What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-03 compared with 2020-02-26 · 608 added, 454 removed, 796 unchanged (57% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of The Middleby Corporation

To the Stockholders and the Board of Directors of The Middleby Corporation

Opinion on Internal Control over Financial Reporting

We have audited The Middleby Corporation's internal control over financial reporting as of December 28, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), (the COSO criteria).

In our opinion, The Middleby Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 28, 2019, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of EVO, Cooking Solutions Group, Powerhouse, Ss Brewtech, Pacproinc, Brava and Synesso which are included in the 2019 consolidated financial statements of the Company and constituted 6.4% and (0.3%) of total and net assets, respectively, as of December 28, 2019 and 3.6% and (1.7%) of revenues and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of EVO, Cooking Solutions Group, Powerhouse, Ss Brewtech, Pacproinc, Brava and Synesso.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 28, 2019 and December 29, 2018, the related consolidated statements of earnings, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 28, 2019, and the related notes and financial statement schedule listed in the Index at Item 8 and our report dated February 26, 2020 expressed an unqualified opinion thereon.

We have audited The Middleby Corporation’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), (the COSO criteria).

In our opinion, The Middleby Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of RAM, Deutsche, Wild Goose and United Foodservice Equipment Zhuhai, which are included in the 2020 consolidated financial statements of the Company and constituted 2.7% and 0.0% of total and net assets, respectively, as of January 2, 2021 and 0.6% and (3.1%) of revenues and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of RAM, Deutsche, Wild Goose and United Foodservice Equipment Zhuhai.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 2, 2021 and December 28, 2019, the related consolidated statements of earnings, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and financial statement schedule listed in the Index at Item 8 and our report dated March 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Chicago, Illinois

February 26, 2020

March 3, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of The Middleby Corporation

To the Stockholders and the Board of Directors of The Middleby Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Middleby Corporation (the Company) as of December 28, 2019 and December 29, 2018, the related consolidated statements of earnings, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 28, 2019, and the related notes and financial statement schedule listed in the Index at Item 8, (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 28, 2019 and December 29, 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 28, 2019, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of The Middleby Corporation (the Company) as of January 2, 2021 and December 28, 2019, the related consolidated statements of earnings, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and financial statement schedule listed in the Index at Item 8, (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition of Taylor Company

Description of the Matter

As described in Note 2 of the consolidated financial statements, the Company completed its acquisition of Taylor Company for net consideration of approximately $1.0 billion on June 22, 2018.

The transaction was accounted for as a business combination.

Auditing the Company's accounting for its acquisition of Taylor Company was complex due to the significant estimation uncertainty in determining the fair value of identified intangible assets of approximately $604 million, which principally consisted of the Taylor trade name and customer relationships.

The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business.

The Company used a discounted cash flow model to measure the trade name and customer relationship intangible assets.

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.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over accounting for the acquisition of Taylor Company, including controls over the determination of the fair value of the acquired trade name and customer relationships intangible assets, and management's evaluation of the underlying assumptions described above.

We also tested management's controls over the completeness and accuracy of the data used in the valuation models.

To test the estimated fair value of the trade name and customer relationships intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company's valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

We compared the assumptions related to the revenue growth rate and projected profit margin, to the past performance of Taylor Company, the Company's history related to similar acquisitions, and third party industry data.

We tested the assumptions related to discount rates and royalty rates to the Company’s history related to similar acquisitions and third-party industry data.

We involved a valuation specialist to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the account or disclosure to which it relates.

Impairment tests of indefinite-lived intangible assets

Description of the Matter

At December 28, 2019, the Company's indefinite-lived intangible assets consist of 69 trademarks and tradenames with an aggregate carrying value of approximately $997 million and represented 19.9% of total assets.

Description of the Matter At January 2, 2021, the Company's indefinite-lived intangible assets consist of trademarks and tradenames with an aggregate carrying value of approximately $1,026 million and represented 19.7% of total assets.

As described in Note 3 of the consolidated financial statements, trademarks and tradenames with indefinite lives are tested by the Company’s management for impairment at least annually, in the fiscal fourth quarter, unless there are indications of impairment at other points throughout the year.

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Auditing the impairment tests of indefinite–lived intangible assets is complex due to the significant management judgments and estimates required to determine the fair value of the trademarks and tradenames, including assumptions as to forecasted net sales, discount rates and royalty rates, all of which are sensitive to and affected by economic, industry and company-specific qualitative factors.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over the impairment tests of indefinite-lived intangible assets.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over the impairment tests of indefinite-lived intangible assets.

This included evaluating controls over the Company’s process used to develop the forecasts of future net sales and the selection of royalty rates and discount rates used in estimating the fair value of the trademarks and tradenames with indefinite lives.

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We assessed the historical accuracy of management’s estimates by comparing them to actual operating results and performed sensitivity analyses of significant assumptions to evaluate the change in the fair value of the trademarks and tradenames with indefinite lives resulting from changes in these assumptions.

We involved our valuation specialists to assist in reviewing the valuation methodology and testing the discount rates and royalty rates.

We involved our specialist to assist in reviewing the valuation methodology and testing the discount rates and royalty rates.

/s/ Ernst & Young LLP

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Chicago, Illinois

February 26, 2020

March 3, 2021

THE MIDDLEBY CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 28, 2019 AND DECEMBER 29, 2018

JANUARY 2, 2021 AND DECEMBER 28, 2019

(amounts in thousands, except share data)

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Accounts receivable, net of reserve for doubtful accounts of $ 19,225 and $ 14,886

363,361 447,612

Inventories, net 540,198 585,699

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Property, plant and equipment, net of accumulated depreciation of $ 229,871 and $ 197,629

344,482 352,145

Goodwill 1,934,261 1,849,747

Other intangibles, net of amortization of $ 403,347 and $ 333,507

1,450,381 1,443,381

Long-term deferred tax assets 76,052 36,932

Other assets 126,805 110,742

Total assets $ 5,202,474 $ 5,002,143

LIABILITIES AND STOCKHOLDERS' EQUITY

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8,013,296 and 6,940,089 shares in 2020 and 2019

( 537,134 ) ( 451,262 )

Retained earnings 2,568,756 2,361,462

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CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE FISCAL YEARS ENDED DECEMBER 28, 2019 , DECEMBER 29, 2018

FOR THE FISCAL YEARS ENDED JANUARY 2, 2021, DECEMBER 28, 2019

AND DECEMBER 29, 2018

(amounts in thousands, except per share data)

2020 2019 2018

Net sales $ 2,513,257 $ 2,959,446 $ 2,722,931

Cost of sales 1,631,209 1,855,949 1,718,791

Gross profit 882,048 1,103,497 1,004,140

Selling, general, and administrative expenses 531,897 593,813 538,842

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Gain on sale of plant ( 1,982 ) — —

Impairment of intangible asset

Impairments 15,327 — —

Income from operations 324,431 514,043 445,966

Interest expense and deferred financing amortization, net 78,617 82,609 58,742

Net periodic pension benefit (other than service costs)

Other (income) expense, net

Net periodic pension benefit (other than service cost & curtailment) ( 39,996 ) ( 29,722 ) ( 39,020 )

Curtailment loss 14,682 865 906

Other expense (income), net 3,071 ( 2,328 ) 1,825

Earnings before income taxes 268,057 462,619 423,513

Provision for income taxes 60,763 110,379 106,361

Net earnings $ 207,294 $ 352,240 $ 317,152

Net earnings per share:

Basic $ 3.76 $ 6.33 $ 5.71

Diluted $ 3.76 $ 6.33 $ 5.70

Weighted average number of shares

Basic 55,093 55,647 55,576

Dilutive common stock equivalents 43 9 28

Diluted 55,136 55,656 55,604

The accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE FISCAL YEARS ENDED DECEMBER 28, 2019 , DECEMBER 29, 2018

FOR THE FISCAL YEARS ENDED JANUARY 2, 2021, DECEMBER 28, 2019

AND DECEMBER 29, 2018

(amounts in thousands)

2020 2019 2018

Net earnings $ 207,294 $ 352,240 $ 317,152

Other comprehensive (loss) income:

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Other comprehensive (loss) income:

$ ( 137,495 ) $ ( 74,457 ) $ ( 10,057 )

Comprehensive income $ 69,799 $ 277,783 $ 307,095

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE FISCAL YEARS ENDED DECEMBER 28, 2019 , DECEMBER 29, 2018

FOR THE FISCAL YEARS ENDED JANUARY 2, 2021, DECEMBER 28, 2019

AND DECEMBER 29, 2018

(amounts in thousands)

Stock Paid-in

Capital Treasury

Stock Retained

Earnings Accumulated

Comprehensive

Income/(loss)

Income/(loss) Total

Stockholders'

Balance, December 30, 2017 $ 145 $ 374,922 $ ( 445,118 ) $ 1,697,618 $ ( 266,419 ) $ 1,361,148

Net earnings — — — 317,152 — 317,152

Adoption of ASU 2018-02 (1)

— — — ( 1,132 ) 1,132 —

Adoption of ASU 2014-09 (2)

— — — ( 4,405 ) — ( 4,405 )

Currency translation adjustments — — — — ( 43,050 ) ( 43,050 )

Change in unrecognized pension benefit costs, net of tax of $ 6,386

— — — — 32,612 32,612

Unrealized gain on interest rate swap, net of tax of $( 81 )

— — — — ( 751 ) ( 751 )

Stock compensation — 2,497 — — — 2,497

Stock issuance

Purchase of treasury stock

Balance, December 29, 2018 $ 145 $ 377,419 $ ( 445,118 ) $ 2,009,233 $ ( 276,476 ) $ 1,665,203

Adoption of ASU 2018-02 (1)

Net earnings — — — 352,240 — 352,240

Adoption of ASU 2017-12 (3)

— — — ( 11 ) 11 —

Currency translation adjustments — — — — 7,066 7,066

Change in unrecognized pension benefit costs, net of tax of $( 11,914 )

Unrealized gain on interest rate swap, net of tax of $(81)

— — — — ( 57,398 ) ( 57,398 )

Unrealized loss on interest rate swap, net of tax of $( 8,516 )

— — — — ( 24,136 ) ( 24,136 )

Stock compensation — 8,133 — — — 8,133

Stock issuance — 1,850 — — — 1,850

Purchase of treasury stock — — ( 6,144 ) — — ( 6,144 )

Balance, December 28, 2019 $ 145 $ 387,402 $ ( 451,262 ) $ 2,361,462 $ ( 350,933 ) $ 1,946,814

Adoption of ASU 2017-12 (3)

Net earnings $ — $ — $ — $ 207,294 $ — $ 207,294

Currency translation adjustments — — — — 55,744 55,744

Change in unrecognized pension benefit costs, net of tax of $( 40,426 )

— — — — ( 172,583 ) ( 172,583 )

Unrealized loss on interest rate swap, net of tax of $( 7,147 )

— — — — ( 20,656 ) ( 20,656 )

Stock compensation — 19,613 — — — 19,613

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Purchase of treasury stock — — ( 85,872 ) — — ( 85,872 )

Balance, December 28, 2019

Equity component of issuance of convertible notes — 308 — — — 308

Balance, January 2, 2021 $ 147 $ 433,308 $ ( 537,134 ) $ 2,568,756 $ ( 488,428 ) $ 1,976,649

(1) As of December 31, 2017, the company adopted ASU No.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED DECEMBER 28, 2019 , DECEMBER 29, 2018

FOR THE FISCAL YEARS ENDED JANUARY 2, 2021, DECEMBER 28, 2019

AND DECEMBER 29, 2018

(amounts in thousands)

2020 2019 2018

Cash flows from operating activities—

Net earnings $ 207,294 $ 352,240 $ 317,152

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

Depreciation and amortization 110,532 103,428 97,238

Amortization of discount and issuance costs on convertible notes 7,971 — —

Non-cash share-based compensation 19,613 8,133 2,497

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Gain on sale of plant ( 1,982 ) — —

Impairment of equipment

Impairment of intangible asset

Impairments 15,327 — 783

Non-cash restructuring — — 5,637

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Cash flows from investing activities—

Additions to property and equipment

Proceeds on sale of plant

Purchase of tradename

Net additions to property, plant and equipment ( 34,849 ) ( 46,609 ) ( 36,040 )

Proceeds on sale of property, plant and equipment 14,147 — —

Purchase of intangible assets ( 7,052 ) — ( 5,399 )

Acquisitions, net of cash acquired ( 79,003 ) ( 281,058 ) ( 1,197,984 )

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Repayments under Credit Facility ( 3,345,770 ) ( 560,363 ) ( 746,281 )

Proceeds from issuance of convertible notes, net of issuance costs 729,933 — —

Premiums paid for capped call ( 104,650 ) — —

Net repayments under foreign bank loan 1,305 ( 405 ) ( 7,088 )

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Non-cash investing and financing activities:

Stock issuance related to acquisitions

Stock issuance related to acquisition and purchase of intangible assets 15,869 — —

The accompanying Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED DECEMBER 28, 2019 , DECEMBER 29, 2018

FOR THE FISCAL YEARS ENDED JANUARY 2, 2021, DECEMBER 28, 2019

AND DECEMBER 29, 2018

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The Middleby Corporation (the "company") is engaged in the design, manufacture and sale of commercial foodservice, food processing equipment and residential kitchen equipment.

The company manufactures and assembles this equipment at thirty-seven U.S.

and twenty-eight international manufacturing facilities.

The company manufactures and assembles this equipment at forty U.S.

and twenty-nine international manufacturing facilities.

The company operates in three business segments:

2 unchanged sentences

This equipment is used across all types of foodservice operations, including quick-service restaurants, full-service restaurants, convenience stores, retail outlets, hotels and 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 and IoT solutions.

The Food Processing Equipment Group 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.

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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.

The company also provides a comprehensive portfolio of complementary food preparation equipment such as grinders, slicers, reduction and emulsion systems, mixers, blenders, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions , and forming equipment, as well as a variety of automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment.

The company also provides a comprehensive portfolio of complementary food preparation equipment such as 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.

This portfolio of equipment can be integrated to provide customers a highly efficient and customized solution.

The Residential Kitchen Equipment Group has a broad portfolio of innovative and professional-style residential kitchen equipment.

The products offered by this group include ranges, cookers, stoves, ovens, refrigerators, dishwashers, microwaves, cooktops, wine coolers, ice machines, ventilation equipment and outdoor equipment .

The products offered by this group include ranges, cookers, stoves, cooktops, microwaves, ovens, refrigerators, dishwashers, undercounter refrigeration, wine cellars, ice machines, ventilation equipment and outdoor equipment.

(2) ACQUISITIONS AND PURCHASE ACCOUNTING

The company operates in a highly fragmented industry and has completed numerous acquisitions over the past several years as a component of its growth strategy.

The company has acquired industry leading brands and technologies to position itself as a leader in the commercial foodservice equipment, food processing equipment and residential kitchen equipment industries.

The company has accounted for all business combinations using the acquisition method to record a new cost basis for the assets acquired and liabilities assumed.

The difference between the purchase price and the fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the financial statements.

The company also recognizes identifiable intangible assets, primarily trade names and customer relationships, 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 the company's significant acquisitions in 2020 and 2019 as well as summarized information on various acquisitions that were not individually material.

The company also made smaller acquisitions not presented below which are individually and collectively immaterial.

On June 22, 2018, the company completed its acquisition of all of the capital stock of the Taylor Company ("Taylor"), a world leader in beverage solutions, soft serve and ice cream dispensing equipment, frozen drink machines, and automated double-sided grills, located in Rockton, Illinois, for a purchase price of approximately $ 1.0 billion , net of cash acquired.

During the fourth quarter of 2018, the company finalized the working capital provision provided for by the purchase agreement resulting in a refund from the seller of $ 11.5 million .

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

(as initially

June 22, 2018

(as adjusted)

June 22, 2018

Current assets

Property, plant and equipment

Other intangibles

Long-term deferred tax asset

Current liabilities

Other non-current liabilities

Net assets acquired and liabilities assumed

The goodwill and $ 304.7 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350.

Other intangibles also include $ 290.9 million allocated to customer relationships, $ 1.7 million of existing developed oven technology, $ 4.4 million of equipment backlog, and $ 2.1 million of deferred service backlog, which are being amortized over periods up to 15 years , 5 years , 3 months , and 3 years , respectively.

Goodwill and other intangibles of Taylor are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.

A significant portion of the assets are expected to be deductible for tax purposes.

Cooking Solutions Group

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("Cooking Solutions Group") from Standex International Corporation, which consists of the brands APW Wyott, Bakers Pride, BKI and Ultrafryer with locations in Texas, South Carolina and Mexico for a purchase price of approximately $ 106.1 million, net of cash acquired.

During the third quarter of 2019, the company finalized the working capital provision provided for by the purchase agreement resulting in a payment due to the sellers of $ 0.1 million .

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

(as initially

April 1, 2019

Preliminary Measurement

(as adjusted)

April 1, 2019

During the third quarter of 2019, the company finalized the working capital and purchase price allocation provided for by the purchase agreement resulting in a payment due to the sellers of $ 0.1 million.

The final allocation of consideration paid for the Cooking Solutions Group acquisition is summarized as follows (in thousands) :

Preliminary Opening Balance Sheet Measurement

Adjustments Adjusted Opening Balance Sheet

Cash $ 843 $ — $ 843

Current assets 33,666 ( 1,625 ) 32,041

Property, plant and equipment 15,959 ( 58 ) 15,901

Goodwill 31,207 6,330 37,537

Other intangibles 53,450 ( 5,850 ) 47,600

Other assets — 1,470 1,470

Current liabilities ( 15,130 ) ( 1,583 ) ( 16,713 )

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These assets are not expected to be deductible for tax purposes.

The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values.

Thus, the provisional measurements of fair value set forth above are subject to change.

The company will complete the purchase price allocation in the first quarter of fiscal 2020.

Other 2019 Acquisitions

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The final allocation of consideration paid for the other 2019 acquisitions is summarized as follows (in thousands):

Preliminary Opening Balance Sheet

Adjusted Opening Balance Sheet

Preliminary Opening Balance Sheet Measurement

Adjustments Adjusted Opening Balance Sheet

Cash $ 2,683 $ ( 10 ) $ 2,673

Current assets 21,525 920 22,445

Property, plant and equipment 8,920 ( 166 ) 8,754

Goodwill 99,838 ( 11,117 ) 88,721

Other intangibles 64,019 11,363 75,382

Current portion of long term debt

Long-term deferred tax asset 1,288 1,428 2,716

Other assets 137 854 991

Current liabilities ( 20,437 ) ( 348 ) ( 20,785 )

Long term debt

Long-term deferred tax liability

Other non-current liabilities ( 6,170 ) ( 4,129 ) ( 10,299 )

Consideration paid at closing $ 171,803 $ ( 1,205 ) $ 170,598

Deferred payments 2,404 — 2,404

Contingent consideration 4,258 3,600 7,858

Net assets acquired and liabilities assumed $ 178,465 $ 2,395 $ 180,860

The long term deferred tax liability amounted to $ 13.9 million .

The net deferred tax liability is comprised of $ 13.1 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $ 0.8 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The long-term deferred tax asset amounted to $ 2.7 million.

The net deferred tax asset is comprised of $ 2.9 million of deferred tax asset related to tax loss carryforwards, $ 1.0 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $ 0.8 million of deferred tax asset related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $ 33.8 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

Other intangibles also include $ 28.6 million allocated to customer relationships, $ 0.3 million allocated to developed technology and $ 3.3 million allocated to backlog, which are being amortized over periods of 5 to 7 years , 5 years , and 3 months to 1 year , respectively.

Goodwill of $ 85.4 million and other intangibles of $ 42.9 million of the companies are allocated to the Commercial Foodservice Equipment Group.

Other intangibles also include $ 27.9 million allocated to customer relationships, $ 12.3 million allocated to developed technology and $ 1.4 million allocated to backlog, which are being amortized over periods of 5 to 10 years, 5 to 12 years, and 3 months, respectively.

Goodwill of $ 42.5 million and other intangibles of $ 35.5 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.

Goodwill of $ 34.9 million and other intangibles of $ 30.1 million are allocated to the Food Processing Equipment Group for segment reporting purposes.

Of these assets, goodwill of $ 22.1 million is expected to be deductible for tax purposes.

One purchase agreement includes an earnout provision providing for contingent payments due to the sellers to the extent certain financial targets are exceeded.

The earnout is payable between 2020 and 2021, if the company exceeds certain sales and earnings targets.

The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $ 3.5 million .

Other 2019 Acquisitions

During 2019 the company completed various other 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 date to estimate the fair value of assets acquired and liabilities assumed (in thousands):

Preliminary Opening Balance Sheet

Adjusted Opening Balance Sheet

Goodwill of $ 11.3 million and other intangibles of $ 9.8 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes.

Of these assets, goodwill of $ 77.9 million and intangibles of $ 64.8 million are expected to be deductible for tax purposes.

Two purchase agreements include deferred payments and earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded.

The deferred payments are payable between 2020 and 2022.

The contractual obligations associated with the deferred payments on the acquisition dates amount to $ 2.4 million.

The earnouts are payable between 2021 and 2030, if the companies exceed certain sales and earnings targets.

The contractual obligations associated with the contingent earnout provisions recognized on the acquisition dates amount to $ 7.9 million.

2020 Acquisitions

For the year ended January 2, 2021, the company has 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 acquisitions and are summarized as follows (in thousands):

Preliminary Opening Balance Sheet Preliminary Measurement

Adjustments Adjusted Opening Balance Sheet

Cash $ 14,647 $ — $ 14,647

Current assets 43,670 ( 13,674 ) 29,996

Property, plant and equipment 3,014 ( 241 ) 2,773

Goodwill 55,335 1,438 56,773

Other intangibles 63,201 — 63,201

Long-term deferred tax asset

Other assets 6,121 — 6,121

Current liabilities ( 54,478 ) 12,477 ( 42,001 )

Long-term deferred tax liability ( 123 ) — ( 123 )

Other non-current liabilities ( 21,902 ) — ( 21,902 )

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Net assets acquired and liabilities assumed $ 134,295 $ — $ 134,295

The long term deferred tax asset amounted to $ 2.8 million .

The net deferred tax asset is comprised of $ 3.0 million of deferred tax asset related to tax loss carryforwards, $ 0.9 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets, and $ 0.7 million of deferred tax asset related to the difference between the book and tax basis on other book to tax differences and liability accounts.

The long-term deferred tax liability amounted to $ 0.1 million and is related to the difference between the book and tax basis on other assets and liability accounts.

The goodwill and $ 23.1 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

Other intangibles also include $ 23.9 million allocated to customer relationships, $ 9.2 million allocated to developed technology and $ 1.5 million allocated to backlog, which are being amortized over periods of 2 to 10 years , 5 to 7 years , and 3 months , respectively.

Goodwill of $ 43.6 million and other intangibles of $ 35.2 million of the companies are allocated to the Commercial Foodservice Equipment Group.

Goodwill of $ 43.6 million and other intangibles of $ 21.3 million are allocated to the Food Processing Equipment Group.

Goodwill of $ 9.5 million and other intangibles of $ 7.7 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes.

Of these assets, goodwill of $ 85.5 million and intangibles of $ 54.1 million are expected to be deductible for tax purposes.

One purchase agreement includes deferred payments and earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded.

Other intangibles also include $ 14.0 million allocated to customer relationships, $ 20.7 million allocated to developed technology and $ 5.4 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 $ 56.8 million and other intangibles of $ 63.2 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.

Of these assets, goodwill of $ 20.0 million and all other intangibles are expected to be deductible for tax purposes.

Several purchase agreements include deferred payment and earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded.

The deferred payments are payable between 2020 and 2022.

The contractual obligation associated with the deferred payments on the acquisition date is $ 2.4 million .

The earnout is payable in 2022, if the company exceeds certain sales and earnings targets.

The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $ 4.3 million .

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, if the company exceeds certain sales and earnings targets.

The contractual obligations associated with the contingent earnout provisions recognized on the acquisition date amount to $ 16.1 million.

Thus, the provisional measurements of fair value set forth above are subject to change.

The company will complete the purchase price allocations during 2020.

The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

Pro Forma Financial Information

In accordance with ASC 805 Business Combinations , the following unaudited pro forma results of operations for the twelve months ended December 28, 2019 and December 29, 2018 , assumes the 2018 and 2019 acquisitions were completed on December 31, 2017 (first day of fiscal year 2018).

The following pro forma results include adjustments to reflect additional interest expense to fund the acquisitions, amortization of intangibles associated with the acquisitions, and the effects of adjustments made to the carrying value of certain assets (in thousands, except per share data):

In accordance with ASC 805 Business Combinations , the following unaudited pro forma results of operations for the twelve months ended January 2, 2021 and December 28, 2019, assumes the 2019 and 2020 acquisitions described above were completed on December 30, 2018 (first day of fiscal year 2019).

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):

Twelve Months Ended

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Net sales $ 2,563,195 $ 3,119,550

Net earnings 213,866 338,343

Net earnings per share:

Basic $ 3.88 $ 6.08

Diluted $ 3.88 $ 6.08

The historical consolidated financial information of the Company and the acquisitions have been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results.

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(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

(a) Basis of Presentation

The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries.

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The company's fiscal year ends on the Saturday nearest December 31.

Fiscal years 2019 , 2018 , and 2017 ended on December 28, 2019 , December 29, 2018 and December 30, 2017 , respectively, with each year including 52 weeks.

Certain prior year amounts have been reclassified to be consistent with current year presentation, including the non-operating components of pension benefit previously reported in accrued expenses and other liabilities within the changes in assets and liabilities, net of acquisitions to an individual adjustment to reconcile net earnings to cash provided by operating activities on the Consolidated Statements of Cash Flows.

Cash and Cash Equivalents

Fiscal years 2020, 2019, and 2018 ended on January 2, 2021, December 28, 2019 and December 29, 2018, respectively, and included 53, 52 and 52 weeks, respectively.

(b) Cash and Cash Equivalents

The company considers all short-term investments with original maturities of three months or less when acquired to be cash equivalents.

The company’s policy is to invest its excess cash in interest-bearing deposits with major banks that are subject to minimal credit and market risk.

Accounts Receivable

Accounts receivable, as shown in the consolidated balance sheets, are net of allowances for doubtful accounts of $ 14.9 million and $ 13.6 million at December 28, 2019 and December 29, 2018 , respectively.

At December 28, 2019 , all accounts receivable are expected to be collected within one year.

Accounts receivable, as shown in the consolidated balance sheets, are net of allowances for doubtful accounts of $ 19.2 million and $ 14.9 million at January 2, 2021 and December 28, 2019, respectively.

At January 2, 2021, all accounts receivable are expected to be collected within one year.

(d) Inventories

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The company estimates reserves for inventory obsolescence and shrinkage based on its judgment of future realization.

Inventories at December 28, 2019 and December 29, 2018 are as follows (in thousands):

Inventories at January 2, 2021 and December 28, 2019 are as follows (in thousands):

Raw materials and parts $ 263,200 $ 277,394

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Finished goods 221,894 249,642

Property, Plant and Equipment

$ 540,198 $ 585,699

(e) Property, Plant and Equipment

Property, plant and equipment are carried at cost as follows (in thousands):

Land $ 40,707 $ 43,467

Building and improvements 245,435 229,025

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Machinery and equipment 220,148 209,290

574,353 549,774

Less accumulated depreciation ( 229,871 ) ( 197,629 )

$ 344,482 $ 352,145

Property, plant and equipment are depreciated or amortized on a straight-line basis over their useful lives based on management's estimates of the period over which the assets will be utilized to benefit the operations of the company.

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Following is a summary of the estimated useful lives:

Building and improvements

20 to 40 years

Furniture and fixtures

Machinery and equipment

3 to 10 years

Description Life

Building and improvements 20 to 40 years

Furniture and fixtures 3 to 7 years

Machinery and equipment 3 to 10 years

Depreciation expense amounted to $ 39.1 million, $ 37.9 million and $ 35.8 million in fiscal 2020, 2019 and 2018, respectively.

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Asset impairments are recorded whenever events or changes in circumstances indicate that the recorded value of an asset is greater than the sum of its expected future undiscounted cash flows.

Goodwill and Other Intangibles

(f) Goodwill and Other Intangibles

The company’s business acquisitions result in the recognition of goodwill and other intangible assets, which are a significant portion of the company’s total assets.

The company recognizes goodwill and other intangible assets under the guidance of ASC Topic 350-10, Intangibles - Goodwill and Other .

Goodwill represents the excess of acquisition costs over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination.

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macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, share price and other relevant factors.

If an indicator of impairment is determined from the qualitative analysis, then the company will perform a two-step quantitative analysis.

First, the fair value of each reporting unit is compared to its carrying value.

If the fair value of the reporting unit is less than its carrying value, the company performs a hypothetical purchase price allocation based on the reporting unit’s fair value to determine the fair value of the reporting unit’s goodwill.

Any resulting difference will be a charge to impairment of intangible assets in the Consolidated Statements of Earnings in the period in which the determination is made.

If an indicator of impairment is determined from the qualitative analysis, then the company will perform a quantitative analysis.

The fair value of each reporting unit is compared to its carrying value.

If the fair value of the reporting unit is less than its carrying value, the resulting difference will be a charge to impairment of goodwill in the Consolidated Statements of Earnings in the period in which the determination is made.

Fair value is determined using a combination of present value techniques and market prices of comparable businesses.

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The company performed a qualitative assessment to evaluate goodwill for all reporting units.

Based on the qualitative assessment it was determined there was no impairment of goodwill.

The company has not recognized any goodwill impairments and therefore no accumulated impairment loss.

As a result of the financial performance indicators for the Commercial Foodservice reporting unit, the company completed a quantitative analysis.

The fair value of the reporting unit exceeded its carrying value by more than 100% and no impairment of goodwill was recognized.

Based on the qualitative assessment for all other reporting units it was determined there was no impairment of goodwill.

The company has not recognized any goodwill impairments and therefore there are no accumulated impairment losses.

Goodwill is allocated to the business segments as follows (in thousands):

Residential Kitchen

Foodservice Food

Processing Residential Kitchen Total

Balance as of December 29, 2018 $ 1,102,067 $ 219,054 $ 422,054 $ 1,743,175

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Exchange effect 18,167 6,851 9,741 34,759

Balance as of December 28, 2019

Balance as of January 2, 2021 $ 1,228,436 $ 255,798 $ 450,027 $ 1,934,261

Intangible assets consist of the following (in thousands):

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Amount Accumulated

Amortization Estimated

Amount Accumulated

Amortized intangible assets:

Customer relationships 8.5 $ 735,264 $ ( 347,029 ) 9.2 $ 717,397 $ ( 283,846 )

Backlog 0.3 34,729 ( 31,924 ) 1.3 29,426 ( 28,283 )

Developed technology 10.0 56,931 ( 24,394 ) 5.2 32,999 ( 21,378 )

$ 826,924 $ ( 403,347 ) $ 779,822 $ ( 333,507 )

Indefinite-lived assets:

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The company completed its annual impairment for other intangibles as of September 27, 2020.

We identified indicators of impairment associated with certain tradenames within the Food Processing and Residential Kitchen reporting units based on the qualitative assessment, which required the completion of a quantitative impairment assessment.

The primary indicator of impairment was lower than expected revenue performance in the current year.

Based on the results of the quantitative assessment, the company determined there was no impairment of any of the indefinite-lived intangible assets.

We identified indicators of impairment associated with certain tradenames within all three of our business segments based on the qualitative assessment, which required the completion of a quantitative impairment assessment.

The primary indicators of impairment were lower than expected revenue performance in the current year, forecasted revenues for future periods and market conditions.

Based on the results of the quantitative assessment, the company recorded impairment charges of $ 11.6 million associated with several tradenames, none of which were individually material.

The company recorded charges of $ 5.3 million associated with trademarks within the Commercial Foodservice Equipment Group, $ 5.4 million for the Food Processing Equipment Group and $ 0.9 million for the Residential Kitchen Equipment Group.

The gross value of the trademarks tested was approximately $ 90.0 million and the fair values of the other trademarks tested with no impairment per the analyses, exceeded their carrying values by more than 20 %.

In performing the quantitative assessment of indefinite-life intangible assets, primarily tradenames, the company estimated the fair value using the relief-from-royalty method which requires assumptions related to projected revenues;

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The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance and economic conditions.

During 2017 testing, the company determined that the Viking tradename, within the Residential Kitchen Equipment Group, was impaired.

The company estimated the fair value of the tradename using a relief from royalty method under the income approach.

The decline in fair value of the Viking tradename was primarily the result of weaker than expected revenue performance in 2017 and a corresponding reduction of future revenue expectations.

The impairment resulted from the decline in revenues attributable, in part, to the product recall announced in 2015 related to products manufactured prior to the acquisition of Viking.

The fair value of the Viking tradename was estimated to be $ 93.0 million as compared to the carrying value of $ 151.0 million and resulted in a $ 58.0 million indefinite-lived intangible asset impairment charge.

The company continues to monitor the global outbreak of the COVID-19 pandemic to assess the outlook for demand of its products and the impact on its business and financial performance.

The potential impact of the COVID-19 pandemic on demand, production levels, and operating results in the short-term is uncertain, but the company remains committed to the strategic actions necessary to realize long-term revenue and cash flow growth.

The potential negative demand effect on revenues is also uncertain given the volatile environment, but demand and production levels are anticipated to continue to recover.

The aggregate intangible amortization expense was $ 69.0 million, $ 64.0 million and $ 60.0 million in 2020, 2019 and 2018, respectively.

The estimated future amortization expense of intangible assets is as follows (in thousands):

2021 $ 68,413

2026 and thereafter 154,243

(g) Accrued Expenses

Accrued expenses consist of the following at December 28, 2019 and December 29, 2018 , respectively (in thousands):

Accrued expenses consist of the following at January 2, 2021 and December 28, 2019, respectively (in thousands):

Accrued payroll and related expenses $ 93,926 $ 80,621

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Accrued short-term leases 22,493 21,827

Accrued liabilities held for sale 22,313 —

Accrued sales and other tax 22,030 19,862

Accrued interest rate swaps 14,075 —

Accrued product liability and workers compensation 12,909 15,164

Accrued agent commission

Accrued professional fees 12,133 13,368

Accrued agent commission 11,105 13,816

Accrued restructuring 2,686 1,121

Other accrued expenses 73,630 58,177

Litigation Matters

$ 494,541 $ 416,550

(h) Litigation Matters

From time to time, the company is subject to proceedings, lawsuits and other claims related to products, suppliers, employees, customers and competitors.

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The company does not believe that any such matter will have a material adverse effect on its financial condition, results of operations or cash flows of the company.

During the fourth quarter, we reached a settlement with respect to a lawsuit filed by the company arising from a prior acquisition included our Residential Kitchen Equipment Segment.

During 2019, we reached a settlement with respect to a lawsuit filed by the company arising from a prior acquisition included our Residential Kitchen Equipment Segment.

The gain associated with this settlement, which is net of the release of funds in escrow, is reflected in the consolidated statement of earnings.

Accumulated Other Comprehensive Income (Loss)

(i) Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of accumulated other comprehensive income (loss) as reported in the consolidated balance sheets (in thousands):

Unrecognized pension benefit costs, net of tax of $( 89,059 ) and $( 48,633 )

$ ( 400,919 ) $ ( 228,336 )

Unrealized gain on interest rate swap, net of tax of $( 13,120 ) and $( 5,973 )

( 37,548 ) ( 16,892 )

Currency translation adjustments ( 49,961 ) ( 105,705 )

$ ( 488,428 ) $ ( 350,933 )

Changes in accumulated other comprehensive income (loss) (1) were as follows (in thousands):

Currency Translation Adjustment

Pension Benefit Costs

Unrealized Gain/(Loss) Interest Rate Swap

Currency Translation Adjustment Pension Benefit Costs Unrealized Gain/(Loss) Interest Rate Swap Total

Balance as of December 29, 2018 $ ( 112,771 ) $ ( 170,938 ) $ 7,233 $ ( 276,476 )

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Balance as of December 28, 2019 $ ( 105,705 ) $ ( 228,336 ) $ ( 16,892 ) $ ( 350,933 )

Adoption of ASU 2017-12 (3)

Other comprehensive income before reclassification 55,744 ( 174,826 ) ( 36,170 ) ( 155,252 )

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Net current-period other comprehensive income $ 55,744 $ ( 172,583 ) $ ( 20,656 ) $ ( 137,495 )

Balance as of December 28, 2019

(1) As of December 28, 2019 pension and interest rate swap amounts are net of tax of $( 48.6 ) million and $( 6.0 ) million , respectively.

During the twelve months ended December 28, 2019, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $( 11.9 ) million and $( 8.5 ) million , respectively.

(2) As of December 31, 2017, the company adopted ASU No.

2018-02, Income Statement-Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .

The adoption of this guidance resulted in the reclassification of $ 1.1 million of stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income to retained earnings.

Balance as of January 2, 2021 $ ( 49,961 ) $ ( 400,919 ) $ ( 37,548 ) $ ( 488,428 )

(1) As of January 2, 2021 pension and interest rate swap amounts are net of tax of $( 89.1 ) million and $( 13.1 ) million, respectively.

During the twelve months ended January 2, 2021, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $( 40.4 ) million and $( 7.1 ) million, respectively.

(2) As of December 30, 2018, the company adopted ASU No.

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Level 3 – Unobservable inputs based on our own assumptions

The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value hierarchy at December 28, 2019 and December 29, 2018 are as follows (in thousands):

As of December 28, 2019

Financial Assets:

Interest rate swaps

The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value hierarchy at January 2, 2021 and December 28, 2019 are as follows (in thousands):

Level 1 Fair Value

Level 2 Fair Value

Level 3 Total

As of January 2, 2021

Financial Liabilities:

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Foreign exchange derivative contracts $ — $ 901 $ — $ 901

The contingent consideration, as of December 28, 2019 and December 29, 2018 , relates to the earnout provisions recorded in conjunction with various purchase agreements.

The contingent consideration, as of January 2, 2021 and December 28, 2019, 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 agreements.

On a quarterly basis, the company assesses the projected results for each of the acquisitions in comparison to the earnout targets and adjusts the liability accordingly.

Foreign Currency

Foreign currency transactions are accounted for in accordance with ASC 830 Foreign Currency Translation .

During fiscal 2020 the increase in contingent consideration was associated with 2020 acquisitions and there were no material performance assumption adjustments.

(k) Foreign Currency

The income statements of the company’s foreign operations are translated at the monthly average rates.

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Exchange gains and losses on foreign currency transactions are included in determining net income for the period in which they occur.

These transactions amounted to a gain of $ 0.9 million , and loss of $ 2.6 million and $ 2.4 million in 2019 , 2018 and 2017 , respectively, and are included in other expense on the statements of earnings.

Shipping and Handling Costs

These transactions amounted to a loss of $ 2.9 million, gain of $ 0.9 million and a loss of $ 2.6 million in 2020, 2019 and 2018, respectively, and are included in other expense on the statements of earnings.

(l) Shipping and Handling Costs

Fees billed to the customer for shipping and handling are classified as a component of net revenues.

Shipping and handling costs are included in cost of products sold.

Warranty Costs

(m) 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.

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Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.

A rol lforward of the warranty reserve for the fiscal years 2019 and 2018 are as follows (in thousands):

A rollforward of the warranty reserve for the fiscal years 2020 and 2019 are as follows (in thousands):

Beginning balance $ 66,374 $ 59,451

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Ending balance $ 69,667 $ 66,374

Research and Development Costs

(n) Research and Development Costs

Research and development costs, included in cost of sales in the consolidated statements of earnings, are charged to expense when incurred.

These costs were $ 35.3 million, $ 41.2 million and $ 35.3 million in fiscal 2020, 2019 and 2018, respectively.

Non-Cash Share-Based Compensation

(o) Non-Cash Share-Based Compensation

The company estimates the fair value of restricted share grants and stock options at the time of grant and recognizes compensation costs over the vesting period of the awards and options.

Non-cash share-based compensation expense of $ 19.6 million, $ 8.1 million and $ 2.5 million was recognized for fiscal 2020, 2019 and 2018, respectively, associated with restricted share grants.

The company recorded a related tax benefit of $ 0.5 million , less than $ 0.1 million and $ 2.4 million in fiscal 2019 , 2018 and 2017 , respectively.

As of December 28, 2019 , there was $ 52.3 million of total unrecognized compensation cost related to nonvested restricted share grant compensation arrangements, if all performance conditions are fully achieved.

The company recorded a related tax benefit of $ 2.7 million, $ 0.5 million and less than $ 0.1 million in fiscal 2020, 2019 and 2018, respectively.

As of January 2, 2021, there was $ 44.3 million of total unrecognized compensation cost related to nonvested restricted share grant compensation arrangements, if all performance conditions are fully achieved.

The remaining weighted average life is 1.24 years.

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Share grant awards issued in 2020 and 2019 are generally performance based and were not subject to market conditions.

The fair value of $ 113.26 and $ 100.50 per share for the awards for 2019 and 2018 , respectively, represent the closing share price of the company’s stock as of the date of grant.

Earnings Per Share

The weighted average fair value of $ 57.74 and $ 113.26 per share for the awards for 2020 and 2019, respectively, represent the closing share price of the company’s stock as of the date of grant.

On December 31, 2020, the company issued restricted stock units, which entitle the holder to shares of common stock subject to time vesting and the achievement of certain market and performance goals.

Compensation expense is recognized over the performance measurement period of the units in accordance with ASC 718 Stock Compensation for awards with market and performance vesting conditions.

The fair value of restricted stock units granted during 2020 was $ 135.31 and no restricted stock units have vested.

As of January 2, 2021, there was $ 10.7 million of total unrecognized compensation cost related to nonvested restricted stock unit compensation arrangements, if all performance conditions are fully achieved.

The remaining weighted average life is 2.18 years.

(p) 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 c ompany’s potentially dilutive securities consist of shares issuable on exercise of outstanding options and vesting of restricted stock grants computed using the treasury method and amounted to 9,000 , 28,000 , and 4,000 for fiscal 2019 , 2018 and 2017 , respectively.

The company’s potentially dilutive securities consist of shares issuable on exercise of outstanding options and vesting of restricted stock grants computed using the treasury method and amounted to 43,000 , 9,000 , and 28,000 for fiscal 2020, 2019 and 2018, respectively.

During fiscal 2020, the average market price of the company's common stock has not exceeded the exercise price of the Convertible Notes and there have been no conversions to date, and as a result there is no impact to the diluted earnings per share.

See Note 5, Financing Arrangements, in these Notes to the Consolidated Financial Statements for further details on the Convertible Notes.

There were no anti-dilutive equity awards excluded from common stock equivalents for 2020, 2019 or 2018.

Consolidated Statements of Cash Flows

(q) Consolidated Statements of Cash Flows

Cash paid for interest was $ 65.6 million, $ 80.9 million and $ 55.3 million in fiscal 2020, 2019 and 2018, respectively.

Cash payments totaling $ 41.2 million, $ 91.5 million, and $ 79.0 million were made for income taxes during fiscal 2020, 2019 and 2018, respectively.

New Acco unting Pronouncements

(r) New Accounting Pronouncements

Accounting Pronouncements - Recently Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .

The amendments under this pronouncement change the way all leases with a duration of one year or more are treated.

Under this guidance, lessees are required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or operating lease liability.

The company adopted this guidance on December 30, 2018 using the modified retrospective method.

The company has elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs.

The adoption of this guidance increased total assets and liabilities due to the recognition of right-of-use assets and lease liabilities amounting to approximately $ 96.8 million .

For additional information related to the impact of adopting this guidance, see Note 9 of the Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities".

The amendments in ASU-12 provide new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness.

The entire change in fair value for qualifying hedge instruments included in the effectiveness is recorded in other comprehensive income (OCI) and amounts deferred in OCI are reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported.

The adoption of this guidance on December 30, 2018 did not have a material impact on the company's Consolidated Financial Statements.

For additional information related to the impact of adopting this guidance, see Note of the Consolidated Financial Statements.

In June 2018, the FASB issued ASU 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting".

The amendments in ASU-08 simplify several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees.

The adoption of this guidance on December 30, 2018 did not have an impact on the company's Consolidated Financial Statements.

In August of 2018, the SEC published Final Rule Release No.

33-10532, "Disclosure Update and Simplification".

This guidance streamlines disclosure requirements by removing certain redundant topics and is effective for quarterly and annual reports submitted after November 5, 2018.

The adoption of this guidance on December 30, 2018 resulted in the presentation and expansion of the company's Consolidated Statements of Changes in Stockholders' Equity to display quarter-to-quarter details.

Accounting Pronouncements - To be adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):

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The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount.

The ASU is effective for annual reporting periods, and interim reporting periods, beginning after December 15, 2019.

As a result of the company's assessment process on its receivables and contract assets portfolio, which is the only financial instrument in scope of this standard, the company does not expect this ASU to have a material impact on its Consolidated Financial Statements.

The company adopted the new standard as of December 29, 2019 (first day of fiscal year 2020) using the modified retrospective approach.

As a result of the company's assessment process on its receivables and contract assets portfolio, which is the only financial instrument in scope of this standard, the adoption of this guidance did not have a material impact on the company's Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350):

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The new guidance does not amend the optional qualitative assessment of goodwill impairment.

This ASU is effective for annual reporting periods, and interim reporting periods, beginning after December 15, 2019.

Early adoption is permitted for testing dates after January 1, 2017.

The company is evaluating the application of this ASU on the company's annual impairment test.

The company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

The company adopted this guidance on December 29, 2019 on a prospective basis.

The adoption of this guidance did not have an impact on the company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement".

The amendments in ASU-13 remove, modify and add various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures.

This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2019 with early adoption permitted.

The company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

The amendments in ASU-13 remove, modify and add various disclosure requirements around fair value measurement in order to clarify and improve the cost-benefit nature of disclosures.

The company adopted this guidance on December 29, 2019 on a prospective basis.

The adoption of this guidance did not have an impact on the company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)".

The amendments in ASU-14 remove, modify and add various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures.

This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2020 with early adoption permitted.

The amendments must be applied on a retrospective basis for all periods presented.

The company is currently evaluating the impacts the adoption of this ASU will have on its Consolidated Financial Statements.

The company adopted this guidance on December 29, 2019 on a retrospective basis for all periods presented.

The adoption of this guidance did not have an impact on the company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)".

The amendments in ASU-15 align the requirements for capitalizing implementation costs in a service contract hosting arrangement with those of developing or obtaining internal-use software.

This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2019 with early adoption permitted.

The company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

The company adopted this guidance on December 29, 2019 on a prospective basis.

The adoption of this guidance did not have an impact on the company's Consolidated Financial Statements.

Accounting Pronouncements - To be adopted

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.

This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2020 with early adoption permitted.

This guidance is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2020 with early adoption permitted.

Certain amendments 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.

The company is currently evaluating the i mpacts the adoption of this ASU will have on its Consolidated Financial Statements.

The company intends to adopt this guidance on January 3, 2021, and does not expect a material impact on the company's Consolidated Financial Statements upon adoption.

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 January 2021, the FASB issued ASU 2021-01 to provide supplemental guidance and to further clarify the scope.

This guidance 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.

The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements.

In August 2020, the FASB issued ASU No.

2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40):

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, 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.

This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification 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.

This guidance is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2021 with early adoption permitted.

The amendments are required to be adopted on either a modified retrospective method or a fully retrospective method.

Upon adoption, the Company expects a decrease to additional paid in capital, an increase in the carrying value of the Convertible Notes and an increase to retained earnings.

After adoption, the Company expects a reduction in its reported interest expense.

The company is anticipating early adoption and will continue to evaluate the impact this guidance will have on its Consolidated Financial Statements.

(4) REVENUE RECOGNITION

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The company’s contracts can have multiple performance obligations or just a single performance obligation.

The company treats shipping and handling activities performed after the customer obtains control of the good as a contract fulfillment activity.

The company generally expenses sales commissions when incurred because the amortization period would have been less than one year.

These costs are recorded within selling, general and administrative expenses.

For contracts with multiple performance obligations, the contracts transaction price is allocated to each performance obligation using the company’s best estimate of the standalone selling price of each distinct good or service in the contract.

As the company’s standard payment terms are less than one year, the company does not assess whether a contract has a significant financing component.

Sales, use and value added taxes assessed by governmental authorities are excluded from the measurement of the transaction price within the company’s contracts with its customers.

The company generally expenses sales commissions when incurred because the amortization period would have been less than one year.

These costs are recorded within selling, general and administrative expenses.

Within the Commercial Foodservice Equipment and Residential Foodservice Equipment Groups, the estimated standalone selling price of equipment is based on observable prices.

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the cost and availability of materials and labor, and the performance of subcontractors.

The company does not disclose information about remaining performance obligations that have original expected durations of one year or less.

Contracts within the Commercial Foodservice and Residential Foodservice Equipment groups may contain variable consideration in the form of volume rebate programs.

The company’s estimate of variable consideration is based on its experience with similarly situated customers using the portfolio approach.

Adoption of ASC 606

On December 31, 2017, we adopted the new accounting standard ASU No.

2014-09, Revenue from Contracts with Customers (ASC 606) using the modified retrospective method to contracts that were not completed as of December 30, 2017.

We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings of $ 4.4 million .

As a result of the adoption of ASC 606, the company has changed its accounting policy for revenue recognition as detailed below.

Under the company’s historical accounting policies, revenue under long-term sales contracts within the Food Processing Equipment Group was recognized using the percentage of completion method.

Upon adoption, a number of contracts that were not completed as of December 31, 2017 did not meet the requirements for recognition of revenue over time under ASC 606.

As such the revenue was deferred and recognized at a point in time.

Installation Services

Under the company’s historical accounting policies, the company used the completed contract method for installation services associated with equipment sold within the Food Processing Equipment Group.

Under ASC 606, the Company recognizes revenue from installation services over the period the services are rendered.

Product Maintenance

These services are generally recognized on a straight-line basis, because the customer simultaneously receives and consumes the benefit as we perform the services.

Practical Expedients and Policy Elections

The company has taken advantage of the following practical expedients:

The company does not disclose information about remaining performance obligations that have original expected durations of one year or less.

The company generally expenses sales commissions when incurred because the amortization period would have been less than one year.

These costs are recorded within selling, general and administrative expenses.

As the company’s standard payment terms are less than one year, the company does not assess whether a contract has a significant financing component.

The company has made the following accounting policy elections:

The company treats shipping and handling activities performed after the customer obtains control of the good as a contract fulfillment activity.

Sales, use and value added taxes assessed by governmental authorities are excluded from the measurement of the transaction price within the company’s contracts with its customers.

Disaggregation of Revenue

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The following table summarizes our net sales by reportable operating segment and geographical location (in thousands):

Food Processing

Residential Kitchen

Twelve Months Ended December 28, 2019

Foodservice Food Processing Residential Kitchen Total

Twelve Months Ended January 2, 2021

United States and Canada $ 1,067,872 $ 311,042 $ 373,864 $ 1,752,778

Asia 155,742 26,778 6,711 189,231

Europe and Middle East 246,845 78,690 182,919 508,454

Latin America 39,820 20,762 2,212 62,794

Total $ 1,510,279 $ 437,272 $ 565,706 $ 2,513,257

Twelve Months Ended December 28, 2019

United States and Canada $ 1,334,776 $ 246,572 $ 362,753 $ 1,944,101

Asia 221,422 31,250 5,760 258,432

Europe and Middle East 349,613 98,814 198,672 647,099

Latin America 78,534 24,315 6,965 109,814

Total $ 1,984,345 $ 400,951 $ 574,150 $ 2,959,446

Twelve Months Ended December 29, 2018

United States and Canada $ 1,176,006 $ 263,743 $ 366,679 $ 1,806,428

Asia 180,409 36,578 7,155 224,142

Europe and Middle East 315,935 64,666 221,126 601,727

Latin America 57,464 24,607 8,563 90,634

Total $ 1,729,814 $ 389,594 $ 603,523 $ 2,722,931

Contract Balances

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Contract assets are transferred to receivables when the right to consideration becomes unconditional.

Accounts receivable are not considered contract assets under the new revenue standard as contract assets are conditioned upon the company's future satisfaction of a performance obligation.

Accounts receivable, in contracts, are unconditional rights to consideration.

Contract liabilities relate to advance consideration received from customers for which revenue has not been recognized.

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

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Contract assets $ 20,328 $ 22,675

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Non-current contract liabilities $ 13,523 $ 12,870

During the twelve months period ended December 28, 2019 , the company reclassified $ 9.1 million to accounts receivable which was included in the contract asset balance at the beginning of the period.

During the twelve months period ended December 28, 2019 , the company recognized revenue of $ 51.8 million which was included in the contract liability balance at the beginning of the period.

Additions to contract liabilities representing amounts billed to clients in excess of revenue recognized to date were $ 71.4 million during the twelve months period ended December 28, 2019 .

During the twelve months period ended January 2, 2021, the company reclassified $ 15.7 million to accounts receivable which was included in the contract asset balance at the beginning of the period.

During the twelve months period ended January 2, 2021, the company recognized revenue of $ 67.4 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 $ 87.2 million during the twelve months period ended January 2, 2021.

Substantially all of the company's outstanding performance obligations will be satisfied within 12 to 36 months.

There were no contract asset impairments during twelve months period ended December 28, 2019 .

There were no contract asset impairments during twelve months period ended January 2, 2021.

(5) FINANCING ARRANGEMENTS

The following is a summary of long-term debt at December 28, 2019 and December 29, 2018 (in thousands):

(in thousands)

Senior secured revolving credit line $ 755,000 $ 1,869,402

Term loan facility 335,938 —

Convertible senior notes 632,847 —

Foreign loans 4,421 3,622

Other debt arrangement 1,390 116

Less current maturities of long-term debt

Total debt 1,729,596 1,873,140

Current maturities of long-term debt 22,944 2,894

Long-term debt $ 1,706,652 $ 1,870,246

On July 28, 2016, the company entered into an amended and restated five year $ 2.5 billion multi-currency senior secured revolving credit agreement (the "Credit Facility").

On December 18, 2018, the company entered into an amendment to the Credit Facility, increasing the revolving commitments under the Credit Facility by $ 500.0 million to a total of $ 3.0 billion .

Subsequent to the end of fiscal year December 28, 2019 , the company entered into an amended and restated facility ("Amended Facility").

See Note 14 to the consolidated financial statements for further information.

As of December 28, 2019 , the company had $ 1.9 billion of borrowings outstanding under the Credit Facility, including $ 1.8 billion of borrowings in U.S.

Dollars and $ 47.9 million of borrowings denominated in Euro.

The company also has $ 13.3 million in outstanding letters of credit as of December 28, 2019 , which reduces the borrowing availability under the Credit Facility.

Remaining borrowing availability under this facility was $ 1.1 billion at December 28, 2019 .

At December 28, 2019 , borrowings under the Credit Facility accrued interest at a rate of 1.625 % above LIBOR per annum or 0.625 % above the highest of the prime rate, the federal funds rate plus 0.50 % and one month LIBOR plus 1.00 % .

The average interest rate per annum on the debt under the Credit Facility was equal to 3.37 % at the end of the period.

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").

The Credit Facility amended the company's pre-existing $ 3.0 billion credit facility, which had an original maturity of July 2021, to provide for (i) a $ 750.0 million term loan facility and (ii) a $ 2.75 billion multi-currency revolving credit facility, with the potential under certain circumstances, to increase the amount of the credit facility to up to a total of $ 4.0 billion (plus additional amounts, subject to compliance with a senior secured net leverage ratio).

The Credit Facility matures on January 31, 2025.

The term loan facility will amortize in equal quarterly installments due on the last day of each fiscal quarter, commencing with the first full fiscal quarter after January 31, 2020, 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.

On August 21, 2020, the company issued $ 747.5 million aggregate principal amount of 1.00 % Convertible Senior Notes due 2025 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 net proceeds from the sale of the Convertible Notes were approximately $ 729.9 million after deducting the initial purchasers' discounts and the offering expenses payable by the company.

In connection with the pricing of the Convertible Notes, the company entered into privately negotiated 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 Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of the company's common stock that underlie the Convertible Notes.

The company used a portion of the net proceeds from the offering of the Convertible Notes to prepay $ 400.0 million aggregate principal amount of its term loan obligations owed under its Credit Facility, which was amended concurrently with the issuance of the Convertible Notes.

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 maturity date remains unchanged at January 31, 2025.

The company is using the remaining net proceeds for general corporate purposes, including the financing of its operations, the potential repayment of additional indebtedness and potential acquisitions and other strategic transactions.

Credit Facility

As of January 2, 2021, the company had $ 1.1 billion of borrowings outstanding under the Credit Facility, including $ 335.9 million outstanding under the term loan.

The company also had $ 10.9 million in outstanding letters of credit as of January 2, 2021, which reduces the borrowing availability under the Credit Facility.

Remaining borrowing capacity under this facility was $ 2.0 billion at January 2, 2021.

At January 2, 2021, borrowings under the Credit Facility accrued interest at a rate of 2.00 % above LIBOR per annum or 1.00 % above the highest of the prime rate, the federal funds rate plus 0.50 % and one month LIBOR plus 1.00 %.

The interest rates on borrowings under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt less Unrestricted Cash to Pro Forma EBITDA (the “Leverage Ratio”) on a rolling four-quarter basis.

Additionally, a commitment fee based upon the Leverage Ratio is charged on the unused portion of the commitments under the Credit Facility.

This variable commitment fee was equal to 0.25 % per annum as of December 28, 2019 .

In addition, the company has other international credit facilities to fund working capital needs outside the United States and the United Kingdom.

At December 28, 2019 , these foreign credit facilities amounted to $ 3.6 million in U.S.

As a result of the amendment, for the quarterly periods extending through the second fiscal quarter of 2021, borrowings under the Credit Facility will accrue interest at a minimum of 2.00 % above LIBOR and the variable unused commitment fee will be at a minimum of 0.35 %.

The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 3.97 % at the end of the period and the variable commitment fee was equal to 0.35 % per annum as of January 2, 2021.

The term loan facility had an average interest rate per annum, inclusive of hedging instruments, of 3.25 % as of January 2, 2021.

In addition, the company has international credit facilities to fund working capital needs outside the United States.

At January 2, 2021, these foreign credit facilities amounted to $ 4.4 million in U.S.

Dollars with a weighted average per annum interest rate of approximately 5.91 %.

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 company estimated the fair value of its loans by calculating the upfront cash payment a market participant would require to assume the company’s obligations.

The upfront cash payment is the amount that a market participant would be able to lend to achieve sufficient cash inflows to cover the cash outflows under the company’s senior secured revolving credit facility assuming the facility was outstanding in its entirety until maturity.

Since the company maintains its borrowings under a revolving credit facility and there is no predetermined borrowing or repayment schedule, for purposes of this calculation the company calculated the fair value of its obligations assuming the current amount of debt at the end of the period was outstanding until the maturity of the company’s Credit Facility in January 2025.

Although borrowings could be materially greater or less than the current amount of borrowings outstanding at the end of the period, it is not practical to estimate the amounts that may be outstanding during future periods.

The carrying value and estimated aggregate fair value, a level 2 measurement, based primarily on market prices, of debt is as follows (in thousands):

December 28, 2019

December 29, 2018

Carrying Value

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):

Jan 2, 2021 Dec 28, 2019

Carrying Value Fair Value Carrying Value Fair Value

Total debt excluding convertible senior notes $ 1,096,749 $ 1,096,749 $ 1,873,140 $ 1,873,140

The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit Facility.

At December 28, 2019 , the company had outstanding floating-to-fixed interest rate swaps totaling $ 51.0 million notional amount carrying an average interest rate of 1.27 % maturing in less than 12 months and $ 897.0 million of notional amount carrying an average interest rate of 2.27 % that mature in more than 12 months but less than 72 months.

The terms of the Amended Facility limit the ability of the company and its subsidiaries to, with certain exceptions:

At January 2, 2021, the company had outstanding floating-to-fixed interest rate swaps totaling $ 260.0 million notional amount carrying an average interest rate of 2.36 % maturing in less than 12 months and $ 802.0 million notional amount carrying an average interest rate of 1.92 % that mature in more than 12 months but less than 74 months.

The terms of the Credit Facility, as amended, limit the ability of the company and its subsidiaries to, with certain exceptions:

incur indebtedness;

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and requires, among other things, the company to satisfy certain financial covenants:

(i) a minimum Interest Coverage Ratio (as defined in the Amended Facility) of 3.00 to 1.00 and (ii) a maximum Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Amended Facility) of 4.00 to 1.00 , which may be adjusted to 4.50 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 Amended Facility.

The Amended 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 Amended Facility contains certain customary events of default, including, but not limited to, the failure to make required payments;

(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 maximum secured leverage ratio is permitted to be at higher amounts for periods extending through the second fiscal quarter of 2021, after which time covenants will revert to their original levels.

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;

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and a change of control of the company.

At December 28, 2019 , the company was in compliance with all covenants pursuant to its borrowing agreements.

The aggregate amount of debt payable during each of the next five years, which includes the amendment and restatement to our multi-currency senior secured credit agreement disclosed in Note 14 to the consolidated financial statements, is as follows (in thousands):

At January 2, 2021, the company was in compliance with all covenants pursuant to its borrowing agreements.

The company has run various scenarios to estimate the impact of the COVID-19 pandemic and continues to believe that its future cash generated from operations, together with its capacity under its Credit Facility and its cash on hand, will provide adequate resources to meet its working capital needs and cash requirements and maintain compliance with financial covenants in its Credit Facility for at least the next 12 months.

Convertible Notes

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

(in thousands)

Principal amounts:

Principal $ 747,500

Unamortized debt discount ( 114,653 )

Net carrying amount $ 632,847

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

Twelve Months Ended

Contractual interest expense $ 2,720

Interest cost related to amortization of the debt discount and issuance costs 7,971

Total interest expense $ 10,691

The estimated fair value of the Convertible Notes was $ 910.1 million as of January 2, 2021 and was determined through consideration of quoted market prices.

The fair value is classified as Level 2, as defined in Note 3 (j), Fair Value Measurements , in these Notes to the Consolidated Financial Statements included in this Part II, Item 8 of this Annual Report on Form 10-K .

The if-converted value of the Convertible Notes exceeded their respective principal value by $ 1.7 million as of January 2, 2021.

The Convertible Notes are general unsecured obligations of the company.

The Convertible Notes rank senior in right of payment to any of the company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Notes;

rank equal in right of payment to the company’s existing and future unsecured indebtedness that is not so subordinated;

are effectively subordinated in right of payment to any of the company’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

and are structurally subordinated to all existing and future indebtedness and liabilities of the company’s subsidiaries.

In accounting for the issuance of the Convertible Notes, the company separated the Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature.

The carrying amount of the equity component, representing the conversion option, which does not meet the criteria for separate accounting as a derivative as it is indexed to the company's own stock, was determined by deducting the fair value of the liability component from the par value of the Convertible Notes.

The difference between the principal amount of the Convertible Notes and the liability component represents the debt discount, which is recorded as a direct deduction from the related debt liability in the Consolidated Balance Sheets and amortized to interest expense using the effective interest method over the term of the Convertible Notes.

The effective interest rate of the Convertible Notes is 4.7 %.

The equity component of the Convertible Notes of approximately $ 105.0 million is included in the additional paid-in capital in the Consolidated Balance Sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

The company allocated transaction costs related to the Convertible Notes using the same proportions as the proceeds from the Convertible Notes.

Transaction costs attributable to the liability component were recorded as a direct deduction from the related debt liability in the Consolidated Balance Sheets and amortized to interest expense over the term of the Convertible Notes, and transaction costs attributable to the equity component were netted with the equity component in stockholders' equity.

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.

Prior to the close of business on the business day immediately preceding June 1, 2025, the notes will be convertible at the option of the holders only under the following circumstances:

(1) during any fiscal quarter commencing after the fiscal quarter ending on January 2, 2021 (and only during such fiscal quarter), if the last reported sale price of the company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130.0 % of the conversion price for the Convertible Notes on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price per $ 1,000 principal amount of the Convertible Notes for each trading day of that ten consecutive trading day period was less than 98.0 % of the product of the last reported sale price of the company's common stock and the conversion rate of the Convertible Notes on each such trading day;

(3) if the company calls such Convertible Notes for redemption;

or (4) upon the occurrence of specified corporate events.

On or after June 1, 2025, the notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

Holders of the Convertible Notes who convert in connection with a Make-Whole Fundamental Change or during a Redemption Period (each as defined in the Indenture) will be, under certain circumstances, entitled to an increase in the conversion rate.

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.

However, the Capped Call Transactions are expected generally to reduce the potential dilution of the company's common stock upon any conversion of Convertible Notes and/or offset the cash payments the company is required to make in excess of the principal amount of the Notes.

Under the Capped Call Transactions, the number of shares of common stock issuable at the conversion price of $ 207.93 is expected to be 3.6 million shares.

The Convertible Notes were not convertible during the twelve months period ended January 2, 2021 and none have been converted to date.

Also given the average market price of the company's common stock has not exceeded the exercise price since inception, there is no impact to the diluted earnings per share.

The company may redeem all or any portion of the Convertible Notes, at its option, on or after September 5, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date, at a redemption price equal to 100.0 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest thereon, if the last reported sales price of the company's common stock has been at least 130.0 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the company provides written notice of redemption.

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

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.

The Capped Call Transactions have an initial cap price of $ 207.93 per share of the company's common stock.

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.

The aggregate amount of debt payable during each of the next five years is as follows (in thousands):

2021 $ 22,944

2025 and thereafter 1,649,266

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(a) Shares Authorized

At December 28, 2019 and December 29, 2018 , the company had 95,000,000 authorized shares of common stock and 2,000,000 authorized shares of non-voting preferred stock.

At January 2, 2021 and December 28, 2019, the company had 95,000,000 authorized shares of common stock and 2,000,000 authorized shares of non-voting preferred stock.

(b) Treasury Stock

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.

As of December 28, 2019 , 126,200 shares had been purchased under the 2017 stock repurchase program and 2,373,800 remain authorized for repurchase.

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 January 2, 2021, 1,023,165 shares had been purchased under the 2017 stock repurchase program and 1,476,835 remain authorized for repurchase.

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.

During 2020, the company repurchased 176,242 shares of its common stock that were surrendered to the company for withholding taxes related to restricted stock vestings for $ 16.2 million.

5 unchanged sentences

Stock grants issued to employees are transferable upon certain vesting requirements.

As of December 28, 2019 , a total of 1,652,175 share-based awards have been issued under the 2011 Plan.

As of January 2, 2021, a total of 2,137,168 share-based awards have been issued under the 2011 Plan.

This includes 2,042,168 restricted share grants, of which 433,065 remain outstanding and unvested.

For fiscal year ended December 28, 2019 , the approximate fair value of shares vested were $ 16.5 million .

A summary of the company’s nonvested restricted share grant activity for fiscal years ended December 28, 2019 and December 29, 2018 is as follows:

For fiscal year ended January 2, 2021, the approximate fair value of restricted shares vested were $ 44.8 million.

This also includes 95,000 restricted stock units, of which 95,000 remain unvested.

For fiscal year ended January 2, 2021, no restricted stock units have vested.

A summary of the company’s nonvested restricted share grant activity and their corresponding fair value on the date of grant for fiscal years ended January 2, 2021 and December 28, 2019 is as follows:

Shares Weighted

Nonvested shares at December 29, 2018 125,842 $ 103.29

Granted 537,059 113.26

Vested ( 135,816 ) 105.81

Forfeited — —

Nonvested shares at December 28, 2019 527,085 $ 112.60

Granted 389,993 57.74

Vested ( 476,261 ) 68.54

Forfeited ( 7,752 ) 66.01

Nonvested shares at January 2, 2021 433,065 $ 112.54

A summary of the company’s nonvested restricted stock unit activity and their corresponding fair value (based upon the Monte Carlo Methodology) on the date of grant for fiscal years ended January 2, 2021 is as follows:

Units Weighted

Nonvested shares at December 28, 2019 — $ —

Granted 95,000 135.31

Forfeited — —

Nonvested shares at January 2, 2021 95,000 $ 135.31

(7) INCOME TAXES

Earnings before taxes is summarized as follows (in thousands):

2020 2019 2018

Domestic $ 178,813 $ 336,688 $ 328,870

Foreign 89,244 125,931 94,643

Total $ 268,057 $ 462,619 $ 423,513

The provision for income taxes is summarized as follows (in thousands):

2020 2019 2018

Federal $ 36,908 $ 69,074 $ 66,359

State and local 8,815 16,203 16,035

Foreign 15,040 25,102 23,967

Total $ 60,763 $ 110,379 $ 106,361

Current $ 44,342 $ 88,167 $ 85,872

Deferred 16,421 22,212 20,489

Total $ 60,763 $ 110,379 $ 106,361

Reconciliation of the differences between income taxes computed at the federal statutory rate to the effective rate are as follows:

2020 2019 2018

federal statutory tax rate 21.0 % 21.0 % 21.0 %

State taxes, net of federal benefit 3.2 3.2 3.0

domestic manufacturers deduction

Permanent differences ( 0.4 ) 0.6 0.2

Foreign income tax rate at rates other than U.S.

Tax Cuts and Jobs Act of 2017 deferred tax changes

statutory 0.5 0.2 1.3

Deferred tax changes ( 0.7 ) — 0.2

Tax Cuts and Jobs Act of 2017 transition tax — — ( 0.1 )

Change in valuation allowances (1)

( 0.1 ) 0.1 ( 0.5 )

Tax on unremitted earnings 1.2 0.3 —

Other ( 2.0 ) ( 1.5 ) —

Consolidated effective tax 22.7 % 23.9 % 25.1 %

1 unchanged sentence

The company’s effective tax rate for 2020 was 22.7 % as compared to 23.9 % in 2019.

The effective tax rate for 2019 reflects favorable tax adjustments for a refund of foreign taxes, enacted tax rate changes in several foreign jurisdictions and adjustments for the finalization of 2018 tax returns.

The effective tax rate is higher than the federal tax rate of 21.0 % primarily due to state taxes, non-deductible expenses and foreign tax rate differentials.

At December 28, 2019 and December 29, 2018 , the company had recorded the following deferred tax assets and liabilities (in thousands):

The effective tax rate for 2020 reflects favorable tax adjustments for deferred tax rate changes and adjustments for the finalization of 2019 tax returns.

The effective tax rate is higher than the federal tax rate of 21.0 % primarily due to state taxes and foreign tax rate differentials.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in response to the coronavirus ("COVID-19") pandemic.

The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act did not have a material impact on the company’s Consolidated Financial Statements for the year ended January 2, 2021.

On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was enacted in further response to the COVID-19 pandemic, in combination with omnibus spending for the 2021 federal fiscal year.

The CAA extended many of the provisions enacted by the CARES Act, the extension of which likewise did not have a material impact on the company’s Consolidated Financial Statements for the year ended January 2, 2021.

At January 2, 2021 and December 28, 2019, the company had recorded the following deferred tax assets and liabilities (in thousands):

Deferred tax assets:

5 unchanged sentences

Operating lease liability 16,180 17,521

Interest rate swaps 12,997 6,075

Net operating loss carryforwards 20,747 17,873

Other 17,187 16,504

Gross deferred tax assets 222,819 160,470

5 unchanged sentences

Operating lease right-of-use assets ( 15,921 ) ( 17,542 )

Other ( 12,825 ) ( 10,001 )

Deferred tax liabilities $ ( 282,260 ) $ ( 249,284 )

3 unchanged sentences

Net deferred tax assets (liabilities) $ ( 71,172 ) $ ( 96,568 )

The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $ 5.6 million and $ 4.1 million at December 28, 2019 and December 29, 2018 , respectively.

No further provisions were made for income taxes that may result from future remittances of undistributed earnings of foreign subsidiaries that are determined to be permanently reinvested, which were $ 369.0 million on December 28, 2019 .

The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $ 7.5 million and $ 5.6 million at January 2, 2021 and December 28, 2019, respectively.

Determination of the total amount of unrecognized deferred income taxes on undistributed earnings net of foreign subsidiaries is not practicable.

The company has a deferred tax asset on net operating loss carryforwards totaling $ 17.9 million as of December 28, 2019 .

The company has a deferred tax asset on net operating loss carryforwards totaling $ 20.7 million as of January 2, 2021.

These net operating losses are available to reduce future taxable earnings of certain domestic and foreign subsidiaries.

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Of these carryforwards, $ 11.4 million are subject to full valuation allowance.

During 2019, the company wrote off $ 18.4 million of deferred tax assets on foreign loss carryforwards that had full valuation allowances.

The deferred tax assets were written off as the entities were dissolved or otherwise disposed of during 2019.

As of December 28, 2019 , the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $ 31.6 million (of which $ 31.2 million would impact the effective tax rate if recognized) plus approximately $ 5.5 million of accrued interest and $ 7.2 million of penalties.

As of January 2, 2021, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $ 30.3 million (of which $ 30.2 million would impact the effective tax rate if recognized) plus approximately $ 6.3 million of accrued interest and $ 7.0 million of penalties.

The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

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In the opinion of management, adequate tax provisions have been made for the years subject to examination.

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 30, 2017 , December 29, 2018 and December 28, 2019 (in thousands):

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 29, 2018, December 28, 2019 and January 2, 2021 (in thousands):

Balance at December 29, 2018 $ 31,912

1 unchanged sentence

Increase to prior year tax positions 254

Decrease to prior year tax positions

Lapse of statute of limitations ( 4,823 )

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Increase to prior year tax positions 183

Settlements and other adjustments ( 586 )

Lapse of statute of limitations ( 4,484 )

Balance at December 28, 2019

Balance at January 2, 2021 $ 30,329

It is reasonably possible that the amounts of unrecognized tax benefits associated with state, federal and foreign tax positions may decrease over the next twelve months due to expiration of a statute or completion of an audit.

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(8) 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 are measured at fair value and recognized as either assets or liabilities.

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.

On December 30, 2018, the company adopted the new accounting standard ASU 2017-12, "Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities" using the modified retrospective method.

Prior to the adoption of ASU 2017-12, the ineffective portion of a hedge's change in fair value was recognized in earnings.

Upon adoption of ASU 2017-12, the company no longer recognizes hedge ineffectiveness in our Consolidated Statements of Comprehensive Income, but instead recognizes the entire change in the fair value of the hedge contract in other accumulated comprehensive income.

Foreign Exchange

If a derivative does qualify, 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.

(a) Foreign Exchange

The company periodically enters into derivative instruments, principally forward contracts to reduce exposures pertaining to fluctuations in foreign exchange rates.

The fair value of these forward contracts was an unrealized loss of $ 2.2 million at the end of the year.

Interest Rate

(b) Interest Rate

The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt.

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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.

The fair value of these instruments was a liability of $ 23.3 million and an asset of $ 9.4 million as of December 28, 2019 and December 29, 2018 , respectively.

The fair value of these instruments was a liability of $ 51.1 million and a liability of $ 23.3 million as of January 2, 2021 and December 28, 2019, respectively.

The change in fair value of these swap agreements in 2020 was a loss of $ 20.7 million, net of taxes.

1 unchanged sentence

Twelve Months Ended

Other non-current liabilities

Amount of gain/(loss) recognized in other comprehensive income

Other comprehensive income

Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)

Interest expense

Gain/(loss) recognized in income (ineffective portion)

Other expense

Location Jan 2, 2021 Dec 28, 2019

Fair value Other assets $ — $ 1,830

Fair value Accrued expenses $ 14,075 $ —

Fair value Other non-current liabilities $ 37,018 $ 25,120

Amount of gain/(loss) recognized in other comprehensive income Other comprehensive income $ ( 43,317 ) $ ( 31,396 )

Gain/(loss) reclassified from accumulated other comprehensive income (effective portion) Interest expense $ ( 15,514 ) $ 1,256

Interest rate swaps are subject to default risk to the extent the counterparty is unable to satisfy its settlement obligations under the interest rate swap agreements.

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Accounting Policy

On December 30, 2018, the company adopted the new accounting standard ASU No.

2016-02, "Leases" (ASC 842) using the modified retrospective method and elected to use the effective date as the date of initial application on transition.

The company has elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs.

The adoption of ASC 842 represents a change in accounting principle that changes the way all leases with a duration of one year or more are treated.

Under this guidance, lessees are required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or operating lease liability.

The company determines if an arrangement is a lease at inception of a contract.

Additionally, the guidance requires additional disclosure to enable users of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

The most material impact of the new standard is the recognition of new right-of-use (ROU) assets and lease liabilities on the Consolidated Balance Sheet for operating leases.

At the commencement date of a lease, the company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term.

The lease liability is measured at the present value of lease payments over the lease term, including variable fees that are known or subject to a minimum floor.

The lease liability includes lease component fees, while non-lease component fees are expensed as incurred for all asset classes.

The company's lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

When a contract excludes an implicit rate, the company utilizes an incremental borrowing rate based on information available at the lease commencement date including lease term and geographic region.

The initial valuation of the right-of-use (“ROU”) asset includes the initial measurement of the lease liability, lease payments made in advance of the lease commencement date and initial direct costs incurred by the Company and excludes lease incentives.

Operating lease ROU assets are included in other assets and operating lease liabilities are included accrued expenses and other non-current liabilities.

The lease liabilities are measured based upon the present value of minimum future payments and the ROU assets to be recognized will be equal to lease liabilities, adjusted for prepaid and accrued rent balances.

Leases with an initial term of 12 months or less are classified as short-term leases and are not recorded on the Consolidated Balance Sheets.

The lease expense for short-term leases is recognized on a straight-line basis over the lease term.

The company leases warehouse space, office facilities and equipment under operating leases.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The company's lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for these leases is recognized on a straight-line basis over the term of the lease.

The company has operating lease costs of $ 31.2 million, $ 31.0 million and $ 30.2 million in fiscal 2020, 2019 and 2018 respectively, including short-term lease expense and variable lease costs, which were immaterial in the year.

Rent expense under the company's operating leases during fiscal 2018 and 2017 , prior to the company's adoption of ASC 842, was $ 30.2 million and $ 27.1 million , respectively.

The company's future minimum lease obligations under non-cancelable operating leases as of December 29, 2018 were comparable to those as of December 28, 2019 .

Leases (in thousands)

December 28, 2019

Leases (in thousands) January 2, 2021 December 28, 2019

Operating lease right-of-use assets $ 97,193 $ 96,655

Operating Lease Liability:

Current 22,493 21,827

Non-current 76,529 75,018

Total Liability $ 99,022 $ 96,845

Total Lease Commitments (in thousands)

Operating Leases

Total Lease Commitments (in thousands) Operating Leases

2021 $ 24,675

2026 and thereafter 23,446

1 unchanged sentence

Less imputed interest 9,508

Other Lease Information (in thousands, except lease term and discount rate)

Twelve Months Ended December 28, 2019

Total $ 99,022

Other Lease Information (in thousands, except lease term and discount rate) Twelve Months Ended January 2, 2021 Twelve Months Ended December 28, 2019

Supplemental cash flow information

3 unchanged sentences

Operating leases 25,433 25,306

December 28, 2019

Weighted-average remaining lease terms leases - Operating

January 2, 2021 December 28, 2019

Weighted-average remaining lease terms leases - Operating 6.0 years 6.3 years

Weighted-average discount rate - Operating 3.0 % 3.4 %

2 unchanged sentences

The Commercial Foodservice Equipment Group manufactures, sells, and distributes foodservice equipment for the restaurant and institutional kitchen industry.

This business segment has manufacturing facilities in Arkansas, California, Illinois, Michigan, New Hampshire, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Vermont, Washington, Australia, China, Denmark, Estonia, Italy, the Philippines, Spain, Poland, Sweden and the United Kingdom.

Principal product lines of this group include conveyor ovens, combi-ovens, convection ovens, baking ovens, proofing ovens, deck ovens, speed cooking ovens, hydrovection ovens, ranges, fryers, rethermalizers, steam cooking equipment, food warming equipment, catering equipment, heated cabinets, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment, toasters, griddles, 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 and IoT solutions.

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, Sweden and the United Kingdom.

These products are sold and marketed under the brand names:

Anets, APW Wyott, Bakers Pride, Beech, BKI, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield, Britannia, Carter-Hoffmann, Celfrost, Concordia, CookTek, Crown, CTX, Desmon, Doyon, Eswood, EVO, Firex, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, Induc, Jade, JoeTap, Josper, L2F, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, Powerhouse Dynamics, QualServ, Southbend, Ss Brewtech, Star, Starline, Sveba Dahlen, Synesso, Taylor, Toastmaster, TurboChef, Ultrafryer, Varimixer, Wells and Wunder-Bar.

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, cooking, packaging food handling and food safety equipment for the food processing industry.

This business segment has manufacturing operations in Georgia, Illinois, Iowa, North Carolina, Oklahoma, Texas, Virginia, Washington, Wisconsin, Denmark, France, Germany, India, Italy, and the United Kingdom.

Principal product lines of this group include batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing ovens, frying systems and automated thermal processing systems , grinders, slicers, reduction and emulsion systems, mixers, blenders, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions , forming equipment, automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment.

This business segment has manufacturing operations in Georgia, Illinois, Iowa, North Carolina, Oklahoma, Pennsylvania, Texas, Virginia, Washington, Wisconsin, Denmark, France, Germany, India, Italy, and the United Kingdom.

Principal product lines of this group include batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing ovens, frying systems and automated thermal processing systems, grinders, slicers, reduction and emulsion systems, mixers, blenders, formers, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions, forming equipment, automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment.

These products are sold and marketed under the brand names:

Alkar, Armor Inox, Auto-Bake, Baker Thermal Solutions, Burford, Cozzini, CVP Systems, Danfotech, Drake, Emico, Glimek, Hinds-Bock, Maurer-Atmos, MP Equipment, M-TEK, Pacproinc, RapidPak, Scanico, Spooner Vicars, Stewart Systems, Thurne and Ve.Ma.C.

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.

The Residential Kitchen Equipment Group manufactures, sells and distributes kitchen equipment for the residential market.

This business segment has manufacturing facilities in California, Michigan, Mississippi, Wisconsin, France, Ireland and the United Kingdom.

Principal product lines of this group are ranges, cookers, stoves, ovens, refrigerators, dishwashers, microwaves, cooktops, wine coolers, ice machines, ventilation equipment and outdoor equipment .

This business segment has manufacturing facilities in California, Michigan, Mississippi, Wisconsin, France and the United Kingdom.

Principal product lines of this group are ranges, cookers, stoves, cooktops, microwaves, ovens, refrigerators, dishwashers, undercounter refrigeration, wine cellars, ice machines, ventilation equipment and outdoor equipment.

These products are sold and marketed under the brand names:

AGA, AGA Cookshop, Brava, EVO, Fired Earth, Heartland, La Cornue, Leisure Sinks, Lynx, Marvel, Mercury, Rangemaster, Rayburn, Redfyre, Sedona, Stanley, TurboChef, U-Line and Viking.

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.

2 unchanged sentences

The following table summarizes the results of operations for the company’s business segments( 1 ) (dollars in thousands):

Residential Kitchen

Foodservice Food

Processing Residential Kitchen Corporate

and Other (2)

Net sales $ 1,510,279 $ 437,272 $ 565,706 $ — $ 2,513,257

Operating income (3,4)

239,625 78,008 67,046 ( 60,248 ) 324,431

Depreciation expense 21,768 5,507 11,691 120 39,086

Amortization expense (5)

51,985 7,319 9,657 2,485 71,446

Net capital expenditures 25,463 3,427 4,801 1,158 34,849

Total assets 3,249,441 617,171 1,221,229 114,633 5,202,474

Long-lived assets (6)

279,481 55,069 192,940 19,849 547,339

Net sales $ 1,984,345 $ 400,951 $ 574,150 $ — $ 2,959,446

Operating income (3,4)

429,946 68,935 89,312 ( 74,150 ) 514,043

Depreciation expense 21,054 4,944 11,742 112 37,852

Amortization expense (5)

45,906 8,162 9,896 1,612 65,576

Net capital expenditures 29,353 6,683 9,168 1,405 46,609

Total assets 3,188,304 621,619 1,157,211 35,009 5,002,143

Long-lived assets (6)

261,466 57,403 176,834 4,116 499,819

Net sales $ 1,729,814 $ 389,594 $ 603,523 $ — $ 2,722,931

Operating income (3)

393,380 62,435 53,959 ( 63,808 ) 445,966

Depreciation expense 17,374 5,207 12,838 363 35,782

Amortization expense (5)

35,224 7,527 17,226 1,479 61,456

Net capital expenditures 17,444 7,373 11,721 ( 498 ) 36,040

Total assets 2,906,373 513,189 1,089,103 41,116 4,549,781

Long-lived assets (6)

181,636 33,127 146,897 22,328 383,988

(1) Non-operating expenses are not allocated to the reportable segments.

1 unchanged sentence

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

Restructuring expenses are included in operating income of the segment to which they pertain.

See note 13 for further details.

Gain on litigation settlement is included in Residential Kitchen.

(3) Restructuring expenses and impairments are included in operating income of the segment to which they pertain.

See note 3(f) and 13 for further details.

(4) Gain on litigation settlement is included in Residential Kitchen and gain on sale of plant is included in Commercial Foodservice.

(5) Includes amortization of deferred financing costs .

(6) Long-lived assets consist of property, plant and equipment, long-term deferred tax assets and other assets.

Gain on sale of plant is included in Commercial Foodservice.

Impairment of intangible assets is included in Residential Kitchen.

Geographic Information

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

2020 2019 2018

United States and Canada $ 331,688 $ 305,207 $ 262,482

Asia 28,018 22,312 12,136

Europe and Middle East 181,242 165,781 108,001

1 unchanged sentence

Total International 215,651 194,612 121,506

$ 547,339 $ 499,819 $ 383,988

(11) EMPLOYEE RETIREMENT PLANS

4 unchanged sentences

Plan participants will receive or continue to receive payments for benefits earned on or prior to April 30, 2002 upon reaching retirement age.

The company maintains a non-contributory defined benefit plan for its employees at the Smithville, Tennessee facility, which was acquired as part of the Star acquisition.

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.

2 unchanged sentences

The company also maintains a retirement benefit agreement with its former Chairman ("Chairman Plan").

The retirement benefits are based upon a percentage of the Chairman’s final base salary with no increase in compensation.

The retirement benefits are based upon a percentage of the former Chairman’s final base salary.

The company maintains a defined benefit plan for its employees at the Wrexham, the United Kingdom facility.

2 unchanged sentences

Plan participants will receive or continue to receive payments for benefits earned on or prior to April 30, 2010 upon reaching retirement age.

The company maintains several pension plans related to AGA and its subsidiaries (collectively, the "AGA Group"), the most significant being the Aga Rangemaster Group Pension Scheme, which covers the majority of employees in the United Kingdom.

Membership in the plan on a defined benefit basis of pension provision was closed to new entrants in 2001.

The plan became open to new entrants on a defined contribution basis of pension provision in 2002, but was generally closed to new entrants on this basis during 2014.

In December 2020, it was agreed that the Group Pension Scheme will be closed to future pension accruals effective April 5, 2021 and as a result, a curtailment loss has been recognized in fiscal 2020.

The other, much smaller, defined benefit pension plans operating within the AGA Group cover employees in France and the United Kingdom.

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A summary of the plans’ net periodic pension cost, benefit obligations, funded status, and net balance sheet position is as follows (dollars in thousands)

Fiscal 2020 Fiscal 2019

Plans Non-U.S.

Net Periodic Pension Cost (Benefit):

Service cost $ — $ 2,581 $ — $ 2,457

Interest cost 1,043 25,966 1,253 33,490

Expected return on assets ( 999 ) ( 72,795 ) ( 868 ) ( 67,542 )

Amortization of net loss (gain)

Amortization of net loss 763 3,449 664 721

Amortization of prior service cost — 2,577 — 2,560

Curtailment loss — 14,682 — 865

Pension settlement gain

$ 807 $ ( 23,540 ) $ 1,049 $ ( 27,449 )

Change in Benefit Obligation:

Benefit obligation – beginning of year $ 35,395 $ 1,501,616 $ 31,559 $ 1,377,575

Service cost — 2,581 — 2,457

Prior service cost — 2,309 — —

1 unchanged sentence

Member contributions — 312 — 313

Actuarial loss (gain)

Pension settlement gain

Actuarial loss 4,146 186,945 4,173 102,377

Net benefit payments ( 1,687 ) ( 62,878 ) ( 1,590 ) ( 62,355 )

5 unchanged sentences

Company contributions 1,587 5,745 1,191 5,934

Investment gain (loss)

Investment gain 811 69,824 2,509 107,368

Member contributions — 312 — 313

Pension settlement loss

Benefit payments and plan expenses ( 1,687 ) ( 62,878 ) ( 1,590 ) ( 62,355 )

5 unchanged sentences

Accrued pension benefits $ ( 21,442 ) $ ( 448,058 ) $ ( 18,651 ) $ ( 270,435 )

Fiscal 2020 Fiscal 2019

Plans Non-U.S.

Pre-tax components in accumulated other comprehensive income at period end:

1 unchanged sentence

Pre-tax components recognized in other comprehensive income for the period:

Current year actuarial (gain) loss

Actuarial gain (loss) recognized

Current year actuarial loss $ 4,334 $ 211,494 $ 2,532 $ 69,228

Actuarial loss recognized ( 763 ) ( 3,841 ) ( 664 ) ( 798 )

Prior service cost — 3,335 — —

Prior service cost recognized — ( 1,550 ) — ( 986 )

Pension settlement gain

Pension settlement gain recognized

Total amount recognized $ 3,571 $ 209,438 $ 1,868 $ 67,444

Accumulated Benefit Obligation $ 38,897 $ 1,744,536 $ 35,395 $ 1,501,589

Salary growth rate

Salary growth rate n/a 0.8 % n/a 0.8 %

Assumed discount rate 2.2 % 1.2 % 3.0 % 2.0 %

Expected return on assets 6.0 % 6.2 % 6.0 % 6.2 %

On October 26, 2018, in Lloyds Banking Group Pensions Trustees Limited vs.

Lloyds Bank plc and Others , the High Court of Justice in the United Kingdom issued a ruling ("Court Ruling") requiring Lloyds Bank plc to equalize benefits payable to men and women under its U.K.

defined benefit pension plan.

The Court Ruling noted that the formulas used to determine guaranteed minimum pension (GMP) benefits violated gender-pay equality laws due to differences in the way benefits were calculated for men and women.

As a result of this ruling, the U.K.

pension plan was required to amend its benefit formulas and account for the higher pension payments resulting from GMP equalization.

In accordance with ASC 715, this Court Ruling represents a change to the company's U.K.

pension plans resulting in a retroactive increase in benefit levels for plan participants and has been accounted for as a prior service cost deferred in other comprehensive income, to be amortized as a component of net periodic pension benefit in future periods.

pension plans projected benefit obligation increased $ 53.6 million as a result of the Court Ruling, subject to potential future adjustments as the calculations by participants are finalized.

The company has engaged non-affiliated third party professional investment advisors to assist the company to develop its investment policy and establish asset allocations.

The company has engaged non-affiliated third party professional investment advisors to assist the company in developing its investment policy and establishing asset allocations.

The company's overall investment objective is to provide a return, that along with company contributions, is expected to meet future benefit payments.

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The assets of the plans were invested in the following classes of securities (none of which were securities of the company):

Target Allocation

Percentage of Plan Assets

Target Allocation Percentage of Plan Assets

Equity 48 % 48 % 51 %

Fixed income 40 39 37

Money market 4 3 2

Other (real estate investment trusts & commodities contracts) 8 10 10

Target Allocation

Percentage of Plan Assets

100 % 100 % 100 %

Target Allocation Percentage of Plan Assets

Equity 17 % 12 % 22 %

Fixed income 38 57 39

Alternatives/Other 32 15 22

Real Estate 13 13 13

Cash and cash equivalents — 3 4

100 % 100 % 100 %

In accordance with ASC 820 Fair Value Measurements and Disclosures , the company has measured its defined benefit pension plans at fair value.

In accordance with ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets", the company has elected to measure the pension plan assets and obligations as of the calendar month end closest to the fiscal year end.

The following tables summarize the basis used to measure the pension plans’ assets at fair value as of December 28, 2019 and December 29, 2018 (in thousands):

Asset Category

Quoted Prices in Active Markets for Identical Assets (Level 1)

Net Asset Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Net Asset Value

The following tables summarize the basis used to measure the pension plans’ assets at fair value as of January 2, 2021and December 28, 2019 (in thousands):

Fiscal 2020 Fiscal 2019

Asset Category Total Quoted Prices in Active Markets for Identical Assets (Level 1) Net Asset Value Total Quoted Prices in Active Markets for Identical Assets (Level 1) Net Asset Value

Short Term Investment Fund (a) $ 533 $ — $ 533 $ 347 $ — $ 347

Equity Securities:

Large Cap 3,443 3,443 — 3,957 3,957 —

Mid Cap 407 407 — 417 417 —

Small Cap 489 489 — 418 418 —

International 4,198 4,198 — 3,657 3,657 —

1 unchanged sentence

Government/Corporate 5,517 5,517 — 4,992 4,992 —

High Yield 1,211 1,211 — 1,260 1,260 —

Global Real Estate Investment Trust 1,063 1,063 — 1,358 1,358 —

Commodities Contracts 594 594 — 338 338 —

Represents collective short term investment fund, composed of high-grade money market instruments with short maturities.

Asset Category

Quoted Prices

Net Asset Value

Total $ 17,455 $ 16,922 $ 533 $ 16,744 $ 16,397 $ 347

(a) Represents collective short term investment fund, composed of high-grade money market instruments with short maturities.

Asset Category Total Quoted Prices

(Level 1) Significant

(Level 2) Significant

(Level 3) Net Asset Value

Cash and cash equivalents $ 36,537 $ 9,653 $ 832 $ — $ 26,052

Equity Securities:

UK 8,615 1,747 — — 6,868

International:

Developed 110,718 3,076 — — 107,642

Emerging 34,417 418 — — 33,999

Unquoted/Private Equity 1,792 1 — — 1,791

1 unchanged sentence

Government/Corporate:

UK 264,703 16,330 — — 248,373

International 141,030 — — — 141,030

Index Linked 330,360 2,945 — — 327,415

Other 8,296 — — — 8,296

Convertible Bonds 214 — — — 214

Direct 156,588 — 156,588 — —

Indirect 9,283 52 4,485 — 4,746

Hedge Fund Strategy:

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Directional Trading & Fixed Income 9,721 — — — 9,721

Cash & Other 196,952 — — — 196,952

Direct Sourcing 2,397 — — — 2,397

1 unchanged sentence

Alternative/Other ( 104,518 ) 5 — — ( 104,523 )

Asset Category

Quoted Prices

Net Asset Value

Total $ 1,296,516 $ 34,227 $ 161,905 $ — $ 1,100,384

Asset Category Total Quoted Prices

(Level 1) Significant

(Level 2) Significant

(Level 3) Net Asset Value

Cash and cash equivalents $ 44,748 $ 18,142 $ 2,874 $ — $ 23,732

Equity Securities:

UK 101,922 88,830 — — 13,092

International:

Developed 165,709 13,170 — — 152,539

Emerging 11,653 650 — — 11,003

Unquoted/Private Equity 123 — — — 123

1 unchanged sentence

Government/Corporate:

UK 189,513 14,245 2,867 — 172,401

International 86,208 — — — 86,208

Index Linked 189,463 2,085 — — 187,378

Other 6,367 — — — 6,367

Convertible Bonds 177 — — — 177

Direct 154,494 — 154,494 — —

Indirect 8,155 137 7,603 — 415

Hedge Fund Strategy:

2 unchanged sentences

Directional Trading & Fixed Income 9,361 — — — 9,361

Cash & Other 163,058 — — — 163,058

Direct Sourcing 2,269 — — — 2,269

1 unchanged sentence

Alternative/Other 25,359 1 — — 25,358

Total $ 1,231,181 $ 137,260 $ 167,838 $ — $ 926,083

The fair value of the Level 1 assets is based on observable, quoted market prices of the identical underlying security in an active market.

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Estimated future benefit payments under the plans are as follows (dollars in thousands):

Plans Non-U.S.

2021 $ 1,794 $ 64,476

2022 1,789 64,905

2023 1,792 65,805

2024 1,807 65,551

2025 through 2030 11,446 402,537

2 unchanged sentences

Plans to be made in 2021 are $ 0.6 million and $ 4.7 million, respectively.

Defined Contribution Plans

As of December 28, 2019 , the company maintained two separate defined contribution 401(k) savings plans covering all employees in the United States.

(b) Defined Contribution Plans

As of January 2, 2021, the company maintained two separate defined contribution 401(k) 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.

2 unchanged sentences

(dollars in thousands, except per share data)

Net sales $ 677,459 $ 471,977 $ 634,525 $ 729,296 $ 2,513,257

Gross profit 250,190 153,126 222,749 255,983 882,048

Income from operations 105,414 39,118 86,672 93,227 324,431

Net earnings $ 73,779 $ 21,162 $ 60,516 $ 51,837 $ 207,294

Basic earnings per share (1) $ 1.33 $ 0.39 $ 1.10 $ 0.94 $ 3.76

Diluted earnings per share (1) $ 1.33 $ 0.39 $ 1.10 $ 0.94 $ 3.76

Net sales $ 686,802 $ 761,004 $ 724,014 $ 787,626 $ 2,959,446

Gross profit 257,312 286,479 270,028 289,678 1,103,497

Income from operations 101,061 139,607 121,345 152,030 514,043

Net earnings $ 69,013 $ 92,210 $ 82,020 $ 108,997 $ 352,240

Basic earnings per share (1) $ 1.24 $ 1.66 $ 1.47 $ 1.96 $ 6.33

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Commercial Foodservice Equipment Group:

During the fiscal years 2019 and 2018 , the company undertook cost reduction initiatives related to the entire Commercial Foodservice Equipment Group.

These actions resulted in a charge of $ 6.4 million and $ 3.5 million in the twelve months ended December 28, 2019 and December 29, 2018 , respectively, primarily for severance related to headcount reductions and facility consolidations.

During the fiscal years 2020, 2019 and 2018, 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 $ 10.1 million, $ 6.4 million and $ 3.5 million in the twelve months ended January 2, 2021, December 28, 2019 and December 29, 2018 respectively, primarily for severance related to headcount reductions and facility consolidations.

These expenses are reflected in restructuring expenses in the Consolidated Statements of Earnings.

The company estimates that these restructuring initiatives will result in future cost savings of approximately $ 10.0 million to $ 15.0 million annually, beginning in fiscal 2020.

At December 28, 2019 , the restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by first quarter of fiscal year 2020.

The realization of cost savings from the restructuring initiatives began in 2020 with an expected annual savings of approximately $ 20.0 million.

At January 2, 2021, the restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year year 2021.

Residential Kitchen Equipment Group:

Since the 2015 acquisition of the AGA Group, the company undertook various acquisition integration initiatives including

organizational restructuring, headcount reductions and consolidation and disposition of certain facilities and business

operations, including the impairment of equipment and facilities.

Most recently during 2018, the company undertook

additional restructuring efforts related to Grange, a non-core business within the AGA Group, and elected to cease its

This process was largely completed in the fourth quarter of 2018.

During fiscal 2019, the initiatives within the AGA Group were primarily related to headcount reductions.

The company recorded expense of $ 2.3 million , $ 15.1 million and $ 11.9 million , respectively in the years ended December 28, 2019 , December 29, 2018 and December 30, 2017 , respectively.

During the fiscal years 2020, 2019 and 2018, the company has completed various restructuring initiatives for the AGA Group, including headcount reductions and consolidation and disposition of certain facilities and business operations.

During 2018, the company undertook restructuring efforts related to Grange, a non-core business within the AGA Group, and elected to cease its operations.

During fiscal 2019 and 2020, the initiatives within the AGA Group were primarily related to headcount reductions.

The company recorded expense of $ 1.6 million, $ 2.3 million and $ 15.1 million, respectively in the years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.

Additionally within the Residential Kitchen Equipment Group, the company incurred restructuring costs, primarily for severance related to headcount reductions and facility consolidations.

The company recorded expense of $ 1.7 million and $ 1.2 million , respectively in the years ended December 28, 2019 and December 30, 2017 , respectively.

These expenses are reflected in restructuring expenses in the Consolidated Statements of Earnings.

The cumulative expenses incurred to date for these initiatives is approximately $ 59.7 million .

The primary realization of the cost savings began in 2017 and 2018 related to compensation and facility costs of approximately $ 20.0 million annually.

The company estimates the 2019 restructuring initiatives will result in future cost savings of approximately $ 3.0 million annually.

The restructuring obligations accrued for these initiatives are immaterial and will be paid by the end of fiscal of 2020.

The costs and corresponding reserve balances for the Residential Kitchen Equipment Group are summarized as follows (in thousands):

Severance/Benefits

Facilities/Operations

The company recorded expense of $ 0.2 million and $ 1.7 million, respectively in the years ended January 2, 2021 and December 28, 2019, respectively.

These expenses are reflected in restructuring expenses in the Consolidated Statements of Earnings and no material future expenses associated with these actions are anticipated.

The restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year 2021.

The costs and corresponding reserve balances for restructuring within the Residential Kitchen Equipment Group are summarized as follows (in thousands):

Severance/Benefits Facilities/Operations Other Total

Balance as of December 30, 2017 $ 3,698 $ 1,467 $ 157 $ 5,322

Expenses 6,367 3,771 5,001 15,139

Exchange Effect ( 49 ) ( 11 ) 23 ( 37 )

Payments ( 9,150 ) ( 5,171 ) ( 4,394 ) ( 18,715 )

Balance as of December 29, 2018 $ 866 $ 56 $ 787 $ 1,709

Expenses 3,766 684 ( 476 ) 3,974

Exchange Effect 24 ( 7 ) ( 55 ) ( 38 )

1 unchanged sentence

Balance as of December 28, 2019 $ 666 $ 101 $ — $ 767

Expenses 899 907 — 1,806

Exchange Effect — 26 — 26

Payments/Utilization ( 1,368 ) ( 922 ) — ( 2,290 )

Balance as of December 28, 2019

(14) SUBSEQUENT EVENT

On January 31, 2020, the company entered into an amended and restated five-year, $ 3.5 billion multi-currency senior secured credit agreement.

This facility replaces the company's pre-existing $ 3.0 billion Credit Facility, which had an original maturity of July 2021.

The Amended Facility consists of (i) a $ 750.0 million term loan facility and (ii) a $ 2.75 billion multi-currency revolving credit facility, with the potential under certain circumstances, to increase the amount of the credit facility to up to a total of $ 4.0 billion (plus additional amounts, subject to compliance with a senior secured net leverage ratio).

The Amended Facility matures on January 31, 2025.

At inception, the Amended Facility bears an interest rate of LIBOR plus a margin of 1.625 % , which is adjusted quarterly based upon the company's leverage ratio.

The Amended Facility provides for availability to provide working capital, capital expenditures, to support the issuance of letters of credit and other general corporate purposes.

Balance as of January 2, 2021 $ 197 $ 112 $ — $ 309

The restructuring expenses for the other segment of the company were not material during fiscal years 2020, 2019 and 2018.

In December 2020, the company recorded an impairment of approximately $ 2.9 million associated to reflect the fair market value of assets held for sale of a non-core business within the Residential Kitchen Equipment Group.

This charge was reflected in impairments in the Consolidated Statements of Earnings.

As a result approximately $ 17.4 million of current assets have been classified as held for sale, within prepaid expenses and other current assets and approximately $ 22.3 million of liabilities have been classified as held for sale within accrued expenses on the Consolidated Balance Sheets.

THE MIDDLEBY CORPORATION

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE FISCAL YEARS ENDED DECEMBER 28, 2019 , DECEMBER 29, 2018

FOR THE FISCAL YEARS ENDED JANUARY 2, 2021, DECEMBER 28, 2019

AND December 29, 2018

(amounts in thousands)

Other Adjustments (1)

Of Period Additions/

to Expense Other Adjustments (1) Write-Offs

the Period Balance

Allowance for doubtful accounts;

deducted from accounts receivable on the balance sheets-

2020 $ 14,886 $ 6,868 $ 1,239 $ ( 3,768 ) $ 19,225

2019 $ 13,608 $ 1,941 $ 2,009 $ ( 2,672 ) $ 14,886

2018 $ 13,182 $ 3,160 $ 1,121 $ ( 3,855 ) $ 13,608

(1) Amounts consist primarily of valuation allowances assumed from acquired companies.

Of Period Additions/

to Expense Write-Offs

Period Balance

Valuation allowance - Deferred tax assets

2020 $ 7,754 $ 3,977 $ — $ 11,731

2019 $ 26,023 $ 129 $ ( 18,398 ) $ 7,754

2018 $ 23,190 $ 2,833 $ — $ 26,023

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data