ACQUISITIONS AND PURCHASE ACCOUNTING

12 Months Ended

Dec. 31, 2011

ACQUISITIONS AND PURCHASE ACCOUNTING

(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 and food processing 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 date of acquisition.

PerfectFry

On July 13, 2010, the company completed its acquisition of substantially all of the assets and operations of PerfectFry Company LTD (“PerfectFry”), a leading manufacturer of ventless countertop frying units for the commercial foodservice industry for a purchase price of approximately $4.6 million, net of cash acquired.

The final allocation of cash paid for the PerfectFry acquisition is summarized as follows (in thousands):

	(as initially reported)			Measurement Period			(as adjusted)
	Jul 13, 2010			Adjustments			Jul 13, 2010
Cash	$	247		$	—		$	247
Current assets		1,949			(316	)		1,633
Goodwill		2,502			(296	)		2,206
Other intangibles		1,653			—			1,653
Current liabilities		(1,497	)		612			(885	)
Net assets acquired and liabilities assumed	$	4,854		$	—		$	4,854

The goodwill and $1.2 million of other intangibles associated with the trade name are subject to the non-amortization provisions of Accounting Standards Codification (“ASC”) 350 “Intangibles – Goodwill and Other.” Other intangibles also include $0.1 million allocated to developed technology and $0.3 million allocated to customer relationships which are to be amortized over a period of 5 years. Goodwill and other intangibles of PerfectFry are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.

Cozzini

On September 21, 2010, the company completed its acquisition of the food processing equipment business of Cozzini, Inc. (“Cozzini”), a leading manufacturer of equipment solutions for the food processing industry, for an aggregate purchase price of approximately $19.2 million, net of cash acquired, including $17.4 million in cash and 34,263 shares of Middleby common stock valued at $1.8 million. An additional contingent payment of $2.0 million was made in the first quarter of 2011 upon the achievement of certain sales targets. During the second quarter of 2011, the company finalized the working capital provision resulting in no additional payments.

The final allocation of cash paid for the Cozzini acquisition is summarized as follows (in thousands):

	(as initially reported)			Measurement Period			(as adjusted)
	Sep 21, 2010			Adjustments			Sep 21, 2010
Cash	$	557		$	30		$	587
Current assets		13,601			172			13,773
Property, plant and equipment		863			(30	)		833
Goodwill		9,601			(1,745	)		7,856
Other intangibles		6,691			1,119			7,810
Other assets		636			72			708
Current liabilities		(11,859	)		68			(11,791	)
Consideration paid at closing	$	20,090		$	(314	)	$	19,776
Contingent consideration		2,000			—			2,000
Net assets acquired and liabilities assumed	$	22,090		$	(314	)	$	21,776

The goodwill and $3.6 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $2.7 million allocated to customer relationships and $1.4 million allocated to backlog which are to be amortized over the periods of 4 years and 3 months respectively. Goodwill and other intangibles of Cozzini are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.

Beech

On April 12, 2011, the company completed its acquisition of all of the capital stock of J.W. Beech Pty. Ltd., together with its subsidiary, Beech Ovens Pty. Ltd. (collectively “Beech”), a leading manufacturer of stone hearth ovens for the commercial foodservice industry for a purchase price of approximately $13.0 million, net of cash acquired. The purchase price is subject to adjustment based on a working capital provision with the purchase agreement. The company expects to finalize this in the first quarter of 2012.

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)			Measurement Period			(as adjusted)
	Apr 12, 2011			Adjustments			Apr 12, 2011
Cash	$	525		$	—		$	525
Current assets		1,145			(299	)		846
Property, plant and equipment		57			—			57
Goodwill		11,433			(192	)		11,241
Other intangibles		2,317			(294	)		2,023
Current liabilities		(1,100	)		(41	)		(1,141	)
Other non-current liabilities		(893	)		826			(67	)
Net assets acquired and liabilities assumed	$	13,484		$	—		$	13,484

The goodwill and $1.9 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $0.1 million allocated to backlog which is to be amortized over a period of 3 months. Goodwill and other intangibles of Beech 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. Such changes are not expected to be significant. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

Lincat Group

On May 27, 2011, the company completed its acquisition of Lincat Group PLC (“Lincat”), a leading manufacturer of ranges, ovens, and counterline equipment for the commercial foodservice industry for a purchase price of approximately $82.1 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)			Measurement Period			(as adjusted)
	May 27, 2011			Adjustments			May 27, 2011
Cash	$	12,392		$	—		$	12,392
Current assets		16,992			—			16,992
Property, plant and equipment		14,368			—			14,368
Goodwill		45,765			(7,802	)		37,963
Other intangibles		31,343			1,976			33,319
Current liabilities		(10,924	)		(6	)		(10,930	)
Long-term deferred tax liability		(13,803	)		5,832			(7,971	)
Other non-current liabilities		(1,611	)		—			(1,611	)
Net assets acquired and liabilities assumed	$	94,522		$	—		$	94,522

The goodwill and $15.2 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $17.6 million allocated to customer relationships and $0.5 million allocated to backlog, which are to be amortized over periods of 5 years and 3 months, respectively. Goodwill and other intangibles of Lincat 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.

Danfotech

On July 5, 2011, the company completed its acquisition of all of the capital stock of Danfotech Inc. (“Danfotech”), a manufacturer of meat presses and defrosting equipment for the food processing industry for a purchase price of approximately $6.1 million, net of cash acquired. The purchase price is subject to adjustment based upon a working capital provision within the purchase agreements. Pursuant to terms of the purchase agreement, in December 2011 the company purchased additional assets from the sellers of Danfotech for approximately $0.7 million. An additional contingent payment is also payable upon the achievement of certain sales targets. The purchase price is subject to adjustment based on a working capital provision within the purchase agreement. The company expects to finalize this in the first quarter of 2012.

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)			Measurement Period			(as adjusted)
	Jul 5, 2011			Adjustments			Jul 5, 2011
Cash	$	165		$	—		$	165
Current assets		1,073			(366	)		707
Property, plant and equipment		102			(55	)		47
Goodwill		3,423			2,846			6,269
Other intangibles		1,864			(778	)		1,086
Other assets		4			—			4
Current liabilities		(309	)		(753	)		(1,062	)
Long-term deferred tax liability		(46	)		(144	)		(190	)
Other non-current liabilities		—			(750	)		(750	)
Consideration paid at closing	$	6,276		$	—		$	6,276
Additional assets acquired post closing		—			730			730
Contingent consideration		1,500			—			1,500
Net assets acquired and liabilities assumed	$	7,776		$	730		$	8,506

The long term deferred tax liabilities amounted to $0.2 million. This net liability represents $0.1 million arising from the difference between the book and tax basis of tangible assets and $0.1 million related to the difference between the book and tax basis of identifiable intangible assets.

The goodwill and $0.6 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $0.4 million allocated to customer relationships, $0.1 million allocated to developed technology and less than $0.1 million allocated to backlog, which are to be amortized over periods of 4 years, 3 years and 3 months, respectively. Goodwill and other intangibles of Danfotech 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.

Maurer

On July 22, 2011, the company completed its acquisition of substantially all of the assets of Maurer-Atmos GmbH (“Maurer”), a manufacturer of batch ovens and thermal processing systems for the food processing industry for a purchase price of approximately $3.3 million. In the fourth quarter of 2011, pursuant to terms of the purchase agreement, the purchase price was adjusted to reflect the final valuation of acquired inventories, resulting in a net reduction of approximately $0.6 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)			Measurement Period			(as adjusted)
	Jul 22, 2011			Adjustments			Jul 22, 2011
Current assets	$	1,673		$	(668	)	$	1,005
Property, plant and equipment		628			—			628
Goodwill		870			122			992
Other intangibles		922			—			922
Current liabilities		(246	)		(36	)		(282	)
Net assets acquired and liabilities assumed	$	3,847		$	(582	)	$	3,265

The goodwill and $0.6 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $0.3 million allocated to customer relationships and less than $0.1 million allocated to developed technology, which are to be amortized over periods of 4 years and 3 years, respectively. Goodwill and other intangibles of Maurer 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.

Auto-Bake

On August 1, 2011, the company completed its acquisition of all of the capital stock of Auto-Bake Proprietary Limited (“Auto-Bake”), a manufacturer of automated baking ovens for the food processing industry for a purchase price of approximately $22.5 million, net of cash acquired. During the fourth quarter of 2011, the company finalized the working capital provision provided for by the purchase agreement resulting in no additional adjustment to the purchase price.

The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed (in thousands):

	(as initially reported)			Measurement Period			(as adjusted)
	Aug 1, 2011			Adjustments			Aug 1, 2011
Cash	$	110		$	—		$	110
Current assets		3,209			(28	)		3,181
Property, plant and equipment		477			—			477
Goodwill		16,259			1,940			18,199
Other intangibles		6,784			(2,726	)		4,058
Other assets		336			(11	)		325
Current liabilities		(2,506	)		8			(2,498	)
Long-term deferred tax liability		(2,035	)		817			(1,218	)
Net assets acquired and liabilities assumed	$	22,634		$	—		$	22,634

The goodwill and $2.0 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $1.9 million allocated to customer relationships and $0.2 million allocated to backlog, which are to be amortized over periods of 5 years and 3 months, respectively. Goodwill and other intangibles of Auto-Bake 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.

Drake

On December 2, 2011, the company completed its acquisition of all of the capital stock of the F.R. Drake Company (“Drake”), a manufacturer of automated loading systems for the food processing industry for a purchase price of approximately $21.7 million, net of cash acquired. The purchase price is subject to adjustment based upon a working capital provision within the purchase agreement.

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):

	Dec 2, 2011
Cash	$	427
Current assets		4,245
Deferred tax asset		390
Property, plant and equipment		1,773
Goodwill		15,237
Other intangibles		5,810
Other assets		9
Current liabilities		(3,334	)
Long-term deferred tax liability		(2,395	)
Net assets acquired and liabilities assumed	$	22,162

The current deferred tax asset and long term deferred tax liability amounted to $0.4 million and $2.4 million, respectively. The current deferred tax asset represents $0.4 million of assets arising from the difference between the book and tax basis of tangible asset and liability accounts. The net long term deferred tax liability is comprised of $0.1 million arising from the difference between the book and tax basis of tangible assets and liability accounts and $2.3 million related to the difference between the book and tax basis of identifiable intangible assets.

The goodwill and $3.2 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $2.5 million allocated to customer relationships and $0.1 million allocated to backlog, which are to be amortized over periods of 5 years and 1 month, respectively. Goodwill and other intangibles of Drake 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.

Armor Inox

On December 21, 2011, the company completed its acquisition of all of the capital stock ofArmor Inox, S.A., together with its subsidiaries Armor Inox Production S.a.r.l and Armor Inox UK Ltd (collectively “Armor Inox”, a manufacturer of thermal processing systems for the food processing industry for a purchase price of approximately $28.7 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):

	Dec 21, 2011
Cash	$	18,201
Current assets		14,612
Property, plant and equipment		941
Goodwill		23,789
Other intangibles		12,155
Other assets		25
Current liabilities		(18,440	)
Long-term deferred tax liability		(3,975	)
Other non-current liabilities		(450	)
Net assets acquired and liabilities assumed	$	46,858

The goodwill and $3.9 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also includes $1.3 million allocated to customer relationships, $1.8 million allocated to developed technology and $5.2 million allocated to backlog, which are to be amortized over periods of 5 years, 6 years and 2 years, respectively. Goodwill and other intangibles of Armor Inox 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.

Pro forma financial information

In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the years ended December 31, 2011 and January 1, 2011, assumes the 2011 acquisitions of Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake and Armor Inox were completed on January 3, 2010.  The following pro forma results include adjustments to reflect additional interest expense to fund the acquisition, amortization of intangibles associated with the acquisition, and the effects of adjustments made to the carrying value of certain assets (in thousands, except per share data:

	Dec 31, 2011		Jan 1, 2011
Net sales	$	932,479	$	862,351
Net earnings		101,718		87,120
Net earnings per share:
Basic		5.65		4.89
Diluted		5.49		4.70

The supplemental pro forma financial information presented above has been prepared for comparative purposes and is not necessarily indicative of either the results of operations that would have occurred had the acquisitions of these companies been effective on January 3, 2010 nor are they indicative of any future results.  Also, the pro forma financial information does not reflect the costs which the company has incurred or may incur to integrate Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake and Armor Inox. The 2010 acquisitions of PerfectFry and Cozzini were not considered to be material, individually or in aggregate.