|
|
|
$
|
1,293,896
|
|
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 30, 2017
|
|
Estimated
Weighted Avg
Remaining
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Estimated
Weighted Avg
Remaining
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
5.0
|
|
$
|
333,922
|
|
|
$
|
(180,081
|
)
|
|
5.2
|
|
$
|
330,496
|
|
|
$
|
(171,005
|
)
|
Backlog
|
0.1
|
|
20,138
|
|
|
(19,913
|
)
|
|
0.8
|
|
19,689
|
|
|
(18,081
|
)
|
Developed technology
|
4.1
|
|
22,897
|
|
|
(18,457
|
)
|
|
4.2
|
|
22,485
|
|
|
(18,248
|
)
|
|
|
|
$
|
376,957
|
|
|
$
|
(218,451
|
)
|
|
|
|
$
|
372,670
|
|
|
$
|
(207,334
|
)
|
Indefinite-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
$
|
629,007
|
|
|
|
|
|
|
|
$
|
615,090
|
|
|
|
|
The aggregate intangible amortization expense was
$11.5 million
and
$6.8 million
for the
first
quarter periods ended
March 31, 2018
and
April 1, 2017
, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
|
|
|
|
|
|
Twelve Month Period Ending
|
|
Amortization Expense
|
|
|
|
2019
|
|
$
|
36,523
|
|
2020
|
|
30,105
|
|
2021
|
|
28,435
|
|
2022
|
|
25,398
|
|
2023
|
|
19,475
|
|
Thereafter
|
|
18,570
|
|
|
|
$
|
158,506
|
|
10) Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
Mar 31, 2018
|
|
Dec 30, 2017
|
|
(in thousands)
|
Accrued payroll and related expenses
|
$
|
62,737
|
|
|
$
|
67,935
|
|
Accrued warranty
|
54,069
|
|
|
52,834
|
|
Advanced customer deposits
|
51,276
|
|
|
31,069
|
|
Accrued customer rebates
|
25,917
|
|
|
48,590
|
|
Accrued professional fees
|
17,515
|
|
|
18,250
|
|
Accrued sales and other tax
|
14,481
|
|
|
20,881
|
|
Accrued agent commission
|
11,443
|
|
|
11,035
|
|
Accrued product liability and workers compensation
|
10,872
|
|
|
11,976
|
|
Product recall
|
5,749
|
|
|
6,068
|
|
Restructuring
|
1,561
|
|
|
1,715
|
|
Other accrued expenses
|
49,512
|
|
|
51,818
|
|
|
|
|
|
|
$
|
305,132
|
|
|
$
|
322,171
|
|
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:
|
|
|
|
|
|
Three Months Ended
|
|
Mar 31, 2018
|
|
(in thousands)
|
Balance as of December 30, 2017
|
$
|
52,834
|
|
Warranty reserve related to acquisitions
|
69
|
|
Warranty expense
|
14,488
|
|
Warranty claims
|
(13,322
|
)
|
Balance as of March 31, 2018
|
$
|
54,069
|
|
|
|
12)
|
Financing Arrangements
|
|
|
|
|
|
|
|
|
|
|
Mar 31, 2018
|
|
Dec 30, 2017
|
|
(in thousands)
|
Credit Facility
|
$
|
1,043,108
|
|
|
$
|
1,022,935
|
|
Other international credit facilities
|
5,715
|
|
|
5,768
|
|
Other debt arrangement
|
175
|
|
|
178
|
|
Total debt
|
$
|
1,048,998
|
|
|
$
|
1,028,881
|
|
Less: Current maturities of long-term debt
|
5,113
|
|
|
5,149
|
|
Long-term debt
|
$
|
1,043,885
|
|
|
$
|
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
March 31, 2018
, the company had
$1,043.1 million
of borrowings outstanding under the Credit Facility, including
$1,001.0 million
of borrowings in U.S. Dollars and
$42.1 million
of borrowings denominated in British Pounds. The company also had
$8.3 million
in outstanding letters of credit as of
March 31, 2018
, which reduces the borrowing availability under the Credit Facility. Remaining borrowing availability under this facility was
$1.4 billion
at
March 31, 2018
.
At
March 31, 2018
, borrowings under the Credit Facility accrued interest at a rate of
1.25%
above LIBOR per annum or
0.25%
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
2.94%
for 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%
per annum as of
March 31, 2018
.
In addition, the company has other international credit facilities to fund working capital needs outside the United States and the United Kingdom. At
March 31, 2018
, these foreign credit facilities amounted to
$5.7 million
in U.S. Dollars with a weighted average per annum interest rate of approximately
5.85%
.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 31, 2018
|
|
Dec 30, 2017
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Total debt
|
$
|
1,048,998
|
|
|
$
|
1,048,998
|
|
|
$
|
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
March 31, 2018
, the company had outstanding floating-to-fixed interest rate swaps totaling
$499.0 million
notional amount carrying an average interest rate of
1.66%
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
March 31, 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
gain
of
$0.1 million
at the end of the
first
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
March 31, 2018
, the fair value of these instruments was an
asset
of
$16.9 million
. The change in fair value of these swap agreements in the first
three
months of
2018
was a
gain
of
$6.7 million
, net of taxes.
The following table summarizes the company’s fair value of interest rate swaps (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
Balance Sheet Presentation
|
|
Mar 31, 2018
|
|
|
Dec 30, 2017
|
|
Fair value
|
Other assets
|
|
$
|
16,946
|
|
|
$
|
10,266
|
|
The impact on earnings from interest rate swaps was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Presentation of Gain/(loss)
|
|
Mar 31, 2018
|
|
Apr 1, 2017
|
Gain/(loss) recognized in accumulated other comprehensive income
|
Other comprehensive income
|
|
$
|
6,620
|
|
|
$
|
312
|
|
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)
|
Interest expense
|
|
$
|
(12
|
)
|
|
$
|
(522
|
)
|
Gain/(loss) recognized in income (ineffective portion)
|
Other expense
|
|
$
|
48
|
|
|
$
|
(7
|
)
|
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.
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, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, Induc, Jade, Joe Tap, L2F, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, QualServ, Southbend, Star, Sveba Dahlen, 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.
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
|
|
Mar 31, 2018
|
|
Apr 1, 2017
|
|
Sales
|
|
Percent
|
|
Sales
|
|
Percent
|
Business Segments:
|
|
|
|
|
|
|
|
Commercial Foodservice
|
$
|
359,904
|
|
|
61.5
|
%
|
|
$
|
312,249
|
|
|
58.9
|
%
|
Food Processing
|
88,572
|
|
|
15.2
|
|
|
77,276
|
|
|
14.6
|
|
Residential Kitchen
|
136,324
|
|
|
23.3
|
|
|
140,772
|
|
|
26.5
|
|
Total
|
$
|
584,800
|
|
|
100.0
|
%
|
|
$
|
530,297
|
|
|
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
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
359,904
|
|
|
$
|
88,572
|
|
|
$
|
136,324
|
|
|
$
|
—
|
|
|
$
|
584,800
|
|
Income (loss) from operations
(3)
|
82,546
|
|
|
10,678
|
|
|
6,589
|
|
|
(12,821
|
)
|
|
86,992
|
|
Depreciation and amortization expense
|
8,000
|
|
|
4,047
|
|
|
7,509
|
|
|
468
|
|
|
20,024
|
|
Net capital expenditures
|
5,777
|
|
|
6,496
|
|
|
4,898
|
|
|
(514
|
)
|
|
16,657
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,724,174
|
|
|
$
|
484,038
|
|
|
$
|
1,178,110
|
|
|
$
|
40,572
|
|
|
$
|
3,426,894
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 1, 2017
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
312,249
|
|
|
$
|
77,276
|
|
|
$
|
140,772
|
|
|
$
|
—
|
|
|
$
|
530,297
|
|
Income (loss) from operations
(3) (4)
|
80,541
|
|
|
17,989
|
|
|
10,574
|
|
|
(16,363
|
)
|
|
92,741
|
|
Depreciation and amortization expense
|
4,982
|
|
|
1,387
|
|
|
7,207
|
|
|
481
|
|
|
14,057
|
|
Net capital expenditures
|
5,985
|
|
|
638
|
|
|
1,282
|
|
|
371
|
|
|
8,276
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,359,869
|
|
|
$
|
344,307
|
|
|
$
|
1,200,241
|
|
|
$
|
38,614
|
|
|
$
|
2,943,031
|
|
|
|
|
|
|
|
|
|
|
|
(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.
Geographic Information
Long-lived assets, not including goodwill and other intangibles (in thousands):
|
|
|
|
|
|
|
|
|
|
Mar 31, 2018
|
|
Apr 1, 2017
|
United States and Canada
|
$
|
239,179
|
|
|
$
|
178,363
|
|
Asia
|
13,294
|
|
|
15,357
|
|
Europe and Middle East
|
131,652
|
|
|
120,505
|
|
Latin America
|
1,705
|
|
|
1,050
|
|
Total international
|
$
|
146,651
|
|
|
$
|
136,912
|
|
|
$
|
385,830
|
|
|
$
|
315,275
|
|
|
|
15)
|
Employee Retirement 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
|
|
March 31, 2018
|
|
April 1, 2017
|
Net Periodic Pension Benefit:
|
|
|
|
Service cost
|
$
|
977
|
|
|
$
|
964
|
|
Interest cost
|
8,278
|
|
|
7,764
|
|
Expected return on assets
|
(19,278
|
)
|
|
(16,774
|
)
|
Amortization of net (gain) loss
|
1,032
|
|
|
720
|
|
Curtailment loss (gain)
|
287
|
|
|
—
|
|
Pension settlement gain
|
(24
|
)
|
|
(48
|
)
|
|
$
|
(8,728
|
)
|
|
$
|
(7,374
|
)
|
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 ended April 1, 2017, in which previously reported Selling, general and administrative expenses was increased by
$8.3 million
. Net income did not change as a result of the adoption of this standard.
|
|
(b)
|
Defined Contribution Plans
|
The company maintains
two
separate defined contribution 401K 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 U.K. based employees.
Commercial Foodservice Equipment Group:
During the fiscal years 2018 and 2017, the company undertook cost reduction initiatives related to the entire Commercial Foodservice Equipment Group. These actions, which are not material to the company's operations, resulted in a charge of
$1.0 million
in the
three months ended
March 31, 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 the first six months of fiscal year 2018 and the restructuring costs in the future are not expected to be significant related to these actions.
Residential Kitchen Equipment Group:
During fiscal years 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. The company recorded additional expense of
$0.7 million
in the
three months ended
March 31, 2018
, related to the AGA Group. The expense primarily related to additional headcount reductions in conjunction with disposition of certain facilities and business operations. This expense is reflected in restructuring expenses in the Condensed Consolidated Statements of Comprehensive Income. The cumulative expenses incurred to date for these initiatives is approximately
$41.3 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 the first six months of 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 December 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
|
Balance as of December 30, 2017
|
|
$
|
3,698
|
|
|
$
|
1,467
|
|
|
$
|
157
|
|
|
$
|
5,322
|
|
Expenses
|
|
777
|
|
|
(183
|
)
|
|
146
|
|
|
740
|
|
Exchange
|
|
126
|
|
|
26
|
|
|
3
|
|
|
155
|
|
Payments/Utilization
|
|
(2,307
|
)
|
|
(123
|
)
|
|
(67
|
)
|
|
(2,497
|
)
|
Balance as of March 31, 2018
|
|
$
|
2,294
|
|
|
$
|
1,187
|
|
|
$
|
239
|
|
|
$
|
3,720
|
|
On
April 3, 2018
, the company completed its acquisition of all of the capital stock of Ve.Ma.C Srl ("Ve.Ma.C"). Ve.Ma.C is a leading designer and manufacturer of handling, automation and robotics solutions for protein food processing lines for a purchase price of approximately
$12.3 million
. Ve.Ma.C is located in Castelnuovo Rangone, Italy and has annual revenues of approximately
$15.0 million
.
On
April 27, 2018
, the company completed its acquisition of all of the capital stock of Firex S.r.l. ("Firex"). Firex is a leading manufacturer of steam cooking equipment for the commercial foodservice industry for a purchase price of approximately
$64.6 million
. Firex is located in Sedico, Italy and has annual revenues of approximately
$20.0 million
.
On
May 10, 2018
, the company completed its acquisition of all of the capital stock of Josper S.A. ("Josper"). Josper is a leading manufacturer of charcoal grill and oven cooking equipment for commercial foodservice and residential applications for a purchase price of approximately
$43.1 million
. Josper is located in Pineda de Mar, Spain and has annual revenues of approximately
$20.0 million
.