UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April ~~3, 2021~~2, 2022


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 1-9973

THE MIDDLEBY CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			36-3352497
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification Number)


1400 Toastmaster Drive,	Elgin,	Illinois	60120
(Address of principal executive offices)			(Zip Code)


Registrant's telephone number, including area code:			(847)			741-3300

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer," "large accelerated filer," "smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	MIDD	Nasdaq Global Select Market

As of May ~~7, 2021,~~6, 2022, there were ~~55,632,403~~54,389,831 shares of the registrant's common stock outstanding.

THE MIDDLEBY CORPORATION

QUARTER ENDED APRIL ~~3, 2021~~2, 2022

INDEX


DESCRIPTION		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	CONDENSED CONSOLIDATED BALANCE SHEETS as of APRIL ~~3, 2021~~2, 2022 and JANUARY ~~2, 2021~~1, 2022	1

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three months ended APRIL 2, 2022 and APRIL 3, 2021 ~~and MARCH 28, 2020~~	2

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three months ended APRIL 2, 2022 and APRIL 3, 2021 ~~and MARCH 28, 2020~~	3

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the three months ended APRIL 2, 2022 and APRIL 3, 2021 ~~and MARCH 28, 2020~~	4

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item ~~1A.~~	~~Risk Factors~~	33

~~Item~~ 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3633

Item 6.	Exhibits	3734

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(Unaudited)


ASSETS	ASSETS	Apr 3, 2021		Jan 2, 2021		ASSETS	Apr 2, 2022		Jan 1, 2022
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	309,331	$	268,103	Cash and cash equivalents	$	146,676	$	180,362
Accounts receivable, net of reserve for doubtful accounts of $19,443 and $19,225		427,935		363,361
Accounts receivable, net of reserve for doubtful accounts of $17,436 and $18,770						Accounts receivable, net of reserve for doubtful accounts of $17,436 and $18,770	629,855		577,142
Inventories, net	Inventories, net	574,277		540,198		Inventories, net	924,763		837,418
Prepaid expenses and other	Prepaid expenses and other	73,933		81,049		Prepaid expenses and other	108,721		92,269
Prepaid taxes	Prepaid taxes	7,634		17,782		Prepaid taxes	13,805		19,894
Total current assets	Total current assets	1,393,110		1,270,493		Total current assets	1,823,820		1,707,085
Property, plant and equipment, net of accumulated depreciation of $237,875 and $229,871		336,257		344,482
Property, plant and equipment, net of accumulated depreciation of $272,725 and $266,203						Property, plant and equipment, net of accumulated depreciation of $272,725 and $266,203	382,574		380,980
Goodwill	Goodwill	1,928,644		1,934,261		Goodwill	2,236,441		2,243,469
Other intangibles, net of amortization of $422,169 and $403,347		1,428,294		1,450,381
Other intangibles, net of amortization of $475,930 and $442,208						Other intangibles, net of amortization of $475,930 and $442,208	1,835,157		1,875,377
Long-term deferred tax assets	Long-term deferred tax assets	74,159		76,052		Long-term deferred tax assets	30,621		33,194
Other assets	Other assets	129,449		126,805		Other assets	165,552		143,493
Total assets	Total assets	$	5,289,913	$	5,202,474	Total assets	$	6,474,165	$	6,383,598

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of long-term debt	Current maturities of long-term debt	$	21,093	$	22,944	Current maturities of long-term debt	$	27,693	$	27,293
Accounts payable	Accounts payable	213,431		182,773		Accounts payable	305,344		304,740
Accrued expenses	Accrued expenses	479,913		494,541		Accrued expenses	585,364		582,855
Total current liabilities	Total current liabilities	714,437		700,258		Total current liabilities	918,401		914,888
Long-term debt	Long-term debt	1,801,040		1,706,652		Long-term debt	2,570,132		2,387,001
Long-term deferred tax liability	Long-term deferred tax liability	126,068		147,224		Long-term deferred tax liability	200,500		186,935
Accrued pension benefits	Accrued pension benefits	462,869		469,500		Accrued pension benefits	202,945		219,680
Other non-current liabilities	Other non-current liabilities	190,287		202,191		Other non-current liabilities	154,220		180,818
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; NaN issued		0		0
Common stock, $0.01 par value; 63,651,773 and 63,651,773 shares issued in 2021 and 2020, respectively		147		147
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued						Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 63,509,015 and 63,666,020 shares issued in 2022 and 2021, respectively						Common stock, $0.01 par value; 63,509,015 and 63,666,020 shares issued in 2022 and 2021, respectively	147		147
Paid-in capital	Paid-in capital	361,487		433,308		Paid-in capital	363,741		357,309
Treasury stock, at cost; 8,023,769 and 8,013,296 shares in 2021 and 2020		(538,896)		(537,134)
Treasury stock, at cost; 9,117,274 and 8,170,276 shares in 2022 and 2021						Treasury stock, at cost; 9,117,274 and 8,170,276 shares in 2022 and 2021	(736,412)		(566,399)
Retained earnings	Retained earnings	2,663,074		2,568,756		Retained earnings	3,148,058		3,062,303
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(490,600)		(488,428)		Accumulated other comprehensive loss	(347,567)		(359,084)
Total stockholders' equity	Total stockholders' equity	1,995,212		1,976,649		Total stockholders' equity	2,427,967		2,494,276
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	5,289,913	$	5,202,474	Total liabilities and stockholders' equity	$	6,474,165	$	6,383,598

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Except Per Share Data)

(Unaudited)


		Three Months Ended						Three Months Ended
			Apr 3, 2021		Mar 28, 2020				Apr 2, 2022		Apr 3, 2021
Net sales	Net sales		$	758,058	$	677,459	Net sales		$	994,676	$	758,058
Cost of sales	Cost of sales		482,184		427,269		Cost of sales		664,166		482,184
Gross profit	Gross profit		275,874		250,190		Gross profit		330,510		275,874
Selling, general and administrative expenses	Selling, general and administrative expenses		154,957		143,942		Selling, general and administrative expenses		206,071		154,957
Restructuring expenses	Restructuring expenses		794		834		Restructuring expenses		1,875		794

Gain on sale of plant	Gain on sale of plant		(1,050)		0		Gain on sale of plant		—		(1,050)

Income from operations	Income from operations		121,173		105,414		Income from operations		122,564		121,173
Interest expense and deferred financing amortization, net	Interest expense and deferred financing amortization, net		16,067		15,713		Interest expense and deferred financing amortization, net		17,654		16,067
Net periodic pension benefit (other than service costs)	Net periodic pension benefit (other than service costs)		(11,373)		(10,089)		Net periodic pension benefit (other than service costs)		(11,516)		(11,373)
Other (income) expense, net			(1,691)		3,326
Other expense (income), net							Other expense (income), net		4,061		(1,691)
Earnings before income taxes	Earnings before income taxes		118,170		96,464		Earnings before income taxes		112,365		118,170
Provision for income taxes	Provision for income taxes		28,907		22,685		Provision for income taxes		26,610		28,907
Net earnings	Net earnings		$	89,263	$	73,779	Net earnings		$	85,755	$	89,263

Net earnings per share:	Net earnings per share:						Net earnings per share:
Basic	Basic		$	1.62	$	1.33	Basic		$	1.57	$	1.62
Diluted	Diluted		$	1.59	$	1.33	Diluted		$	1.52	$	1.59
Weighted average number of shares	Weighted average number of shares						Weighted average number of shares
Basic	Basic		55,213		55,396		Basic		54,669		55,213
Dilutive common stock equivalents	Dilutive common stock equivalents		753		2		Dilutive common stock equivalents		1,694		753
Diluted	Diluted		55,966		55,398		Diluted		56,363		55,966
Comprehensive income	Comprehensive income		$	87,091	$	14,452	Comprehensive income		$	97,272	$	87,091

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(amounts in thousands)

(Unaudited)

Common
Stock Paid-in
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income/(loss) Total
Stockholders'
Equity
Balance, January 2, 2021 $ 147 $ 433,308 $ (537,134) $ 2,568,756 $ (488,428) $ 1,976,649
Net earnings 0 0 0 89,263 0 89,263
Adoption of ASU 2020-06 (1)
0 (79,430) 0 5,055 0 (74,375)
Currency translation adjustments 0 0 0 0 (10,614) (10,614)
Change in unrecognized pension benefit costs, net of tax of $(877) 0 0 0 0 (3,970) (3,970)
Unrealized gain on interest rate swap, net of tax of $4,327 0 0 0 0 12,412 12,412
Stock compensation 0 7,609 0 0 0 7,609
Purchase of treasury stock 0 0 (1,762) 0 0 (1,762)
Balance, April 3, 2021 $ 147 $ 361,487 $ (538,896) $ 2,663,074 $ (490,600) $ 1,995,212


	Common Stock		Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Total Stockholders' Equity










Balance, January 1, 2022	$	147	$	357,309	$	(566,399)	$	3,062,303	$	(359,084)	$	2,494,276
Net earnings	—		—		—		85,755		—		85,755
Currency translation adjustments	—		—		—		—		(27,191)		(27,191)
Change in unrecognized pension benefit costs, net of tax of $987	—		—		—		—		6,244		6,244
Unrealized gain on interest rate swap, net of tax of $10,892	—		—		—		—		31,116		31,116
Unrealized gain on certain investments, net of tax of $449	—		—		—		—		1,348		1,348
Stock compensation	—		13,723		—		—		—		13,723

Purchase of treasury stock	—		—		(170,013)		—		—		(170,013)
Purchase of capped calls, net of tax of $(2,364)	—		(7,291)		—		—		—		(7,291)
Balance, April 2, 2022	$	147	$	363,741	$	(736,412)	$	3,148,058	$	(347,567)	$	2,427,967


	Common Stock		Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Total Stockholders' Equity












Balance, January 2, 2021	$	147	$	433,308	$	(537,134)	$	2,568,756	$	(488,428)	$	1,976,649
Net earnings	—		—		—		89,263		—		89,263
Adoption of 2020-06 (1)	—		(79,430)		—		5,055		—		(74,375)
Currency translation adjustments	—		—		—		—		(10,614)		(10,614)
Change in unrecognized pension benefit costs, net of tax of $(877)	—		—		—		—		(3,970)		(3,970)
Unrealized gain on interest rate swap, net of tax of $4,327	—		—		—		—		12,412		12,412
Stock compensation	—		7,609		—		—		—		7,609

Purchase of treasury stock	—		—		(1,762)		—		—		(1,762)

Balance, April 3, 2021	$	147	$	361,487	$	(538,896)	$	2,663,074	$	(490,600)	$	1,995,212

(1) As of January 3, 2021 the company adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity using the modified retrospective method. The adoption of this guidance resulted in a $79.4 million reduction to paid-in capital, net of tax of $25.5 million, and the recognition of $5.1 million as an adjustment to the opening balance of retained earnings, net of tax of $1.6 million.

Common
Stock Paid-in
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income/(loss) Total
Stockholders'
Equity
Balance, December 28, 2019 $ 145 $ 387,402 $ (451,262) $ 2,361,462 $ (350,933) $ 1,946,814
Net earnings 0 0 0 73,779 0 73,779
Currency translation adjustments 0 0 0 0 (48,916) (48,916)
Change in unrecognized pension benefit costs, net of tax of $3,123 0 0 0 0 14,808 14,808
Unrealized (loss) on interest rate swap, net of tax of $(9,299) 0 0 0 0 (25,219) (25,219)
Stock compensation 0 4,159 0 0 0 4,159
Stock issuance 0 3,881 0 0 0 3,881
Purchase of treasury stock 0 0 (74,600) 0 0 (74,600)
Balance, March 28, 2020 $ 145 $ 395,442 $ (525,862) $ 2,435,241 $ (410,260) $ 1,894,706

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


		Three Months Ended					Three Months Ended
		Apr 3, 2021		Mar 28, 2020			Apr 2, 2022		Apr 3, 2021
Cash flows from operating activities--	Cash flows from operating activities--					Cash flows from operating activities--
Net earnings	Net earnings	$	89,263	$	73,779	Net earnings	$	85,755	$	89,263
Adjustments to reconcile net earnings to net cash provided by operating activities--	Adjustments to reconcile net earnings to net cash provided by operating activities--					Adjustments to reconcile net earnings to net cash provided by operating activities--
Depreciation and amortization	Depreciation and amortization	30,432		26,599		Depreciation and amortization	46,742		30,432

Non-cash share-based compensation	Non-cash share-based compensation	7,609		4,159		Non-cash share-based compensation	13,723		7,609
Deferred income taxes	Deferred income taxes	1,913		8,672		Deferred income taxes	8,586		1,913
Net periodic pension benefit (other than service costs)	Net periodic pension benefit (other than service costs)	(11,373)		(10,089)		Net periodic pension benefit (other than service costs)	(11,516)		(11,373)
Gain on sale of plant	Gain on sale of plant	(1,050)		0		Gain on sale of plant	—		(1,050)

Other non-cash items						Other non-cash items	(6,173)		—
Changes in assets and liabilities, net of acquisitions	Changes in assets and liabilities, net of acquisitions					Changes in assets and liabilities, net of acquisitions
Accounts receivable, net	Accounts receivable, net	(66,666)		33,408		Accounts receivable, net	(55,305)		(66,666)
Inventories, net	Inventories, net	(33,266)		(28,094)		Inventories, net	(88,474)		(33,266)
Prepaid expenses and other assets	Prepaid expenses and other assets	27,407		9,566		Prepaid expenses and other assets	(3,926)		27,407
Accounts payable	Accounts payable	31,662		15,001		Accounts payable	1,235		31,662
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(16,236)		(45,864)		Accrued expenses and other liabilities	(5,991)		(16,236)
Net cash provided by operating activities		59,695		87,137
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(15,344)		59,695
Cash flows from investing activities--	Cash flows from investing activities--					Cash flows from investing activities--
Net additions to property, plant and equipment	Net additions to property, plant and equipment	(8,725)		(9,181)		Net additions to property, plant and equipment	(14,497)		(8,725)
Proceeds on sale of property, plant and equipment	Proceeds on sale of property, plant and equipment	3,354		0		Proceeds on sale of property, plant and equipment	—		3,354

Purchase of intangible assets						Purchase of intangible assets	(240)		—
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(1,667)		(30,041)		Acquisitions, net of cash acquired	(9,389)		(1,667)
Net cash used in investing activities	Net cash used in investing activities	(7,038)		(39,222)		Net cash used in investing activities	(24,126)		(7,038)
Cash flows from financing activities--	Cash flows from financing activities--					Cash flows from financing activities--
Proceeds under Credit Facility	Proceeds under Credit Facility	18,995		2,303,953		Proceeds under Credit Facility	365,000		18,995
Repayments under Credit Facility	Repayments under Credit Facility	(23,683)		(1,977,453)		Repayments under Credit Facility	(177,250)		(23,683)

Premiums paid for capped call						Premiums paid for capped call	(9,655)		—
Net proceeds (repayments) under international credit facilities						Net proceeds (repayments) under international credit facilities	756		(1,757)

Net proceeds under international credit facilities		(1,757)		786
Net repayments under other debt arrangement		(78)		(11)

Repurchase of treasury stock	Repurchase of treasury stock	(1,762)		(74,600)		Repurchase of treasury stock	(170,013)		(1,762)
Debt issuance costs on Credit Facility		0		(7,577)

Other, net						Other, net	(117)		(78)

Net cash (used in) provided by financing activities		(8,285)		245,098
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	8,721		(8,285)
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(3,144)		(6,470)		Effect of exchange rates on cash and cash equivalents	(2,937)		(3,144)
Changes in cash and cash equivalents--	Changes in cash and cash equivalents--					Changes in cash and cash equivalents--
Net increase in cash and cash equivalents		41,228		286,543
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(33,686)		41,228
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	268,103		94,500		Cash and cash equivalents at beginning of year	180,362		268,103
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	309,331	$	381,043	Cash and cash equivalents at end of period	$	146,676	$	309,331

See accompanying notes

THE MIDDLEBY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APRIL ~~3, 2021~~2, 2022

(Unaudited)

1)Summary of Significant Accounting Policies

a)Basis of Presentation

The condensed consolidated financial statements have been prepared by The Middleby Corporation (the "company" or “Middleby”), pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements are unaudited and certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the company believes that the disclosures are adequate to make the information not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the company's ~~2020~~2021 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year ~~2021.~~2022.

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 April ~~3, 2021~~2, 2022 and January ~~2, 2021,~~1, 2022, the results of operations for the three months ended April 2, 2022 and April 3, 2021, ~~and March 28, 2020,~~ cash flows for the three months ended April 2, 2022 and April 3, 2021 ~~and March 28, 2020~~ and statement of stockholders' equity for the three months ended April 2, 2022 and April 3, ~~2021 and March 28, 2020.~~2021.

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 ~~$7.6~~$13.7 million and ~~$4.2~~$7.6 million for the three months period ended April 2, 2022 and April 3, 2021, ~~and March 28, 2020,~~ respectively.

c)Income Taxes

A tax provision of ~~$28.9~~$26.6 million, at an effective rate of ~~24.5%~~23.7%, was recorded during the three months period ended April ~~3, 2021,~~2, 2022, as compared to a ~~$22.7~~$28.9 million tax provision at a ~~23.5%~~24.5% effective rate in the prior year period. ~~The effective tax rates in 2021 and 2020 are higher than the federal tax rate of 21% primarily due to state taxes.~~ The effective tax rate for the three months period ended April ~~3, 2021~~ 2, 2022 is ~~higher~~lower than the comparable ~~prior~~ year rate primarily due to ~~an increase in non-deductible costs.~~excess tax benefits from share-based compensation award vesting.

d)Fair Value Measures

Accounting Standards Codification ("ASC") 820 "Fair Value Measurements and Disclosures" defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 – Unobservable inputs based the company's own assumptions.

The company’s financial assets and liabilities that are measured at fair value and are categorized using the fair value hierarchy are as follows (in thousands):


		Fair Value Level 1		Fair Value Level 2		Fair Value Level 3		Total			Fair Value Level 1		Fair Value Level 2		Fair Value Level 3		Total
As of April 3, 2021
As of April 2, 2022										As of April 2, 2022
Financial Assets:	Financial Assets:									Financial Assets:
Interest rate swaps	Interest rate swaps	$	0	$	3,014	$	0	$	3,014	Interest rate swaps	$	—	$	26,124	$	—	$	26,124

Financial Liabilities:	Financial Liabilities:									Financial Liabilities:
Interest rate swaps	Interest rate swaps	$	0	$	37,368	$	0	$	37,368	Interest rate swaps	$	—	$	2,106	$	—	$	2,106
Contingent consideration	Contingent consideration	$	0	$	0	$	25,801	$	25,801	Contingent consideration	$	—	$	—	$	35,108	$	35,108
Foreign exchange derivative contracts	Foreign exchange derivative contracts	$	0	$	750	$	0	$	750	Foreign exchange derivative contracts	$	—	$	3,033	$	—	$	3,033

As of January 2, 2021

As of January 1, 2022										As of January 1, 2022
Financial Assets:										Financial Assets:
Interest rate swaps										Interest rate swaps	$	—	$	3,645	$	—	$	3,645
Foreign exchange derivative contracts										Foreign exchange derivative contracts	$	—	$	1,095	$	—	$	1,095

Financial Liabilities:	Financial Liabilities:									Financial Liabilities:
Interest rate swaps	Interest rate swaps	$	0	$	51,093	$	0	$	51,093	Interest rate swaps	$	—	$	21,635	$	—	$	21,635
Contingent consideration	Contingent consideration	$	0	$	0	$	25,558	$	25,558	Contingent consideration	$	—	$	—	$	34,983	$	34,983
Foreign exchange derivative contracts		$	0	$	2,191	$	0	$	2,191

The contingent consideration as of April ~~3, 2021~~2, 2022 and January ~~2, 2021,~~1, 2022, relates to the earnout provisions recorded in conjunction with various purchase agreements. The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase agreement. On a quarterly basis, the company assesses the projected results for each acquired business in comparison to the earnout targets and adjusts the liability accordingly.

e) Consolidated Statements of Cash Flows

Cash paid for interest was ~~$16.6~~$18.1 million and ~~$14.1~~$16.6 million for the three months ended April 2, 2022 and April 3, 2021, ~~and March 28, 2020,~~ respectively. Cash payments totaling ~~$12.8~~$7.9 million and ~~$6.2~~$12.8 million were made for income taxes for the three months ended April 2, 2022 and April 3, 2021, ~~and March 28, 2020,~~ respectively.

f) Earnings Per Share

“Basic earnings per share” is calculated based upon the weighted average number of common shares actually outstanding, and “diluted earnings per share” is calculated based upon the weighted average number of common shares outstanding and other dilutive securities.

The company’s potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to ~~8,269~~5,653 and ~~2,033~~8,269 for the three months ended April 2, 2022, and April 3, 2021, ~~and March 28, 2020,~~ respectively. For the three months ended April 2, 2022 and April 3, 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes (as defined below) resulting in 1,688,402 and 744,334 diluted common stock equivalents to be included in the diluted net earnings per share, ~~for the period.~~respectively. There have been no conversions to ~~date,~~date. See Note 12, Financing Arrangements for further details on the Convertible Notes. There were no anti-dilutive restricted stock grants excluded from common stock equivalents in any period presented.

2) Acquisitions and Purchase Accounting

The company accounts 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 company recognizes identifiable intangible assets, primarily trade names and customer relationships, at their fair value using a discounted cash flow model. The significant assumptions used to estimate the value of the intangible assets include revenue growth rates, projected profit margins, discount rates, royalty rates, and customer attrition rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The results of operations are reflected in the consolidated financial statements of the company from the dates of acquisition.

The ~~following represents summarized information of various acquisitions by the company that were not individually material in 2020. The~~ company completed no material acquisitions during the three months ended April 2, 2022.

Novy Invest NV

On July 12, 2021, the company completed its acquisition of all of the capital stock of Novy Invest NV ("Novy"), a leading manufacturer of premium residential ventilation hoods and cook tops located in Belgium, for a purchase price of approximately $250.9 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 values of assets acquired and liabilities assumed (in thousands):


	Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	16,152	$	—	$	16,152

Current assets	23,762		328		24,090
Property, plant and equipment	17,058		(969)		16,089
Goodwill	142,741		(17,414)		125,327
Other intangibles	126,557		22,966		149,523

Other assets	26		173		199

Current liabilities	(23,440)		591		(22,849)

Long-term deferred tax liability	(33,918)		(5,482)		(39,400)
Other non-current liabilities	(1,930)		(193)		(2,123)






Net assets acquired and liabilities assumed	$	267,008	$	—	$	267,008

The long-term deferred tax liability amounted to $39.4 million. The deferred tax liability is comprised of $37.4 million related to the difference between the book and tax basis of identifiable intangible assets and $2.0 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $105.7 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $40.0 million allocated to customer relationships, $2.7 million allocated to developed technology and $1.1 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 ~~2021.~~months, respectively. Goodwill of $125.3 million and other intangibles of $149.5 million from this acquisition are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Goodwill and other intangibles are not expected to be deductible for tax purposes.

~~2020~~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 for all acquisitions completed during 2021. The intangible assets are pending external valuation and are preliminarily valued using historical information from the Residential Kitchen Equipment Group and qualitative assessment of the business at acquisition date. Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions. Thus, the provisional measurements of fair values 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.

Kamado Joe and Masterbuilt

On December 27, 2021, the company completed its acquisition of Masterbuilt Holdings, LLC, including its residential outdoor brands ("Kamado Joe and Masterbuilt"), a leader in outdoor residential cooking located in the Atlanta, Georgia area, for a purchase price of approximately $400.8 million, net of cash acquired. The purchase price was comprised of $403.6 million in cash and 12,921 shares of Middleby common stock valued at $2.5 million. The purchase price is subject to adjustment as provided in the purchase agreement. The company expects to finalize this adjustment in the second quarter of 2022.


	Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	5,381	$	(70)	$	5,311

Current assets	137,826		(1,964)		135,862
Property, plant and equipment	7,773		—		7,773
Goodwill	110,052		4,746		114,798
Other intangibles	215,577		—		215,577

Other assets	2,143		—		2,143

Current liabilities	(54,865)		(2,747)		(57,612)

Long-term deferred tax liability	(15,907)		—		(15,907)
Other non-current liabilities	(1,914)		35		(1,879)






Net assets acquired and liabilities assumed	$	406,066	$	—	$	406,066

The long-term deferred tax liability amounted to $15.9 million. The net deferred tax liability is comprised of $2.3 million of deferred tax asset related to tax loss carryforwards and $18.2 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 $158.8 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $50.3 million allocated to customer relationships and $6.5 million allocated to backlog, which are being amortized over periods of 7 years and 3 months, respectively. Goodwill of $114.8 million and other intangibles of $215.6 million of the company are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Of these assets, goodwill of $71.7 million and intangibles of $164.3 million 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 for all acquisitions completed during 2021. The intangible assets are pending external valuation and are preliminarily valued using historical information from the Residential Kitchen Equipment Group and qualitative assessment of the business at acquisition date. Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions. Thus, the provisional measurements of fair values 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.

Other 2021 Acquisitions

During ~~2020,~~the year ended January 1, 2022, the company completed various acquisitions that were not individually material. The following estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition dates for the ~~2020~~other 2021 acquisitions and are summarized as follows (in thousands):


		Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet			Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	Cash	$	14,647	$	0	$	14,647	Cash	$	6,414	$	—	$	6,414

Current assets	Current assets	43,670		(13,391)		30,279		Current assets	76,077		726		76,803
Property, plant and equipment	Property, plant and equipment	3,014		(241)		2,773		Property, plant and equipment	19,561		(187)		19,374
Goodwill	Goodwill	55,335		1,191		56,526		Goodwill	85,270		9,514		94,784
Other intangibles	Other intangibles	63,201		0		63,201		Other intangibles	158,725		(9,193)		149,532

Other assets	Other assets	6,121		52		6,173		Other assets	2,101		31		2,132

Current liabilities	Current liabilities	(54,478)		12,434		(42,044)		Current liabilities	(33,910)		144		(33,766)

Long-term deferred tax liability		(123)		0		(123)
Long-term deferred tax asset (liability)								Long-term deferred tax asset (liability)	(3,010)		3,381		371
Other non-current liabilities	Other non-current liabilities	(21,902)		(45)		(21,947)		Other non-current liabilities	(7,092)		(3,397)		(10,489)

Consideration paid at closing	Consideration paid at closing	$	109,485	$	0	$	109,485	Consideration paid at closing	$	304,136	$	1,019	$	305,155

Deferred payments		8,666		0		8,666

Contingent consideration	Contingent consideration	16,144		0		16,144		Contingent consideration	9,404		—		9,404

Net assets acquired and liabilities assumed	Net assets acquired and liabilities assumed	$	134,295	$	0	$	134,295	Net assets acquired and liabilities assumed	$	313,540	$	1,019	$	314,559

The long-term deferred tax ~~liability~~asset amounted to ~~$0.1~~$0.4 million. The net deferred tax asset is comprised of $0.7 million of deferred tax asset related to tax loss carryforwards and is$0.3 million of deferred tax liability related to the difference between the book and tax basis on ~~other assets~~identifiable tangible asset and liability accounts.

The goodwill and ~~$23.1~~$97.1 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include ~~$14.0~~$41.1 million allocated to customer relationships, ~~$20.7~~$3.4 million allocated to developed technology, and ~~$5.4~~$7.9 million allocated to backlog, which are being amortized over periods of 7 years, 7 ~~to 12~~ years, and 3 ~~to 9~~ months, respectively. Goodwill of ~~$56.5~~$30.0 million and other intangibles of ~~$63.2~~$89.0 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Goodwill of ~~the companies~~$64.8 million and other intangibles of $60.6 million are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Of these assets, goodwill of ~~$20.0~~$92.8 million and ~~all other~~ intangibles of $148.4 million are expected to be deductible for tax purposes.

~~Several~~One purchase ~~agreements include deferred payment and~~agreement includes earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are ~~exceeded.~~exceeded and upon the achievement of product rollout targets. One earnout is payable upon the achievement of product rollout targets. The ~~deferred payments are~~second earnout is payable ~~between 2021 and 2022. The contractual obligations associated with the deferred payments on the acquisition date amount to $8.7 million. The earnouts are payable between 2021 and 2023,~~during 2026 if the company exceeds certain ~~sales and~~ earnings targets. The contractual ~~obligations~~obligation associated with the contingent earnout provisions recognized on the acquisition date amount to ~~$16.1~~$9.4 million.

The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values for ~~substantially~~ all ~~2020~~ acquisitions completed during 2021. Certain intangible assets are pending external valuation and are preliminarily valued using historical information from the Residential Kitchen Equipment Group and Commercial Foodservice Equipment Group and qualitative assessments of the individual businesses at acquisition date. Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to ~~date.~~similar intangible assets in previous acquisitions. Thus, the provisional measurements of fair ~~value~~values 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~~The following unaudited pro forma results of operations for the three months ended April 2, 2022 and April 3, 2021, ~~and March 28, 2020,~~ assumes the ~~2020~~2021 and 2022 acquisitions described above were completed on ~~December 29, 2019~~January 3, 2021 (first day of fiscal year ~~2020)~~2021). The ~~following~~ pro forma results include adjustments to reflect 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):


		Three Months Ended					Three Months Ended
		April 3, 2021		March 28, 2020			April 2, 2022		April 3, 2021
Net sales	Net sales	$	758,058	$	689,593	Net sales	$	994,676	$	887,876
Net earnings	Net earnings	91,882		67,302		Net earnings	112,840		66,300

Net earnings per share:	Net earnings per share:					Net earnings per share:
Basic	Basic	$	1.66	$	1.21	Basic	$	2.06	$	1.20
Diluted	Diluted	$	1.64	$	1.21	Diluted	$	2.00	$	1.18

The historical consolidated financial information of the ~~Company~~company and the acquisitions have been adjusted in the pro forma information to give effect to ~~pro forma~~ events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. Pro forma data may not be indicative of the results that would have been obtained had these acquisitions occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Additionally, the pro forma financial information does not reflect the costs which the company has incurred or may incur to integrate the acquired businesses.

3) Litigation Matters

From time to time, the company is subject to proceedings, lawsuits and other claims related to products, suppliers, employees, customers and competitors. The company maintains insurance to partially cover product liability, workers compensation, property and casualty, and general liability matters. The company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of accrual required, if any, for these contingencies is made after assessment of each matter and the related insurance coverage. The required accrual may change in the future due to new developments or changes in approach such as a change in settlement strategy in dealing with these matters. The company does not believe that any pending litigation will have a material effect on its financial condition, results of operations or cash flows.

811

4) Recently Issued Accounting Standards

Accounting Pronouncements - Recently Adopted

~~In August 2020,~~On May 3, 2021, the FASB issued ASU ~~No. 2020-06, “Debt-Debt with Conversion~~2021-04, Earnings Per Share (Topic 260), Debt—Modifications and ~~Other Options~~Extinguishments (Subtopic ~~470-20)~~470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and ~~Hedging-~~ Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging,Certain Modifications or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features.Exchanges of Freestanding Equity-Classified Written Call Options. This new standard ~~also removes certain settlement conditions that are required for contracts to qualify for equity classification~~provides clarification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Effective January 3, 2021, the company early adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard resultedreduces diversity in an ~~increase to the opening balance~~issuer’s accounting for modifications or exchanges of retained earnings of $5.1 million, a decrease to additional paid-in capital of $79.4 million, and an increase to convertible senior notes of $98.4 million. In addition, the company ceased recording non-cash interest expense associated with amortization of the debt discount and calculates earnings per share using the if-converted method to the extent those shares are not anti-dilutive.

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)", which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740.freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This guidance is effective for ~~annual reporting periods, and~~fiscal years beginning after December 15, 2021, including interim periods within those ~~reporting periods, beginning after December 15, 2020 with early~~fiscal years. Early adoption ~~permitted. Certain amendments~~is permitted, including adoption in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings in the period of adoption.an interim period. The company adopted this ~~guidance on January 3, 2021,~~standard in the first quarter of 2022 and it did not have a material impact on ~~the company's~~its Consolidated Financial Statements ~~upon adoption.~~

and disclosures.

Accounting Pronouncements - To be adopted

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting". Subject to meeting certain criteria, ASU 2020-04 provides optional expedients and exceptions to applying contract modification accounting under existing generally accepted accounting principles, for contracts that are modified to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. Some of the Company’s contracts with respect to its borrowings and interest rate swap contracts already contain comparable alternative reference rates that would automatically take effect upon the phasing out of LIBOR, while for others, the company anticipates negotiating comparable replacement rates with its counterparties. In JanuaryNovember 2021, the FASB issued ASU ~~2021-01~~2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide ~~supplemental guidance~~disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and ~~to further clarify~~any significant terms and conditions of the ~~scope. This guidance~~agreements, including commitments and contingencies. The new standard is effective for ~~all entities from~~ the ~~beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022.~~company on January 2, 2022 and only impacts annual financial statement footnote disclosures. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial ~~Statements.~~Statements and disclosures.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard should be applied prospectively, and it allows for a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements and disclosures.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. The new standard expands and clarifies the use of the portfolio layer method for fair value hedges of interest rate risk. The new standard allows non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The new guidance on hedging multiple layers in a closed portfolio should be applied prospectively and the guidance on the accounting for fair value basis adjustments should be applied on a modified retrospective basis. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements and disclosures.

912

5) Revenue Recognition

Disaggregation of Revenue

The company disaggregates its net sales by reportable operating segment and geographical location as the company believes it best depicts how the nature, timing and uncertainty of its 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 the company's long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. The following table summarizes the company's net sales by reportable operating segment and geographical location (in thousands):


		Commercial Foodservice		Food Processing		Residential Kitchen		Total			Commercial Foodservice		Food Processing		Residential Kitchen		Total

Three Months Ended April 3, 2021
United States and Canada		$	338,837	$	79,650	$	108,574	$	527,061
Asia		49,719		4,003		3,032		56,754
Europe and Middle East		82,017		20,425		51,844		154,286
Latin America		10,582		8,416		959		19,957
Total		$	481,155	$	112,494	$	164,409	$	758,058

Three Months Ended March 28, 2020
Three Months Ended April 2, 2022										Three Months Ended April 2, 2022
United States and Canada	United States and Canada	$	306,510	$	72,882	$	85,074	$	464,466	United States and Canada	$	374,909	$	94,797	$	229,599	$	699,305
Asia	Asia	37,524		7,639		978		46,141		Asia	52,016		3,743		6,005		61,764
Europe and Middle East	Europe and Middle East	79,732		19,347		43,465		142,544		Europe and Middle East	100,291		14,200		93,583		208,074
Latin America	Latin America	19,358		4,398		552		24,308		Latin America	16,437		7,203		1,893		25,533
Total	Total	$	443,124	$	104,266	$	130,069	$	677,459	Total	$	543,653	$	119,943	$	331,080	$	994,676

Three Months Ended April 3, 2021										Three Months Ended April 3, 2021
United States and Canada										United States and Canada	$	338,837	$	79,650	$	108,574	$	527,061
Asia										Asia	49,719		4,003		3,032		56,754
Europe and Middle East										Europe and Middle East	82,017		20,425		51,844		154,286
Latin America										Latin America	10,582		8,416		959		19,957
Total										Total	$	481,155	$	112,494	$	164,409	$	758,058

1013

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

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

The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):


		Apr 3, 2021		Jan 2, 2021			Apr 2, 2022		Jan 1, 2022
Contract assets	Contract assets	$	18,899	$	20,328	Contract assets	$	34,012	$	21,592
Contract liabilities	Contract liabilities	$	108,766	$	93,871	Contract liabilities	$	160,204	$	133,315
Non-current contract liabilities	Non-current contract liabilities	$	13,020	$	13,523	Non-current contract liabilities	$	11,089	$	11,602

During the three months period ended April ~~3, 2021,~~2, 2022, the company reclassified ~~$8.7~~$4.8 million to receivables, which was included in the contract asset balance at the beginning of the period. During the three months period ended April ~~3, 2021,~~2, 2022, the company recognized revenue of ~~$59.1~~$79.6 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 ~~$84.3~~$119.9 million during the three months period ended April ~~3, 2021.~~2, 2022. Substantially, all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were 0no contract asset impairments during the three months period ended April ~~3, 2021.~~2, 2022.

1114

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		Unrealized Gain Certain Investments		Total
Balance as of January 1, 2022										Balance as of January 1, 2022	$	(97,654)	$	(249,696)	$	(13,064)	$	1,330	$	(359,084)
Other comprehensive income before reclassification										Other comprehensive income before reclassification	(27,191)		6,244		27,155		1,348		7,556
Amounts reclassified from accumulated other comprehensive income										Amounts reclassified from accumulated other comprehensive income	—		—		3,961		—		3,961
Net current-period other comprehensive income										Net current-period other comprehensive income	$	(27,191)	$	6,244	$	31,116	1,348		$	11,517
Balance as of April 2, 2022										Balance as of April 2, 2022	$	(124,845)	$	(243,452)	$	18,052	2,678		$	(347,567)
		Currency Translation Adjustment		Pension Benefit Costs		Unrealized Gain/(Loss) Interest Rate Swap		Total
Balance as of January 2, 2021	Balance as of January 2, 2021	$	(49,961)	$	(400,919)	$	(37,548)	$	(488,428)	Balance as of January 2, 2021	$	(49,961)	$	(400,919)	$	(37,548)	$	—	$	(488,428)
Other comprehensive income before reclassification	Other comprehensive income before reclassification	(10,614)		(3,970)		7,389		(7,195)		Other comprehensive income before reclassification	(10,614)		(3,970)		7,389		—		(7,195)
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	0		0		5,023		5,023		Amounts reclassified from accumulated other comprehensive income	—		—		5,023		—		5,023
Net current-period other comprehensive income	Net current-period other comprehensive income	$	(10,614)	$	(3,970)	$	12,412	$	(2,172)	Net current-period other comprehensive income	$	(10,614)	$	(3,970)	$	12,412	$	—	$	(2,172)
Balance as of April 3, 2021	Balance as of April 3, 2021	$	(60,575)	$	(404,889)	$	(25,136)	$	(490,600)	Balance as of April 3, 2021	$	(60,575)	$	(404,889)	$	(25,136)	$	—	$	(490,600)

Balance as of December 28, 2019		$	(105,705)	$	(228,336)	$	(16,892)	$	(350,933)
Other comprehensive income before reclassification		(48,916)		14,808		(26,486)		(60,594)
Amounts reclassified from accumulated other comprehensive income		0		0		1,267		1,267
Net current-period other comprehensive income		$	(48,916)	$	14,808	$	(25,219)	$	(59,327)
Balance as of March 28, 2020		$	(154,621)	$	(213,528)	$	(42,111)	$	(410,260)

(1) As of April 2, 2022, pension, interest rate swap, and gain on investment amounts are net of tax of $(38.5) million, $6.4 million, and $0.9 million, respectively. During the three months ended April 2, 2022, the adjustments to pension, interest rate swap, and gain on investments were net of tax of $1.0 million, $10.9 million, and $0.5 million, respectively. As of April 3, 2021 pension and interest rate swap amounts are net of tax of $(90.0) million and $(8.8) million, respectively. During the three months ended April 3, 2021, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $(0.9) million and $4.3 million, respectively. As of March 28, 2020 pension and interest rate swap amounts are net of tax of $(45.5) million and $(15.3) million, respectively. During the three months ended March 28, 2020, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $3.1 million and $(9.3) million, respectively.

Components of other comprehensive income were as follows (in thousands):


		Three Months Ended						Three Months Ended
			Apr 3, 2021		Mar 28, 2020				Apr 2, 2022		Apr 3, 2021
Net earnings	Net earnings		$	89,263	$	73,779	Net earnings		$	85,755	$	89,263
Currency translation adjustment	Currency translation adjustment		(10,614)		(48,916)		Currency translation adjustment		(27,191)		(10,614)
Pension liability adjustment, net of tax	Pension liability adjustment, net of tax		(3,970)		14,808		Pension liability adjustment, net of tax		6,244		(3,970)
Unrealized gain (loss) on interest rate swaps, net of tax			12,412		(25,219)
Unrealized gain on interest rate swaps, net of tax							Unrealized gain on interest rate swaps, net of tax		31,116		12,412
Unrealized gain on certain investments, net of tax							Unrealized gain on certain investments, net of tax		1,348		—
Comprehensive income	Comprehensive income		$	87,091	$	14,452	Comprehensive income		$	97,272	$	87,091

7) Inventories

Inventories are composed of material, labor and overhead and are stated at the lower of cost or ~~market.~~net realizable value. 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 April ~~3, 2021~~2, 2022 and January ~~2, 2021~~1, 2022 are as follows (in thousands):


		Apr 3, 2021		Jan 2, 2021			Apr 2, 2022		Jan 1, 2022
Raw materials and parts	Raw materials and parts	$	292,068	$	263,200	Raw materials and parts	$	491,213	$	421,361
Work-in-process	Work-in-process	57,537		55,104		Work-in-process	74,325		65,581
Finished goods	Finished goods	224,672		221,894		Finished goods	359,225		350,476
		$	574,277	$	540,198		$	924,763	$	837,418

8) Goodwill

Changes in the carrying amount of goodwill for the three months ended April ~~3, 2021~~2, 2022 are as follows (in thousands):


		Commercial Foodservice		Food Processing		Residential Kitchen		Total			Commercial Foodservice		Food Processing		Residential Kitchen		Total
Balance as of January 2, 2021		$	1,228,436	$	255,798	$	450,027	$	1,934,261

Balance as of January 1, 2022										Balance as of January 1, 2022	$	1,285,087	$	250,715	$	707,667	$	2,243,469
Goodwill acquired during the year										Goodwill acquired during the year	1,764		—		—		1,764
Measurement period adjustments to goodwill acquired in prior year	Measurement period adjustments to goodwill acquired in prior year	(247)		0		0		(247)		Measurement period adjustments to goodwill acquired in prior year	980		—		3,909		4,889
Exchange effect	Exchange effect	(5,558)		(2,552)		2,740		(5,370)		Exchange effect	(3,014)		(1,045)		(9,622)		(13,681)
Balance as of April 3, 2021		$	1,222,631	$	253,246	$	452,767	$	1,928,644
Balance as of April 2, 2022										Balance as of April 2, 2022	$	1,284,817	$	249,670	$	701,954	$	2,236,441

The annual impairment assessment for goodwill and indefinite-lived intangible assets is performed as of the first day of the fourth quarter and since that assessment the company does not believe there are any indicators of impairment requiring subsequent analysis. This is supported by the review of order rates, backlog levels and financial performance across business segments.

9) Intangibles

Intangible assets consist of the following (in thousands):


		April 3, 2021					January 2, 2021						April 2, 2022					January 1, 2022
		Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization		Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization			Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization		Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:	Amortized intangible assets:											Amortized intangible assets:
Customer lists	Customer lists	8.3	$	735,264	$	(362,393)	8.5	$	735,264	$	(347,029)	Customer lists	7.4	$	863,339	$	(430,729)	7.6	$	863,339	$	(411,327)
Backlog	Backlog	0.1	34,729		(34,268)		0.3	34,729		(31,924)		Backlog	0.0	13,646		(13,646)		0.2	13,684		(929)
Developed technology	Developed technology	9.8	56,931		(25,508)		10.0	56,931		(24,394)		Developed technology	8.7	73,701		(31,555)		8.9	73,461		(29,952)
			$	826,924	$	(422,169)		$	826,924	$	(403,347)			$	950,686	$	(475,930)		$	950,484	$	(442,208)
Indefinite-lived assets:	Indefinite-lived assets:											Indefinite-lived assets:
Trademarks and tradenames	Trademarks and tradenames		$	1,023,539				$	1,026,804			Trademarks and tradenames		$	1,360,401				$	1,367,101

The aggregate intangible amortization expense was ~~$18.8~~$33.6 million and ~~$16.9~~$18.8 million for the three months period ended April 2, 2022 and April 3, 2021, ~~and March 28, 2020,~~ respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):

Twelve Month Period coinciding with the end of the company's Fiscal First Quarter Amortization Expense

2022 $ 65,516
2023 60,567
2024 54,282
2025 41,939
2026 37,501
Thereafter 144,950
$ 404,755


Twelve Month Period coinciding with the end of the company's Fiscal First Quarter	Amortization Expense

2023	$	80,942
2024	74,658
2025	62,315
2026	57,876
2027	53,343
Thereafter	145,622
	$	474,756

1317

10) Accrued Expenses

Accrued expenses consist of the following (in thousands):


		Apr 3, 2021		Jan 2, 2021			Apr 2, 2022		Jan 1, 2022
Contract liabilities	Contract liabilities	$	108,766	$	93,871	Contract liabilities	$	160,204	$	133,315
Accrued payroll and related expenses	Accrued payroll and related expenses	105,085		93,926		Accrued payroll and related expenses	111,943		115,762
Accrued warranty	Accrued warranty	75,094		69,667		Accrued warranty	79,660		80,215
Accrued customer rebates	Accrued customer rebates	30,630		43,703		Accrued customer rebates	40,250		72,451
Accrued short-term leases	Accrued short-term leases	22,041		22,493		Accrued short-term leases	22,007		22,753
Accrued contingent consideration						Accrued contingent consideration	21,391		18,728
Accrued professional fees						Accrued professional fees	20,647		19,292
Accrued sales and other tax	Accrued sales and other tax	16,730		22,030		Accrued sales and other tax	20,256		22,684
Accrued professional fees		13,782		12,133
Accrued agent commission						Accrued agent commission	15,520		13,670
Accrued product liability and workers compensation	Accrued product liability and workers compensation	12,402		12,909		Accrued product liability and workers compensation	11,722		10,952
Accrued agent commission		12,215		11,105
Accrued interest rate swaps		10,672		14,075
Accrued liabilities held for sale		0		22,313

Other accrued expenses	Other accrued expenses	72,496		76,316		Other accrued expenses	81,764		73,033

		$	479,913	$	494,541		$	585,364	$	582,855

11) Warranty Costs

In the normal course of business, the company issues product warranties for specific product lines and provides for the estimated future warranty cost in the period in which the sale is recorded. The estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are based on the best available information, actual claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.

A rollforward of the warranty reserve is as follows (in thousands):


	Three Months Ended
	Apr ~~3, 2021~~2, 2022
Balance as of January ~~2, 2021~~1, 2022	$	~~69,667~~80,215
Warranty reserve related to acquisitions	436
Warranty expense	~~20,881~~16,620
Warranty claims	~~(15,454)~~(17,611)
Balance as of April ~~3, 2021~~2, 2022	$	~~75,094~~79,660

1418

12) Financing Arrangements


		Apr 3, 2021		Jan 2, 2021			Apr 2, 2022		Jan 1, 2022
		(in thousands)					(in thousands)
Senior secured revolving credit line	Senior secured revolving credit line	$	755,000	$	755,000	Senior secured revolving credit line	$	871,001	$	683,175
Term loan facility	Term loan facility	331,250		335,938		Term loan facility	987,251		993,340
Convertible senior notes	Convertible senior notes	732,088		632,847		Convertible senior notes	735,234		734,417
Foreign loans	Foreign loans	2,483		4,421		Foreign loans	3,271		2,224
Other debt arrangement	Other debt arrangement	1,312		1,390		Other debt arrangement	1,068		1,138
Total debt	Total debt	1,822,133		1,729,596		Total debt	2,597,825		2,414,294
Less: Current maturities of long-term debt	Less: Current maturities of long-term debt	21,093		22,944		Less: Current maturities of long-term debt	27,693		27,293
Long-term debt	Long-term debt	$	1,801,040	$	1,706,652	Long-term debt	$	2,570,132	$	2,387,001

Credit Facility

~~Credit Facility~~

On January 31, 2020, the company entered into an amended and restated five-year, $3.5 billion multi-currency senior secured credit agreement (as amended as described below, the "Credit Facility"). On August 21, 2020, the company entered into an amendment to the Credit Facility, prepaying $400.0 million aggregate principal amount of its term loan obligations owed. The Credit Facility, as amended, is in an aggregate principal amount of $3.1 billion, consisting of (i) a $350 million term loan facility and (ii) a $2.75 billion multi-currency revolving credit facility. The Credit Facility matures on January 31, 2025. The term loan facility amortizes in equal quarterly installments due on the last day of each fiscal quarter in an aggregate annual amount equal to 2.50% of the original aggregate principal amount of the term loan facility, with the balance, plus any accrued interest, due and payable on January 31, 2025. As of April ~~3, 2021,~~2, 2022, the company had ~~$1.1~~$1.9 billion of borrowings outstanding under the Credit Facility, including ~~$755.0 million of borrowings in U.S. Dollars and $331.3 million~~$1.0 billion outstanding under the term ~~loan.~~loan ($987 million, net of unamortized issuance fees). The company also had ~~$2.3~~$2.2 million in outstanding letters of credit as of April ~~3, 2021,~~2, 2022, which reduces the borrowing availability under the Credit Facility. Remaining borrowing capacity under this facility was $2.6 billion at April 2, 2022.

At April ~~3, 2021,~~2, 2022, borrowings under the Credit Facility accrued interest at a rate of 1.625% above LIBOR per annum or ~~1.00%~~0.625% above the highest of the prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.00%. ~~The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 3.32% at the end of the period.~~ The interest rates on borrowings under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt less Unrestricted Cash to Pro Forma EBITDA (the “Leverage Ratio”) on a rolling four-quarter basis. Additionally, a commitment fee based upon the Leverage Ratio is charged on the unused portion of the commitments under the Credit Facility. ~~This~~Borrowings under the Credit Facility will accrue interest at a minimum of 1.625% above LIBOR and the variable unused commitment fee will be at a minimum of 0.25%. The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 2.85% at the end of the period and the variable commitment fee was equal to 0.25% per annum as of April ~~3, 2021.~~ 2, 2022.

The term loan facility had an average interest rate per annum, inclusive of hedging instruments, of ~~3.28%~~3.35% as of April ~~3, 2021.~~2, 2022.

In addition, the company has ~~other~~ international credit facilities to fund working capital needs outside the United States. At April ~~3, 2021,~~2, 2022, these foreign credit facilities amounted to ~~$2.5~~$3.3 million in U.S. Dollars with a weighted average per annum interest rate of approximately ~~4.50%~~10.05%.

The company’s debt is reflected on the balance sheet at cost. The fair values of the Credit Facility, term debt and foreign and other debt is based on the amount of future cash flows associated with each instrument discounted using the company's incremental borrowing rate. 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 carrying value and estimated aggregate fair value, a level 2 measurement, based primarily on market prices, of debt excluding the Convertible Notes is as follows (in thousands):

Apr 3, 2021 Jan 2, 2021
Carrying Value Fair Value Carrying Value Fair Value
Total debt excluding convertible senior notes $ 1,090,045 $ 1,090,045 $ 1,096,749 $ 1,096,749


	Apr 2, 2022				Jan 1, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Total debt excluding convertible senior notes	$	1,862,591	$	1,869,089	$	1,679,877	$	1,686,537

The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit Facility. In February 2022, the company entered into an additional floating-to-fixed interest rate swap agreements totaling $375.0 million notional amount carrying an average interest rate of 1.50%. At April ~~3, 2021,~~2, 2022, the company had outstanding floating-to-fixed interest rate swaps totaling ~~$260.0~~$129.0 million notional amount carrying an average interest rate of ~~2.36%~~1.71% maturing in less than 12 months and ~~$802.0~~$1,048.0 million notional amount carrying an average interest rate of ~~1.91%~~1.79% that mature in more than 12 months but less than 7170 months.

The company believes that its current capital resources, including cash and cash equivalents, cash expected to be generated from operation, 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, as amended, 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, (ii) a maximum Total Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 5.50 to 1.00, and (iii) a maximum Secured Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (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 April ~~3, 2021,~~2, 2022, the company was in compliance with all covenants pursuant to its borrowing agreements.

Convertible Notes

The following table summarizes the outstanding principal amount and carrying value of the Convertible Notes:


		Apr 3, 2021		Jan 2, 2021				Apr 2, 2022		Jan 1, 2022
		(in thousands)				(in thousands)
Principal amounts:	Principal amounts:						Principal amounts:
Principal	Principal	$	747,500	$	747,500		Principal	$	747,500	$	747,500
Unamortized debt discounts		0		(98,358)

Unamortized issuance costs	Unamortized issuance costs	(15,412)		(16,295)			Unamortized issuance costs	(12,266)		(13,083)
Net carrying amount	Net carrying amount	$	732,088	$	632,847		Net carrying amount	$	735,234	$	734,417

The following table summarizes total interest expense recognized related to the Convertible Notes:


	~~Three Months Ended~~
	~~Apr 3, 2021~~
~~Contractual interest expense~~	$	~~1,890~~
~~Interest cost related to amortization of issuance costs~~	~~883~~
~~Total interest expense~~	$	~~2,773~~


	Three Months Ended
		Apr 2, 2022		Apr 3, 2021
Contractual interest expense		$	1,890	$	1,890
Interest cost related to amortization of issuance costs		902		883
Total interest expense		$	2,792	$	2,773

On August 21, 2020, the company issued $747.5 million aggregate principal amount of 1.00% Convertible Senior Notes maturing on September 1, 2025 (the "Convertible Notes") in a private offering pursuant to an indenture, dated August 21, 2020 (the "Indenture"), between the company and U.S. Bank National Association, as trustee. The Convertible Notes are general unsecured obligations of the company and bear interest semi-annually in arrears. The estimated fair value of the Convertible Notes was ~~$1.1~~$1.0 billion as of April ~~3, 2021~~2, 2022 and was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note ~~1 (d)~~1(d), Fair Value Measurements ~~of this Quarterly Report on Form 10-Q~~, in these Notes to the Condensed Consolidated Financial Statement. The if-converted value of the Convertible Notes exceeded their respective principal value by ~~$214.2~~$191.0 million as of April ~~3, 2021.~~2, 2022.

On January 3, 2021, the company adopted ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity", using the modified retrospective method. Prior to January 3, 2021, the Company separated the Convertible Notes into liability and equity components and the carrying amount of the equity component was recorded as a debt discount and amortized to interest expense. As a result of the adoption of ASU 2020-06, the Convertible Notes are accounted for as a single liability and therefore the company no longer recognized any amortization of debt discounts as interest expense. ~~The annual effective interest rate of the Convertible Notes following adoption of ASU 2020-06 is 1.5%.~~

The Convertible Notes were issued pursuant to the Indenture and bear interest semi-annually in arrears at a rate of 1.00% per annum on March 1 and September 1 of each year. The Convertible Notes are convertible based upon an initial conversion rate of 7.7746 shares of the company's common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $128.62 per share of the company's common stock. The conversion rate will be subject to adjustment upon occurrence of certain specified events in accordance with the Indenture, but will not be adjusted for accrued and unpaid interest. Additionally, in the event of a Fundamental Change (as defined in the Indenture), holders of the Convertible Notes may require the company to repurchase all or a portion of their Convertible Notes at a price equal to 100.0% of the principal amount of Convertible Notes, plus any accrued and unpaid interest to, but excluding, the repurchase date. Upon conversion, the company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the company's election, in respect of the remainder, if any, of the company's conversion obligation in excess of the aggregate principal amount of the notes being converted.

The Convertible Notes will mature on September 1, 2025 unless they are redeemed, repurchased or converted prior to such date in accordance with their terms. The company may settle the conversions of the Convertible Notes in cash, shares of the company's common stock or any combination thereof at its election. The number of shares of the company's common stock issuable at the conversion price of $128.62 per share is expected to be 5.8 million shares. As of April 3, 2021, there have been no conversions to date. For the three months ended April 3, 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes resulting in 744,334 diluted common stock equivalents to be included in the diluted net earnings per share for the period.

~~The Indenture includes customary terms and covenants, including certain events of default after which the Convertible Notes may become due and payable immediately.~~

Capped Call Transactions

In ~~conjunction~~connection with the pricing of the Convertible Notes, the company entered into privately negotiated ~~capped call transactions in~~Capped Call Transactions (the "2020 Capped Call Transactions") and the company used the net proceeds of the offering of the Convertible Notes to pay the aggregate amount of $104.7 million ("for them. The company entered into two tranches of privately negotiated Capped Call Transactions in December 2021 (the "2021 Capped Call Transactions")~~. The~~ in the aggregate amount of $54.6 million. On March 15, 2022 , the company entered into an additional tranche of privately negotiated Capped Call Transactions (the "2022 Capped Call Transactions") in the amount of $9.7 million.

The 2020, 2021, and 2022 Capped Call Transactions (collectively, the "Capped Call Transactions") are expected generally to reduce the potential dilution and/or offset the cash payments the company is required to make in excess of the principal amount of the Convertible Notes upon conversion of the Convertible Notes in the event that the market price per share of the company's common stock is greater than the strike price of the Capped Call Transactions (which initially corresponds to the initial conversion price of the Convertible Notes and is subject to certain adjustments under the terms of the Capped Call Transactions), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Transactions. ~~Under the~~The 2020 Capped Call Transactions ~~the number of shares of common stock issuable at the conversion~~have an initial cap price of $207.93 ~~is expected to be 3.6 million shares. As~~per share of ~~April 3,~~the company's common stock. The 2021 ~~there~~Capped Call Transactions have ~~been no conversions to date.~~initial cap prices of $216.50 and $225.00 per share of the company's common stock. The 2022 Capped Call Transactions have an initial cap price of $229.00 per share. The Capped Call Transactions cover, initially, the number of shares of the company's common stock underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes.

The Capped Call Transactions are separate transactions entered into by the company with the capped call counterparties, and are not part of the terms of the Convertible Notes and will not affect any holder's right under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Capped Call Transactions. The Capped Call Transactions do not meet the criteria for separate accounting as a derivative as they are indexed to the company's stock. The premiums paid of the Capped Call Transactions have been included as a net reduction to additional paid-in capital with stockholders' equity.

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.

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 notional amount of foreign currency contracts outstanding was $350.2 million and $350.5 million as of April 2, 2022 and January 1, 2022, respectively. The fair value of the forward and option contracts was a loss of ~~$0.7~~$3.0 million at the end of the first quarter of ~~2021.~~2022.

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. In February 2022, the company entered into an additional floating-to-fixed interest rate swap agreement that uses a daily Secured Overnight Financing Rate ("SOFR") in lieu of LIBOR. 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 April ~~3, 2021,~~2, 2022, the fair value of these instruments was a ~~liability~~asset of ~~$34.4~~$24.0 million. The change in fair value of these swap agreements in the first three months of ~~2021~~2022 was a gain of ~~$12.4~~$31.1 million, net of taxes.

The following table summarizes the company’s fair value of interest rate swaps (in thousands):

Condensed Consolidated
Balance Sheet Presentation Apr 3, 2021 Jan 2, 2021
Fair value Other assets $ 3,014 $ 0
Fair value Accrued expenses $ 10,672 $ 14,075
Fair value Other non-current liabilities $ 26,696 $ 37,018


	Condensed Consolidated Balance Sheet Presentation	Apr 2, 2022		Jan 1, 2022
Fair value	Prepaid expense and other	$	623	—
Fair value	Other assets	$	25,501	$	3,645
Fair value	Accrued expenses	$	67	$	1,171
Fair value	Other non-current liabilities	$	2,039	$	20,464

The impact on earnings from interest rate swaps was as follows (in thousands):


			Three Months Ended							Three Months Ended
		Presentation of Gain/(loss)		Apr 3, 2021		Mar 28, 2020			Presentation of Gain/(loss)		Apr 2, 2022		Apr 3, 2021
Gain/(loss) recognized in accumulated other comprehensive income	Gain/(loss) recognized in accumulated other comprehensive income	Other comprehensive income		$	11,716	$	(35,785)	Gain/(loss) recognized in accumulated other comprehensive income	Other comprehensive income		$	38,047	$	11,716
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense		$	(5,023)	$	(1,267)	Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense		$	(3,961)	$	(5,023)

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.

1921

14) Segment Information

The company operates in three reportable operating segments defined by management reporting structure and operating activities.

The Commercial Foodservice Equipment Group ~~manufactures, sells, and distributes~~has a broad portfolio of foodservice equipment, ~~for the restaurant~~which enable it to serve virtually any cooking, warming, refrigeration, freezing and ~~institutional~~beverage application within a commercial kitchen ~~industry.~~or foodservice operation. This business segment has manufacturing facilities in Arkansas, California, Colorado, Florida, Illinois, Michigan, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Vermont, Washington, Australia, Canada, China, Denmark, Estonia, Italy, Mexico, the Philippines, Poland, Spain, Swedenequipment is used across all types of foodservice operations, including quick-service restaurants, full-service restaurants, convenience stores, retail outlets, hotels and ~~the United Kingdom. Principal product lines of~~other institutions. The products offered by 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, charcoal grills, professional mixers, stainless steel fabrication, custom millwork, professional refrigerators, blast chillers, coldrooms, ice machines, freezers, soft serve ice cream equipment, coffee and beverage dispensing equipment, home and professional craft brewing equipment, fry dispensers, bottle filling and canning equipment, and IoT solutions. These products are sold and marketed under the brand names: Anets, APW Wyott, Bakers Pride, Beech, BKI, Blodgett, Blodgett Combi, Bloomfield, Britannia, Carter-Hoffmann, Celfrost, Concordia, CookTek, Crown, CTX, Desmon, Deutsche Beverage, Doyon, Eswood, EVO, Firex, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, Induc, Ink Kegs, Inline Filling Systems, Jade, JoeTap, Josper, L2F, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Meheen, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, QualServ, RAM, Southbend, Ss Brewtech, Star, Starline, Sveba Dahlen, Synesso, Tank, Taylor, Thor, Toastmaster, TurboChef, Ultrafryer, Varimixer, Wells, Wild Goose and Wunder-Bar.

The Food Processing Equipment Group ~~manufactures preparation,~~offers a broad portfolio of processing solutions for customers producing pre-cooked meat products, such as hot dogs, dinner sausages, poultry and lunchmeats and baked goods such as muffins, cookies and bread. Through its broad line of products, the company is able to deliver a wide array of cooking ~~packaging~~solutions to service a variety of food ~~handling and~~processing requirements demanded by its customers. The company can offer highly integrated solutions that provide a food ~~safety equipment~~processing operation a uniquely integrated solution providing for the highest level of food processing industry. This business segment has manufacturing operations in Georgia, Illinois, Iowa, North Carolina, Oklahoma, Pennsylvania, Texas, Virginia, Washington, Wisconsin, Denmark, France, Germany, India, Italy,quality, product consistency, and ~~the United Kingdom. Principal~~reduced operating costs resulting from increased product ~~lines of~~yields, increased capacity and greater throughput and reduced labor costs through automation. The products offered by this group include a wide array of cooking and baking solutions, including batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing ovens, frying systems and automated thermal processing ~~systems,~~systems. The company also provides a comprehensive portfolio of complementary food preparation equipment such as tumblers, massagers, grinders, slicers, reduction and emulsion systems, mixers, blenders, formers, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions, and forming equipment, as well as a variety of automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment. ~~These products are sold~~This portfolio of equipment can be integrated to provide customers a highly efficient and marketed under the brand names: Alkar, Armor Inox, Auto-Bake, Baker Thermal Solutions, Burford, Cozzini, CV-Tek, Danfotech, Deutsche Process, Drake, Glimek, Hinds-Bock, Maurer-Atmos, MP Equipment, Pacproinc, RapidPak, Scanico, Spooner Vicars, Stewart Systems, Thurne and Ve.Ma.C.customized solution.

The Residential Kitchen Equipment Group ~~manufactures, sells~~has a broad portfolio of innovative and ~~distributes~~professional-style residential kitchen ~~equipment for the residential market. This business segment has manufacturing facilities in California, Michigan, Mississippi, Wisconsin, France and the United Kingdom. Principal product lines of~~equipment. The products offered by this group ~~are~~include ranges, cookers, stoves, cooktops, microwaves, ovens, refrigerators, dishwashers, undercounter refrigeration, wine cellars, ice machines, beer dispensers, ventilation equipment, mixers, rotisseries and outdoor cooking equipment. These products are sold and marketed under the brand names: AGA, AGA Cookshop, Brava, EVO, 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						Three Months Ended
			Apr 3, 2021	Mar 28, 2020										Apr 2, 2022	Apr 3, 2021
				Sales		Percent			Sales		Percent					Sales		Percent		Sales		Percent
Business Segments:	Business Segments:												Business Segments:
Commercial Foodservice	Commercial Foodservice			$	481,155	63.5	%		$	443,124	65.4	%	Commercial Foodservice			$	543,653	54.7	%	$	481,155	63.5	%
Food Processing	Food Processing			112,494		14.8			104,266		15.4		Food Processing			119,943		12.0		112,494		14.8
Residential Kitchen	Residential Kitchen			164,409		21.7			130,069		19.2		Residential Kitchen			331,080		33.3		164,409		21.7
Total	Total			$	758,058	100.0	%		$	677,459	100.0	%	Total			$	994,676	100.0	%	$	758,058	100.0	%

2022

The following table summarizes the results of operations for the company's business segments (in thousands):


													Commercial Foodservice		Food Processing		Residential Kitchen		Corporate and Other (1)		Total

Three Months Ended April 2, 2022												Three Months Ended April 2, 2022
Net sales												Net sales	$	543,653	$	119,943	$	331,080	$	—	$	994,676
Income (loss) from operations (2, 3)												Income (loss) from operations (2, 3)	109,718		20,112		24,946		(32,212)		122,564
Depreciation expense												Depreciation expense	5,872		1,325		3,985		190		11,372
Amortization expense (5)												Amortization expense (5)	13,649		1,787		18,129		1,805		35,370
Net capital expenditures												Net capital expenditures	5,564		3,087		5,541		305		14,497

Total assets												Total assets	$	3,596,857	$	654,766	$	2,127,119	$	95,423	$	6,474,165
		Commercial Foodservice		Food Processing		Residential Kitchen		Corporate and Other (1)		Total

Three Months Ended April 3, 2021	Three Months Ended April 3, 2021											Three Months Ended April 3, 2021
Net sales	Net sales	$	481,155	$	112,494	$	164,409	$	0	$	758,058	Net sales	$	481,155	$	112,494	$	164,409	$	—	$	758,058
Income (loss) from operations (2, 3, 4)	Income (loss) from operations (2, 3, 4)	96,316		19,662		29,856		(24,661)		121,173		Income (loss) from operations (2, 3, 4)	96,316		19,662		29,856		(24,661)		121,173
Depreciation expense	Depreciation expense	5,793		1,315		2,774		255		10,137		Depreciation expense	5,793		1,315		2,774		255		10,137
Amortization expense (5)	Amortization expense (5)	15,204		1,843		1,772		1,476		20,295		Amortization expense (5)	15,204		1,843		1,772		1,476		20,295
Net capital expenditures	Net capital expenditures	5,195		928		2,256		346		8,725		Net capital expenditures	5,195		928		2,256		346		8,725

Total assets	Total assets	$	3,283,354	$	632,746	$	1,213,045	$	160,768	$	5,289,913	Total assets	$	3,283,354	$	632,746	$	1,213,045	$	160,768	$	5,289,913

Three Months Ended March 28, 2020
Net sales		$	443,124	$	104,266	$	130,069	$	0	$	677,459
Income (loss) from operations (2, 3)		88,607		15,358		12,708		(11,259)		105,414
Depreciation expense		4,900		1,336		2,983		11		9,230
Amortization expense (5)		12,440		1,700		2,720		509		17,369
Net capital expenditures		4,686		1,829		2,545		121		9,181

Total assets		$	3,232,632	$	626,907	$	1,145,943	$	272,497	$	5,277,979

(1)Includes corporate and other general company assets and operations.

(2)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.

(3)Restructuring expenses are allocated in operating income by segment. ~~See note 16 for further details.~~

(4)Gain on sale of ~~plant is~~plants are included in Commercial Foodservice.

(5)Includes amortization of deferred financing costs and Convertible Notes issuance costs.

Geographic Information

Long-lived assets, not including goodwill and other intangibles (in thousands):


		Apr 3, 2021		Mar 28, 2020			Apr 2, 2022		Apr 3, 2021
United States and Canada	United States and Canada	$	330,080	$	316,087	United States and Canada	$	401,182	$	332,387

Asia	Asia	27,104		21,751		Asia	19,626		18,747
Europe and Middle East	Europe and Middle East	176,526		157,035		Europe and Middle East	147,005		182,577
Latin America	Latin America	6,155		5,518		Latin America	10,934		6,155
Total international	Total international	$	209,785	$	184,304	Total international	$	177,565	$	209,785
		$	539,865	$	500,391		$	578,747	$	539,865

2123

15) Employee Retirement Plans

~~(a)Pension Plans~~

~~U.S. Plans:~~

The company maintains a non-contributory defined benefit plan for its union employees at the Elgin, Illinois facility. Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on April 30, 2002, and no further benefits accrue to the participants beyond this date. Plan participants will receive or continue to receive payments for benefits earned on or prior to April 30, 2002 upon reaching retirement age.

The company maintains a non-contributory defined benefit plan for its employees at the Smithville, Tennessee facility. 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 former Chairman ("Chairman Plan"). The retirement benefits are based upon a percentage of the former 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. Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on April 30, 2010 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, 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 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. In December 2020, it was agreed that the Group Pension Scheme will be closed to future pension accruals effective April 5, 2021.

The other, much smaller, defined benefit pension plans operating within the AGA Group cover employees in France 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						Three Months Ended
			Apr 3, 2021		Mar 28, 2020				Apr 2, 2022		Apr 3, 2021
Net Periodic Pension Benefit:	Net Periodic Pension Benefit:						Net Periodic Pension Benefit:
Service cost	Service cost		$	194	$	645	Service cost		$	—	$	194
Interest cost	Interest cost		4,290		6,418		Interest cost		6,705		4,290
Expected return on assets	Expected return on assets		(19,531)		(17,982)		Expected return on assets		(19,956)		(19,531)
Amortization of net loss (gain)	Amortization of net loss (gain)		3,152		837		Amortization of net loss (gain)		965		3,152
Amortization of prior service cost (credit)	Amortization of prior service cost (credit)		716		638		Amortization of prior service cost (credit)		696		716

			$	(11,179)	$	(9,444)			$	(11,590)	$	(11,179)

The pension costs for all other plans of the company were not material during the period. 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.

16) Share Repurchases

~~(b)Defined Contribution Plans~~In November 2017, the company's Board of Directors approved a stock repurchase program authorizing the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock. During three months period ended April 2, 2022, the company repurchased 862,912 shares of its common stock under the program for $155.2 million, including applicable commissions, which represented an average price of $179.89. As of April 2, 2022, 2,027,577 shares had been purchased under the 2017 stock repurchase program and 472,423 shares remained authorized for repurchase.

The company maintains 2 separate defined contribution savings plans covering all employees in the United States. These two plans separately cover the union employees at the Elgin, Illinois facility and all other remaining union and non-union employees in the United States. The company also ~~maintains defined contribution plans for its United Kingdom based employees.~~

~~16) Restructuring~~

~~Commercial Foodservice Equipment Group~~

During the fiscal years 2020 and 2019, the company undertook cost reduction initiatives related to the Commercial Foodservice Equipment Group including headcount reductions and facility consolidations. These actions resulted in expenses of $0.4 million and $0.5 million in the three months ended April 3, 2021 and March 28, 2020, respectively, primarily for severance related to headcount reductions and facility consolidations. These expenses are reflected in restructuring expenses in the Condensed Consolidated Statements of Comprehensive Income. The realization of cost savings from the restructuring initiatives began in 2020 with an expected annual savings of approximately $20.0 million. At April 3, 2021, the restructuring obligations accrued for these initiatives are immaterial and will substantially be complete by the end of fiscal 2021.

~~The restructuring expenses for the other segments of the company were not material during the period.~~

~~17) Share Repurchases~~

~~The company~~ treats shares withheld for tax purposes on behalf of employees in connection with the vesting of restricted share grants as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. ~~For~~During the three months period ended April 2, 2022, the company repurchased 84,086 shares of its common stock that were surrendered to the company for withholding taxes related to restricted stock vestings for $14.8 million. During the three months period ended April 3, 2021, the company repurchased 10,473 shares of its common stock that were surrendered to the company for withholding taxes related to restricted stock vestings for $1.8 million. These withheld shares are not considered common stock repurchases under the authorized common stock repurchase plan and accordingly are not included in the common stock repurchase totals disclosed below.

In November 2017, the company's Board of Directors approved a stock repurchase program authorizing the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock. During 2020, the company repurchased 896,965 shares of its common stock under the program for $69.7 million, including applicable commissions, which represented an average price of $77.70. As of April 3, 2021, 1,023,165 shares had been purchased under the 2017 stock repurchase program and 1,476,835 remain authorized for repurchase.

~~18) Subsequent Event~~

On April 20, 2021, the company entered into an Agreement and Plan of Merger ("Merger Agreement") with Welbilt, Inc.("Welbilt"), a Delaware corporation, Middleby Marshall, Inc., a wholly owned subsidiary of the company and Mosaic Merger Sub, Inc., a wholly owned subsidiary of the company (“Merger Sub”), pursuant to which, at the closing, Merger Sub will merge with and into Welbilt, with Welbilt surviving as an indirect, wholly owned subsidiary of the company (“Merger”). Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (“Effective Time”), each share of common stock, par value $0.01 per share, of Welbilt (“Welbilt Common Stock”) issued and outstanding immediately prior to the Effective Time (other than shares of Welbilt common stock held by Welbilt as treasury stock or held, directly or indirectly, by the company) will be converted into the right to receive 0.1240 shares of validly issued, fully paid and non-assessable shares of common stock, par value $0.01 per share, of Middleby (“Middleby Common Stock”) (the ratio of one share of Welbilt Common Stock for 0.1240 shares of Middleby Common Stock, the “Exchange Ratio”). Upon the closing of the Merger, Middleby stockholders will own approximately 76% and Welbilt stockholders will own approximately 24% of the combined company.

Following the closing of the Merger, the Middleby Common Stock will continue to be listed on the NASDAQ Global Select Market (“NASDAQ”). Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time, Welbilt’s equity-based compensation plan maintained for employees of Welbilt will be assumed by Middleby and (i) all outstanding options to purchase Welbilt Common Stock will be converted into options to purchase shares of Middleby Common Stock, (ii) all outstanding restricted stock awards and restricted stock unit awards with respect to Welbilt Common Stock will be converted into corresponding restricted stock awards and restricted stock unit awards with respect to shares of Middleby Common Stock, and (iii) all outstanding performance stock unit awards with respect to Welbilt Common Stock will be converted into restricted stock unit awards with respect to shares of Middleby Common Stock, with performance criteria deemed satisfied based on the achievement levels set forth in the Merger Agreement, in each case, based on the Exchange Ratio and with respect to such converted stock options, the exercise price of which shall be equal to the exercise price of such option in effect immediately prior to the Effective Time, divided by the Exchange Ratio, rounded up to the nearest whole cent. No fractional shares of Middleby Common Stock will be issued in connection with the Merger, and holders of shares of Welbilt Common Stock will receive cash in lieu of any such fractional shares.

The respective boards of directors of Middleby and Welbilt have unanimously approved the Merger Agreement, and the board of directors of Middleby has agreed to recommend that Middleby’s stockholders approve the issuance of the shares of Middleby Common Stock in connection with the Merger, as required by the listing standards of NASDAQ. In addition, the board of directors of Welbilt has agreed to recommend that Welbilt’s stockholders adopt the Merger Agreement.

The completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including (i) approval of the issuance of Middleby Common Stock in connection with the Merger by Middleby’s stockholders, (ii) approval for listing of the Middleby Common Stock to be issued in connection with the Merger on NASDAQ, (iii) the effectiveness of a registration statement on Form S-4 with respect to the Middleby Common Stock to be issued in connection with the Merger, (iv) approval and adoption of the Merger Agreement by Welbilt’s stockholders, (v) expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), and receipt of applicable approvals under certain foreign competition, antitrust or merger control laws, (vi) there being no law or order prohibiting consummation of the Merger, (vii) subject to specified materiality standards, the accuracy of the representations and warranties of the parties, (viii) compliance by the parties in all material respects with their respective covenants, (ix) the absence of a material adverse effect with respect to each of Middleby and Welbilt, and (x) the delivery of an officer’s closing certificate by both parties. The completion of the Merger is not conditioned on receipt of financing by Middleby.

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

Special Notes Regarding Forward-Looking Statements

This report contains forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The company cautions readers that these projections are based upon future results or events and are highly dependent upon a variety of important factors which could cause such results or events to differ materially from any forward-looking statements which may be deemed to have been made in this report, or which are otherwise made by or on behalf of the company. Such factors include, but are not limited to, the impact of COVID-19 pandemic and the response of governments, businesses and other third parties; volatility in earnings resulting from goodwill impairment losses which may occur irregularly and in varying amounts; variability in financing costs; quarterly variations in operating results; dependence on key customers; international exposure; foreign exchange and political risks affecting international sales; ability to protect trademarks, copyrights and other intellectual property; changing market conditions; the impact of competitive products and pricing; the timely development and market acceptance of the company’s products; the availability and cost of raw materials; and other risks detailed herein and from time-to-time in the company’s SEC filings, including the company’s ~~2020~~2021 Annual Report on Form 10-K. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this report are made only as of the date hereof and, except as required by federal securities laws and rules and regulations of the SEC, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

~~Merger with Welbilt, Inc.~~

~~On April 20, 2021,~~The ongoing conflict between Russia and Ukraine has resulted in significant economic disruption globally and may adversely affect our business and results of operations. In response to the Russia-Ukraine conflict, governments have imposed sanctions and other restrictive actions against Russia and accordingly, the company ~~entered~~has suspended all sales into and purchases from Russia. The Russia-Ukraine conflict has resulted in increased transportation costs and supply chain challenges, and further escalation of such conflict may result in additional supply chain disruptions, among other things, which may adversely affect our business and results of operations. As the ~~Merger Agreement, pursuant to which, at~~Company does not have material operations in Ukraine or Russia, the ~~closing, Merger Sub will merge with and into Welbilt, with Welbilt surviving as an indirect, wholly owned subsidiary~~impact of this conflict did not have a material impact on our results of operations during the three months ended April 2, 2022. However, the extent of the ~~company, as discussed in Note 18, Subsequent Event,~~adverse impacts of the ongoing conflict on the broader global economy cannot be predicted and could negatively impact our business and results of operations in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time, each share of Welbilt Common Stock will be converted into the right to receive 0.1240 shares of Middleby Common Stock. Upon the closing of the Merger, Middleby stockholders will own approximately 76% and Welbilt stockholders will own approximately 24% of the combined company. The Merger Agreement was unanimously approved by the boards of directors of both the company and Welbilt, and is subject to satisfaction of customary closing conditions set forth in the Merger Agreement, including receipt of required regulatory approvals and approval by the stockholders of each company. The completion of the Merger is not conditioned on receipt of financing by Middleby.

future.

Net Sales Summary

(dollars in thousands)

Three Months Ended
Apr 3, 2021 Mar 28, 2020
Sales Percent Sales Percent
Business Segments:
Commercial Foodservice $ 481,155 63.5 % $ 443,124 65.4 %
Food Processing 112,494 14.8 104,266 15.4
Residential Kitchen 164,409 21.7 130,069 19.2
Total $ 758,058 100.0 % $ 677,459 100.0 %


	Three Months Ended
		Apr 2, 2022	Apr 3, 2021
			Sales		Percent		Sales		Percent
Business Segments:
Commercial Foodservice			$	543,653	54.7	%	$	481,155	63.5	%
Food Processing			119,943		12.0		112,494		14.8
Residential Kitchen			331,080		33.3		164,409		21.7
Total			$	994,676	100.0	%	$	758,058	100.0	%

Results of Operations

The following table sets forth certain consolidated statements of earnings items as a percentage of net sales for the periods:


		Three Months Ended						Three Months Ended
			Apr 3, 2021		Mar 28, 2020				Apr 2, 2022		Apr 3, 2021
Net sales	Net sales		100.0	%	100.0	%	Net sales		100.0	%	100.0	%
Cost of sales	Cost of sales		63.6		63.1		Cost of sales		66.8		63.6
Gross profit	Gross profit		36.4		36.9		Gross profit		33.2		36.4
Selling, general and administrative expenses	Selling, general and administrative expenses		20.4		21.2		Selling, general and administrative expenses		20.7		20.4
Restructuring	Restructuring		0.1		0.1		Restructuring		0.2		0.1

Income from operations	Income from operations		16.0		15.6		Income from operations		12.3		16.0
Interest expense and deferred financing amortization, net	Interest expense and deferred financing amortization, net		2.1		2.4		Interest expense and deferred financing amortization, net		1.8		2.1
Net periodic pension benefit (other than service costs)	Net periodic pension benefit (other than service costs)		(1.5)		(1.5)		Net periodic pension benefit (other than service costs)		(1.2)		(1.5)
Other (income) expense, net			(0.2)		0.5
Other expense (income), net							Other expense (income), net		0.4		(0.2)
Earnings before income taxes	Earnings before income taxes		15.6		14.2		Earnings before income taxes		11.3		15.6
Provision for income taxes	Provision for income taxes		3.8		3.3		Provision for income taxes		2.7		3.8
Net earnings	Net earnings		11.8	%	10.9	%	Net earnings		8.6	%	11.8	%

Three Months Ended April ~~3, 2021~~2, 2022 as compared to Three Months Ended ~~March 28, 2020~~April 3, 2021

NET SALES. Net sales for the three months period ended April ~~3, 2021~~2, 2022 increased by ~~$80.6~~$236.6 million or ~~11.9%~~31.2% to ~~$758.1~~$994.7 million as compared to ~~$677.5~~$758.1 million in the three months period ended ~~March 28, 2020.~~April 3, 2021. Net sales increased by ~~$18.6~~$157.0 million, or ~~2.7%~~20.7%, from the fiscal ~~2020~~2021 acquisitions of ~~Deutsche, Wild Goose,~~Novy, Imperial, Newton CFV, Char-Griller, and ~~United Foodservice Equipment Zhuhai.~~Kamado Joe and Masterbuilt. Excluding acquisitions, ~~and a disposition,~~ net sales increased ~~$67.7~~$79.6 million, or ~~10.1%~~10.5%, from the prior year period. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the three months period ended April ~~3, 2021 increased~~2, 2022 decreased net sales by approximately ~~$11.1~~$8.8 million or ~~1.6%~~1.2%. Excluding the impact of foreign exchange ~~acquisitions~~ and ~~a disposition,~~acquisitions sales increased ~~8.4%~~11.7% for the three months period ended April ~~3, 2021~~2, 2022 as compared to the prior year period, including a net sales increase of ~~3.2%~~10.9% at the Commercial Foodservice Equipment Group, a net sales increase of ~~6.5%~~8.4% at the Food Processing Equipment Group and a net sales increase of ~~28.7%~~16.1% at the Residential Kitchen Equipment Group.

•Net sales of the Commercial Foodservice Equipment Group increased by ~~$38.1~~$62.5 million, or ~~8.6%~~13.0%, to ~~$481.2~~$543.7 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$443.1~~$481.2 million in the prior year period. Net sales from the acquisitions of ~~Deutsche, Wild Goose,~~Imperial and ~~United Foodservice Equipment Zhuhai,~~Newton CFV, which were acquired on ~~March 2, 2020, December 7, 2020,~~September 24, 2021 and ~~December 18, 2020,~~November 16, 2021, respectively, accounted for an increase of ~~$18.6~~$14.6 million during the three months period ended April ~~3, 2021.~~2, 2022. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased ~~$19.5~~$47.9 million, or ~~4.4%~~10.0%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales increased ~~$14.1~~$52.6 million, or ~~3.2%~~10.9%, at the Commercial Foodservice Equipment Group. Domestically, the company realized a sales increase of ~~$32.4~~$36.0 million, or 10.6%, to ~~$338.9~~$374.9 million, as compared to ~~$306.5~~$338.9 million in the prior year period. This includes an increase of $13.4 million from the recent acquisitions. Excluding the acquisitions, the net increase in domestic sales was $22.6 million, or 6.7%. The increase in domestic sales is related to improvements in market conditions and consumer demand. ~~This includes an increase of $14.0 million from recent acquisitions. Excluding the acquisitions, the net increase in domestic sales was $18.4 million, or 6.0%.~~ International sales increased ~~$5.7~~$26.5 million, or ~~4.2%~~18.6%, to ~~$142.3~~$168.8 million, as compared to ~~$136.6~~$142.3 million in the prior year period. This includes an increase of ~~$4.6~~$1.2 million from the recent acquisitions and ~~an increase~~a decrease of ~~$5.4~~$4.7 million related to the ~~favorable~~unfavorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales ~~decrease~~increase in international sales was ~~$4.3~~$30.0 million, or ~~3.1%~~21.1%. The ~~decrease~~increase in international ~~revenues reflects continued impacts of COVID-19 on~~sales is related to improvements in market conditions, primarily in the European ~~and Latin America markets, partially offset by an increase in the Asian market.~~markets.

•Net sales of the Food Processing Equipment Group increased by ~~$8.2~~$7.4 million, or ~~7.9%~~6.6%, to ~~$112.5~~$119.9 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$104.3~~$112.5 million in the prior year period. Excluding the impact of foreign exchange, net sales increased ~~$6.8~~$9.4 million, or ~~6.5%~~8.4%, at the Food Processing Equipment Group. Domestically, the company realized a sales increase of ~~$6.8~~$15.1 million, or ~~9.3%~~18.9%, to ~~$79.7~~$94.8 million, as compared to ~~$72.9~~$79.7 million in the prior year period. The increase in domestic sales reflects growth primarily driven by ~~bakery~~protein products. International sales ~~increased $1.4~~decreased $7.7 million, or ~~4.5%~~23.5%, to ~~$32.8~~$25.1 million, as compared to ~~$31.4~~$32.8 million in the prior year period. This includes ~~an increase~~a decrease of ~~$1.4~~$2.0 million related to the ~~favorable~~unfavorable impact of exchange rates. Excluding foreign exchange, the net sales decrease in international sales ~~were largely unchanged.~~was $5.7 million, or 17.4%. The decrease in international sales is impacted by the timing of certain larger projects in the European markets.

•Net sales of the Residential Kitchen Equipment Group increased by ~~$34.3~~$166.7 million, or ~~26.4%~~101.4%, to ~~$164.4~~$331.1 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$130.1~~$164.4 million in the prior year period. Net sales from the acquisitions of Novy, Char-Griller, and Kamado Joe and Masterbuilt, which were acquired on July 12, 2021, December 27, 2021 and December 27, 2021, respectively, accounted for an increase of $142.4 million during the three months period ended April 2, 2022. Excluding the impact of the acquisitions, net sales of the Residential Kitchen Equipment Group increased $24.3 million, or 14.8%, as compared to the prior year period. Excluding the impact of foreign exchange and ~~a disposition,~~the acquisitions, net sales increased ~~$35.7~~$26.4 million, or ~~28.7%~~16.1% at the Residential Kitchen Equipment Group. Domestically, the company realized a sales increase of ~~$23.5~~$121.0 million, or ~~27.6%~~111.4%, to ~~$108.6~~$229.6 million, as compared to ~~$85.1~~$108.6 million in the prior year period. International sales increased ~~$10.8~~$45.7 million, or ~~24.0%~~81.9%, to ~~$55.8~~$101.5 million, as compared to ~~$45.0~~$55.8 million in the prior year period. This includes ~~a favorable~~an decrease of $2.1 million related to the unfavorable impact of exchange ~~rates of $4.3 million.~~rates. Excluding foreign exchange and ~~a disposition,~~the acquisitions, the net sales increase in international sales was ~~$12.2~~$3.6 million, or ~~31.0%~~6.5%. The increase in domestic and international sales reflects the strong demand for our premium appliance ~~brands.~~brands and strength in the European market.

GROSS PROFIT. Gross profit increased to ~~$275.9~~$330.5 million in the three months period ended April ~~3, 2021~~2, 2022 from ~~$250.2~~$275.9 million in the prior year period, primarily reflecting higher sales volumes related to improvements in market conditions and consumer ~~demand and favorable~~demand. The impact of foreign ~~exchanges~~exchange rates ~~of $4.1~~decreased gross profit by approximately $3.3 million. The gross margin rate was ~~36.9%~~36.4% in the three months period ended ~~March 28, 2020~~April 3, 2021 as compared to ~~36.4%~~33.2% in the current year period. Gross profit margins have been negatively impacted by acquisitions, including $14.3 million of acquisition related inventory step-up charges, along with rising costs of many raw materials and inputs, labor rates and logistics costs.

•Gross profit at the Commercial Foodservice Equipment Group increased by ~~$9.9~~$24.0 million, or ~~6.0%~~13.7%, to ~~$175.2~~$199.2 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$165.3~~$175.2 million in the prior year period. Gross profit from the acquisitions of ~~Deutsche, Wild Goose,~~Imperial and ~~United Foodservice Equipment Zhuhai~~Newton CFV increased gross profit by ~~$5.7~~$5.0 million. Excluding acquisitions, gross profit increased by ~~$4.2~~$19.0 million ~~primarily~~ related to higher sales volumes. The impact of foreign exchange rates ~~increased~~decreased gross profit by approximately ~~$2.0~~$1.7 million. The gross margin rate ~~decreased~~increased to ~~36.4%~~36.6%, as compared to ~~37.3%~~36.4% in the prior year period. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was ~~36.6%~~36.7%.

•Gross profit at the Food Processing Equipment Group increased by ~~$3.1~~$1.5 million, or ~~8.6%~~3.8%, to ~~$39.2~~$40.7 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$36.1~~$39.2 million in the prior year period. The impact of foreign exchange rates ~~increased~~decreased gross profit by approximately $0.7 million. The gross profit margin rate ~~increased~~decreased to ~~34.8%~~33.9%, as compared to ~~34.6%~~34.8% in the prior year period primarily related to higher sales volumes and product mix. The gross margin rate, excluding the impact of foreign exchange, was ~~34.7%~~34.0%.

•Gross profit at the Residential Kitchen Equipment Group increased by ~~$12.0~~$30.2 million, or ~~24.6%~~49.7%, to ~~$60.8~~$91.0 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$48.8~~$60.8 million in the prior year period. Gross profit from the acquisitions of Novy, Char-Griller, and Kamado Joe and Masterbuilt increased gross profit by $20.9 million. The impact of foreign exchange rates ~~increased~~decreased gross profit by approximately ~~$1.4~~$0.9 million. The gross margin rate decreased to ~~37.0%~~27.5%, as compared to ~~37.5%~~37.0% in the prior year ~~period.~~period related to higher sales volumes. Gross profit margins have been negatively impacted by acquisitions, including $14.3 million of acquisition related inventory step-up charges. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was ~~37.1%~~37.2%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general and administrative expenses increased from ~~$143.9 million in the three months period ended March 28, 2020 to~~ $155.0 million in the three months period ended April 3, ~~2021.~~2021 to $206.1 million in the three months period ended April 2, 2022. As a percentage of net sales, selling, general, and administrative expenses were ~~21.2% in the three months period ended March 28, 2020, as compared to~~ 20.4% in the three months period ended April 3, ~~2021.~~2021, as compared to 20.7% in the three months period ended April 2, 2022.

Selling, general and administrative expenses reflect increased costs of ~~$5.4~~$36.1 million associated with acquisitions, including ~~$2.7~~$17.7 million of intangible amortization expense. Selling, general and administrative expenses increased ~~$13.2~~$6.1 million related to ~~incentive and stock~~ compensation ~~costs, offset by a decrease of $6.1 million from controllable cost reductions primarily within travel & entertainment and convention~~ costs. Higher sales volumes also resulted in increased commission expense. Foreign exchange rates had an ~~unfavorable~~favorable impact of ~~$2.1~~$1.7 million.

RESTRUCTURING EXPENSES. Restructuring expenses were $0.8 million for the three months period ended ~~March 28, 2020~~April 3, 2021 and ~~$0.8~~$1.9 million for the three months period ended April ~~3, 2021.~~2, 2022. Restructuring expenses in both periods related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group.

NON-OPERATING EXPENSES. Interest and deferred financing amortization costs were ~~$16.1~~$17.7 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$15.7~~$16.1 million in the prior year period. Net periodic pension benefit (other than service costs) increased ~~$1.3~~$0.1 million to ~~$11.4~~$11.5 million in the three months period ended April ~~3, 2021~~2, 2022 from ~~$10.1~~$11.4 million in the prior year ~~period, related to the decrease in discount rate used to calculate the interest cost.~~period. Other ~~income~~expense was ~~$1.7~~$4.1 million in the three months period ended April ~~3, 2021,~~2, 2022, as compared to other ~~expense~~income of ~~$3.3~~$1.7 million in the prior year period and consists mainly of foreign exchange gains and losses.

INCOME TAXES. A tax provision of ~~$28.9~~$26.6 million, at an effective rate of ~~24.5%~~23.7%, was recorded during the three months period ended April ~~3, 2021,~~2, 2022, as compared to ~~$22.7~~$28.9 million at an effective rate of ~~23.5%~~24.5%, in the prior year period. The effective tax ~~rates in 2020 and 2019 are higher~~rate for the three months period ended April 2, 2022 is lower than the ~~federal tax~~comparable year rate ~~of 21%~~ primarily due to ~~state taxes.~~

excess tax benefits from share-based compensation award vesting.

Financial Condition and Liquidity

During the three months ended April ~~3, 2021,~~2, 2022, cash and cash equivalents ~~increased~~decreased by ~~$41.2~~$33.7 million to ~~$309.3~~$146.7 million from ~~$268.1~~$180.4 million at January ~~2, 2021.~~1, 2022. Total debt increased to ~~$1.8~~$2.6 billion at April ~~3, 2021~~2, 2022 from ~~$1.7~~$2.4 billion at January 2, 2021 primarily due to the adoption of ASU 2020-06 as discussed in Note 4, Recently Issued Accounting Standards, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1, ~~of this Quarterly Report on Form 10-Q.~~2022.

OPERATING ACTIVITIES. Net cash used for operating activities was $15.3 million for the three months ended April 2, 2022, compared to net cash provided by operating activities ~~was~~of $59.7 million for the three months ended April 3, ~~2021, compared to $87.1 million for the three months ended March 28, 2020.~~2021.

During the three months period ended April ~~3, 2021, net~~2, 2022, working capital changes meaningfully impacted operating cash ~~provided by changes in assets and liabilities amounted to $57.1 million. The changes~~flows. These included an increase in accounts receivable of ~~$66.7~~$55.3 million due to increased sales from improved market ~~conditions and~~conditions. Additionally, inventory increased ~~sales volumes. Inventory increased $33.3~~$88.5 million ~~and accounts payable increased $31.7 million~~due to ~~support increased demand and~~the seasonality of acquired businesses, efforts to ~~manage~~mitigate supply chain ~~risks. Changes also included a $27.4 million decrease in prepaid expenses~~risks and ~~other assets and $16.2 million decrease in accrued expenses and other non-current liabilities including~~the inflationary impacts ~~from the sale of assets held for sale for a non-core business within the Residential Kitchen Equipment Group.~~on inventory.

INVESTING ACTIVITIES. During the three months ended April ~~3, 2021,~~2, 2022, net cash used for investing activities amounted to ~~$7.0~~$24.1 million. ~~This included $8.7~~Cash used to fund acquisitions and investments amounted to $6.4 million. Additionally, $14.5 million was expended, primarily ~~associated with~~for additions and upgrades of production equipment and manufacturing ~~facilities and residential and commercial showrooms, and was partially offset by $3.4 million proceeds on the sale of property following facility consolidation actions.~~facilities.

FINANCING ACTIVITIES. Net cash flows ~~used~~provided by financing activities were ~~$8.3~~$8.7 million during the three months ended April ~~3, 2021.~~2, 2022. The company’s borrowing activities during the three months ended April ~~3, 2021~~2, 2022 included ~~$4.7~~$187.8 million of net ~~repayments~~proceeds under its Credit ~~Facility and $1.8~~Facility. Additionally, the company repurchased $170.0 million of ~~net repayments under its foreign banking facilities. The company used $1.8~~Middleby common shares during the three months ended April 2, 2022. This was comprised of $14.8 million to repurchase ~~10,473~~84,086 shares of Middleby common stock that were surrendered to the company by employees in lieu of cash payment for withholding taxes related to restricted stock vesting ~~during the quarter.~~and $155.2 million used to repurchase 862,912 shares of its common stock under a repurchase program.

At April ~~3, 2021,~~2, 2022, the company believes that its current capital resources, including cash and cash equivalents, cash expected to be generated from ~~operation,~~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.

Recently Issued Accounting Standards

See Part I, Item 1, Notes to Condensed Consolidated Financial Statements, Note 4 - Recent Issued Accounting Standards, of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon the company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, the company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences could be material to the company's consolidated financial statements. There have been no changes in the company's critical accounting policies, which include revenue recognition, inventories, goodwill and ~~other~~indefinite-life intangibles, convertible debt, pensions benefits, and income taxes, as discussed in the company's Annual Report on Form 10-K for the year ended January ~~2, 2021~~1, 2022 (the ~~“2020~~“2021 Annual Report on Form 10-K”) ~~other than those described below.~~.

~~During the three months ended April 3, 2021, the company adopted ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity."~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The company is exposed to market risk related to changes in interest rates. The following table summarizes the maturity of the company’s debt obligations:


Twelve Month Period coinciding with the end of the company's Fiscal First Quarter	Twelve Month Period coinciding with the end of the company's Fiscal First Quarter	Variable Rate Debt		Twelve Month Period coinciding with the end of the company's Fiscal First Quarter	Variable Rate Debt

2022		$	21,093
2023	2023	19,163		2023	$	27,693
2024	2024	19,042		2024	23,644
2025	2025	1,030,340		2025	23,639
2026 and thereafter		732,495
2026				2026	758,789
2027 and thereafter				2027 and thereafter	1,764,060
		$	1,822,133		$	2,597,825

The company is exposed to interest rate risk on its floating-rate debt. 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 April ~~3, 2021,~~2, 2022, the fair value of these instruments was ~~a liability~~an asset of ~~$34.4~~$24.0 million. The change in fair value of these swap agreements in the first three months of ~~2021~~2022 was a gain of ~~$12.4~~$31.1 million, net of taxes. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted interest rates would not have a material impact on the company's financial position, results of operations and cash flows.

In August 2020, the company issued $747.5 million aggregate principal amount of Convertible Notes in a private offering pursuant to the Indenture. The company does not have economic interest rate exposure as the Convertible Notes have a fixed annual rate of 1.00%. The fair value of the Convertible Notes is subject to interest rate risk, market risk and other factors due to its conversion feature. The fair value of the Convertible Notes is also affected by the price and volatility of the company’s common stock and will generally increase or decrease as the market price of our common stock changes. The interest and market value changes affect the fair value of the Convertible Notes but do not impact the company’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, the company carries the Convertible Notes at face value, less any unamortized discount on the balance sheet and presents the fair value for disclosure purposes only.

Foreign Exchange Derivative Financial Instruments

The company uses foreign currency forward, foreign exchange swaps and option purchase and sales contracts to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted foreign exchange rates would not have a material impact on the company's financial position, results of operations and cash flows. The fair value of the forward and option contracts was a loss of ~~$0.7~~$3.0 million at the end of the first quarter of ~~2021.~~2022.

The company accounts for its derivative financial instruments in accordance with ASC 815, "Derivatives and Hedging". In accordance with ASC 815, these instruments are recognized on the balance sheet as either an asset or a liability measured at fair value. Changes in the market value and the related foreign exchange gains and losses are recorded in the statement of earnings.

Item 4. Controls and Procedures

The company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of April ~~3, 2021,~~2, 2022, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the company's disclosure controls and procedures. Based on the foregoing, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of this period.

During the quarter ended April ~~3, 2021,~~2, 2022, there has been no change in the company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

PART II. OTHER INFORMATION

The company was not required to report the information pursuant to Items 1 through 6 of Part II of Form 10-Q for the three months ended April ~~3, 2021,~~2, 2022, except as follows:

~~Item 1A. Risk Factors~~

The risk factors disclosed in the 2020 Annual Report on Form 10-K should be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended April 3, 2021 and should not be limited to those referenced. The following risks and uncertainties related to the Merger supplement the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended January 2, 2021.

~~Risks Relating to the Merger with Welbilt, Inc.~~

The Merger is subject to customary closing conditions to the obligations of both Middleby and Welbilt to complete the Merger, and if these conditions are not satisfied or waived, the Merger may not be completed on a timely basis or at all.

The completion of the Merger is subject to several of customary conditions to closing and there can be no assurance that such conditions to closing that remain outstanding will be satisfied or waived (to the extent permitted by law). The failure to timely satisfy the required conditions could delay the completion of the Merger for a significant period of time or prevent the completion of the Merger from occurring at all. These conditions to closing include, among others, (i) approval of the issuance of Middleby Common Stock in connection with the Merger by the Middleby stockholders, (ii) approval for listing of the Middleby Common Stock to be issued in connection with the Merger on NASDAQ, (iii) the effectiveness of a registration statement on Form S-4 with respect to the Middleby Common Stock to be issued in connection with the Merger, (iv) approval and adoption of the Merger Agreement by Welbilt’s stockholders, (v) expiration or termination of any waiting period under the HSR Act, and receipt of applicable approvals under certain foreign competition, antitrust or merger control laws, (vi) there being no law or order prohibiting consummation of the Merger, (vii) subject to specified materiality standards, the accuracy of the representations and warranties of the parties, (viii) compliance by the parties in all material respects with their respective covenants, (ix) the absence of a material adverse effect with respect to each of Middleby and Welbilt, and (x) the delivery of an officer’s closing certificate by both parties.

Many of the conditions to completion of the Merger are not within Middleby’s control, and Middleby cannot predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to April 20, 2022 (subject to extension if certain approvals have not been obtained by such date), it is possible that the Merger Agreement may be terminated. Although Welbilt and Middleby have agreed in the Merger Agreement to use reasonable best efforts to, subject to certain limitations, complete the Merger as promptly as practicable, these and other conditions to the completion of the Merger may fail to be satisfied. In addition, satisfying the conditions to and completion of the Merger may take longer, and could cost more, than Middleby expects. Middleby cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the Merger for a significant period of time or prevent them from occurring. Any delay in completing the Merger may adversely affect the cost savings and other benefits that Welbilt and Middleby expect to achieve if the Merger and the integration of the companies’ respective businesses are not completed within the expected timeframe. There can be no assurance that all required regulatory approvals will be obtained or obtained prior to the termination date. The governmental agencies from which the parties have sought or are seeking certain approvals in connection with the Merger have broad discretion in administering applicable governing regulations, and may impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of the combined company’s business after the closing. Such requirements, limitations, costs, divestitures or restrictions could delay or prevent the consummation of the Merger or have a material adverse effect on the combined company’s business and results of operations.

~~Failure to consummate the Merger could negatively impact the share price and future business and financial results.~~

If the Merger is not consummated, the ongoing businesses of Middleby may be adversely affected and, without realizing any of the potential benefits of having consummated the Merger, Middleby will be subject to several risks, including the following:

~~• Middleby may experience negative reactions from the financial markets, including negative impacts on its stock prices;~~

~~• Middleby may experience negative reactions from its customers, distributors, suppliers, vendors, business partners and employees;~~

~~• Middleby will be required to pay certain costs and expenses relating to the Merger whether or not the Merger is consummated, such as legal, accounting, financial advisor and printing fees;~~

~~• Matters relating to the Merger (including integration planning) may require substantial management time and resources, which could otherwise have been devoted to other beneficial opportunities;~~

• Middleby could become subject to litigation related to any failure to consummate the Merger or related to any enforcement proceeding commenced against Middleby to perform its obligations under the Merger Agreement; and

• If the Merger Agreement is terminated in certain circumstances, Middleby may be required to pay Welbilt a termination fee equal to $160 million (“Middleby Termination Fee”) or, under other specified circumstances, a termination fee equal to $140 million.

~~If the Merger is not consummated, these risks may materialize and may materially and adversely affect Middleby’s business, operations, financial results and share price.~~

~~The Merger Agreement subjects Middleby to restrictions on its business activities prior to the Effective Time.~~

The Merger Agreement subjects Middleby to restrictions on its business activities prior to the Effective Time. The Merger Agreement obligates Middleby to generally conduct its businesses in the ordinary course until the Effective Time and to use its reasonable best efforts to (i) preserve its assets and business organization, (ii) maintain its existing relationships and goodwill with material customers, suppliers, distributors, governmental authorities and business partners, and (iii) to keep available the services of its officers and key employees. These restrictions could prevent Middleby from pursuing certain business opportunities that arise prior to the Effective Time.

The Merger Agreement contains provisions that limit Middleby’s ability to pursue alternatives to the Merger, may discourage certain other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require Middleby to pay Welbilt a termination fee.

Under the Merger Agreement, Middleby is subject to certain restrictions on its ability to solicit alternative business combination proposals from third parties, engage in discussion or negotiations with respect to such proposals or provide information in connection with such proposals, subject to certain customary exceptions. Middleby may terminate the Merger Agreement and enter into an agreement providing for a superior proposal only if specified conditions have been satisfied, and such a termination would result in Middleby being required to pay Welbilt the Middleby Termination Fee. If the Merger Agreement is terminated and Middleby determines to seek another business combination, Middleby may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger. While Middleby believes these provisions and agreements are reasonable and customary and are not preclusive of other offers, these provisions could discourage a third party that may have an interest in acquiring all or a significant part of Middleby from considering or proposing such acquisition, even if such third party were prepared to pay consideration with a higher value than the merger consideration. These provisions might also result in a potential third party acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

~~In specified circumstances, Welbilt could terminate the Merger Agreement to accept an alternative proposal.~~

Welbilt may in certain circumstances terminate the Merger Agreement to enter into an agreement providing for a superior proposal prior to obtaining approval and adoption of the Merger Agreement by the Welbilt stockholders. In such event, Welbilt would be obligated to pay Middleby a termination fee equal to $110 million, but Welbilt would have no further material obligations or liabilities to Middleby relating to or arising out of the Merger Agreement or the Merger. Such termination would deny Middleby and its stockholders any benefits from the Merger and could materially and negatively impact Middleby’s share price.

Because the number of Middleby shares that Welbilt stockholders will be entitled to receive as a result of the Merger will be based on a fixed exchange ratio, and the value of the Middleby shares has fluctuated and will continue to fluctuate, the value of the merger consideration is uncertain.

Upon completion of the Merger, Welbilt stockholders will be entitled to receive 0.1240 shares of Middleby Common Stock in exchange for each outstanding and issued share of Welbilt Common Stock. Because this exchange ratio is fixed and will only be adjusted in certain limited circumstances (including reclassifications, stock splits or combinations, exchanges or readjustments of shares, or stock dividends, recapitalization or similar transactions involving Welbilt or Middleby), any changes in the market value of shares of Middleby Common Stock or Welbilt Common Stock may affect the value that Welbilt stockholders will be entitled to receive upon completion of the Merger. Share price changes may result from a variety of factors, including changes in the business, operations or prospects of Middleby or Welbilt, market assessments of the likelihood that the Merger will be completed, the timing of the Merger, regulatory considerations, general market and economic conditions and other factors.

~~While the Merger is pending, Middleby will be subject to business uncertainties which could adversely affect its business, results of operations, financial condition and cash flows.~~

Uncertainty about the effect of the Merger on Middleby’s employees, customers, distributors, suppliers, vendors and other business partners may have an adverse effect on Middleby. These uncertainties may impair the company’s ability to attract, retain and motivate key personnel until the Merger is consummated and for a period thereafter. If, despite its retention efforts, key employees of Middleby depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the combined company’s (or, if the Merger is not consummated, Middleby’s) business could be harmed and its ability to realize the anticipated benefits of the Merger could be adversely affected.

Parties with which Middleby does business may experience uncertainty associated with the Merger, including with respect to current or future business relationships with Middleby. Middleby’s business relationships may be subject to disruption as customers and suppliers may attempt to negotiate changes in existing business relationships or consider entering into business relationships with other parties. These disruptions could have an adverse effect on the business, financial condition, results of operations or prospects of Middleby, including an adverse effect on the anticipated benefits of the Merger. The risk and adverse effect of such disruptions could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.

~~If completed, the Merger may not achieve its intended results.~~

Welbilt and Middleby entered into the Merger Agreement with the expectation that the Merger will result in various benefits. Achieving the anticipated benefits of the Merger is subject to several uncertainties, including whether the businesses of Middleby and Welbilt can be integrated in an efficient and effective manner. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and could adversely affect the combined company’s future business, financial condition, operating results and cash flows.

Welbilt and Middleby may be unable to successfully integrate their respective operations. Failure to successfully integrate the businesses of Welbilt and Middleby in the expected timeframe may adversely affect the future results of the combined company, and, consequently, the value of the Middleby shares that Welbilt stockholders will receive as the merger consideration.

It is possible that the integration process could take longer than anticipated, could give rise to unanticipated costs and could result in the loss of valuable employees, the disruption of each of Welbilt’s and Middleby’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect the combined company’s ability to achieve the anticipated benefits of the Merger. The combined company’s results of operations could also be adversely affected by any issues attributable to either company’s operations that arise or are based on events or actions that occur prior to the completion of the Merger. Welbilt and Middleby may have difficulty addressing possible differences in corporate cultures and management philosophies. The integration process is subject to several uncertainties, and no assurance can be given that the anticipated benefits will be realized or, if realized, the timing of their realization.

~~Middleby and Welbilt may be targets of legal proceedings that could result in substantial costs and may delay or prevent the Merger from being completed.~~

Although, currently, Middleby is not aware of any legal proceedings having been brought against Welbilt or Middleby in connection with the Merger, securities class action lawsuits, derivative lawsuits and other legal proceedings are often brought against public companies that have entered into merger agreements. Even if such legal proceedings are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Welbilt’s and Middleby’s respective liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, such injunction may delay or prevent the Merger from being completed, or from being completed within the expected timeframe, which may adversely affect Middleby’s business, financial position and results of operation.

~~The market price of the Middleby Common Stock after the Merger may be affected by factors different from those currently affecting the market price of Welbilt Common Stock.~~

Upon completion of the Merger, Welbilt stockholders will no longer be stockholders of Welbilt but will instead become holders of Middleby Common Stock. The businesses of Middleby differ from those of Welbilt in important respects, and, accordingly, the results of operations of Middleby after the Merger, as well as the market price of the Middleby Common Stock, may be affected by factors different from those currently affecting the results of operations of Welbilt. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, Middleby Common Stock, regardless of Middleby’s actual operating performance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

c) Issuer Purchases of Equity Securities

Total
Number of
Shares
Purchased

Average
Price Paid
per Share

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

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

~~January 3, 2021 to January 30, 2021~~

—

~~1,476,835~~

~~January 31, 2021 to February 27, 2021~~

—

~~1,476,835~~

~~February 28, 2021 to April 3, 2021~~

—

~~1,476,835~~

~~Quarter ended April 3, 2021~~

—

~~1,476,835~~


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Shares that May Yet be Purchased Under the Plan or Program (1)
January 2, 2022 to January 29, 2022	188,397	$	187.77	188,397	1,146,938
January 30, 2022 to February 26, 2022	314,740	184.10		314,740	832,198
February 27, 2022 to April 2, 2022	359,775	172.08		359,775	472,423
Quarter ended April 2, 2022	862,912	$	179.89	862,912	472,423

(1) On November 7, 2017, the company's Board of Directors resolved to terminate the company's existing share repurchase program, effective as of such date, which was originally adopted in 1998, and approved a new stock repurchase program. This program authorizes the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock. As of April ~~3, 2021,~~2, 2022, the total number of shares authorized for repurchase under the program is 2,500,000. As of April ~~3, 2021, 1,023,165~~2, 2022, 2,027,577 shares had been purchased under the 2017 stock repurchase program.

In the consolidated financial statements, the company also treats shares withheld for tax purposes on behalf of employees in connection with the vesting of restricted share grants as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares are not considered common stock repurchases under the authorized common stock repurchase plan and accordingly are not included in the common stock repurchase totals in the preceding table.

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Item 6. Exhibits


Exhibits:

~~Exhibit 2.1 –~~			Agreement and Plan of Merger, dated as of April 20, 2021, by and among The Middleby Corporation, Welbilt, Inc., Middleby Marshall Inc. and Mosaic Merger Sub, Inc., incorporated by reference to the company's Form 8-K Exhibit 2 ~~.1 filed on April 21, 2021.~~

~~Exhibit 10.1 –~~			Voting and Support Agreement, dated as of April 20, 2021, by and among The Middleby Corporation and the Welbilt Significant Stockholders named therein, incorporated by reference to the company's Form 8-K Exhibit 10.1 filed on April 21, 2021.

~~Exhibit 10.2 –~~			~~Form of Restricted Stock Unit Award Agreement for Non-Employee Directors for The Middleby Corporation 2011 Long-Term Incentive Plan.~~

Exhibit 31.1 –			Rule 13a-14(a)/15d -14(a) Certification of the Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 –			Rule 13a-14(a)/15d -14(a) Certification of the Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 –			Certification by the Principal Executive Officer of The Middleby Corporation Pursuant to Rule 13A-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C. 1350).

Exhibit 32.2 –			Certification by the Principal Financial Officer of The Middleby Corporation Pursuant to Rule 13A-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C. 1350).

Exhibit 101 –			Financial statements on Form 10-Q for the quarter ended April ~~3, 2021,~~2, 2022, filed on May ~~13, 2021,~~12, 2022, formatted in Inline Extensive Business Reporting Language (iXBRL); (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of earnings, (iii) condensed statements of cash flows, (iv) notes to the condensed consolidated financial statements.

Exhibit 104 –			Cover Page Interactive Data File (formatted as Inline Extensive Business Reporting Language (iXBRL) and contained in Exhibit 101).

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE MIDDLEBY CORPORATION

(Registrant)

Date:

May ~~13, 2021~~12, 2022

By:

/s/ Bryan E. Mittelman

Bryan E. Mittelman

Chief Financial Officer

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