What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-02 · 285 added, 242 removed, 1107 unchanged (32% of the section changed)

13 unchanged sentences

Opinion on Internal Control over Financial Reporting

We have audited The Middleby Corporation’s internal control over financial reporting as of January 1, 2022, 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 1, 2022, 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 Novy, Imperial, Newton CFV, Kamado Joe and Masterbuilt and Char-Griller, which are included in the 2021 consolidated financial statements of the Company and constituted 17.6% and 1.0% of total and net assets, respectively, as of January 1, 2022 and 1.9% and (0.4%) of net sales and net earnings, 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 Novy, Imperial, Newton CFV, Kamado Joe and Masterbuilt and Char-Griller.

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 1, 2022 and January 2, 2021, 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 1, 2022, and the related notes and financial statement schedule listed in the Index at Item 8 and our report dated March 2, 2022 expressed an unqualified opinion thereon.

We have audited The Middleby Corporation’s internal control over financial reporting as of December 31, 2022, 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 31, 2022, 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 Kloppenberg, Proxaut, Icetro, CP Packaging, Colussi, Escher and Marco which are included in the 2022 consolidated financial statements of the Company and constituted 6.0% and 0.2% of total and net assets, respectively, as of December 31, 2022 and 1.7% and (0.5)% of net sales and net earnings, 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 Kloppenberg, Proxaut, Icetro, CP Packaging, Colussi, Escher and Marco.

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 31, 2022 and January 1, 2022, 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 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 8 and our report dated March 1, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Middleby Corporation (the Company) as of January 1, 2022 and January 2, 2021, 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 1, 2022, 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 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2022, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of The Middleby Corporation (the Company) as of December 31, 2022 and January 1, 2022, 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 31, 2022, 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 December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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 January 1, 2022, 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 2, 2022 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 December 31, 2022, 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 1, 2023 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 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 a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Business Combinations

Description of the Matter As described in Note 2 to the consolidated financial statements, the Company completed the acquisitions of Novy Invest NV and Kamado Joe and Masterbuilt for total net purchase consideration of $651.6 million in the year ended January 1, 2022.

The acquisitions were accounted for under the acquisition method of accounting and the assets acquired and liabilities assumed have been recorded based on preliminary estimates of fair value which are subject to change based on the finalization of the fair values of the assets acquired and liabilities assumed.

Auditing the Company’s accounting for the preliminary allocation of the purchase price for these acquisitions was complex due to the overall significance of the acquisitions and the estimation uncertainty in determining the fair value of identifiable intangible assets, which principally consisted of customer relationships and tradenames.

The estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions.

A significant assumption used by the Company to estimate the preliminary fair value of these assets was the determination of which of the Company’s historical acquisitions were of a comparable nature to be utilized as a basis for estimating the fair value of identified intangible assets.

This determination was based upon an analysis by the Company of each acquiree’s overall business and customer base as compared to the Company’s historical acquisitions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the estimation of the preliminary fair value of the identifiable intangible assets.

For example, we tested controls over management’s review of the significant assumptions, such as their evaluation of each acquired business compared with historical acquisitions executed by the Company to determine similarities and differences which provided the basis for determining which of the historical transactions to use in estimating fair values of the identifiable intangible assets.

To test the estimate of the preliminary fair value of the acquired identifiable intangible assets, our audit procedures included, among others, assessing the appropriateness of the historical acquisitions utilized as a basis in estimating the preliminary fair values and testing the underlying data used by the Company.

For example, we obtained an understanding of the nature of each acquired business through audit procedures such as review of publicly available information, inquiries of management, and review of historical financial information.

Based on this understanding, we compared the nature of each acquired business and operations to the historical acquisitions of the Company used in the preliminary fair value estimates.

We also tested the mathematical accuracy of historical acquisition averages for identifiable intangible assets.

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 matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for acquisitions

Description of the Matter As described in Note 2 of the consolidated financial statements, the Company completed its acquisition of Novy Invest NV for net consideration of approximately $267 million on July 12, 2021 and its acquisition of Kamado Joe and Masterbuilt for net consideration of approximately $406 million on December 27, 2021.

Each transaction was accounted for as a business combination.

The Company finalized the fair value allocations for each acquisition in 2022.

Auditing the Company's accounting for its acquisitions of Novy Invest NV and Kamado Joe and Masterbuilt was complex due to the significant estimation uncertainty in determining the fair value of identified intangible assets of approximately $131 million and $187 million, respectively, which principally consisted of trade names.

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

The Company used discounted cash flow models to measure the trade names intangible assets.

The significant assumptions used to estimate the value of the trade names intangible assets include revenue growth rates, discount rates, and royalty 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 acquisitions of Novy Invest NV and Kamado Joe and Masterbuilt, including controls over the determination of the fair value of the acquired trade names 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 names intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodologies, 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 to the past performance of each 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.

Valuation of Kamado Joe and Masterbuilt indefinite-lived intangible assets

Description of the Matter At December 31, 2022, the carrying value of the Kamado Joe and Masterbuilt indefinite-lived intangible assets was approximately $145 million, which consists of trade names.

As discussed in Note 3 to the consolidated financial statements, indefinite-lived intangibles assets are tested for impairment at least annually, in the fiscal fourth quarter, or when impairment indicators are present at the intangible asset level.

Auditing management’s assessment of the estimated fair value of the Kamado Joe and Masterbuilt indefinite-lived intangible assets was complex due to the judgmental nature of the assumptions used in the valuation process.

The fair value estimates were sensitive to significant assumptions including future revenues and royalty rates.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s indefinite-lived intangible asset fair value assessment process.

This included testing controls over management’s review over the projected financial information and significant assumptions used in the valuation models to estimate fair value of the indefinite-lived intangible assets.

To test the estimated fair values of the Kamado Joe and Masterbuilt indefinite-lived intangible assets, we performed audit procedures that included, among others, assessing methodologies used in the models and testing the significant assumptions discussed above.

This included comparing the significant assumptions used by management to current industry and economic trends, changes to the Company’s business models and other relevant factors.

We assessed the reasonableness of management’s projections used in the fair value calculations and obtained support for initiatives supporting these projections.

We also compared previous forecasts to actual results to assess management’s forecasting process.

To assess the discount rates, we reviewed the methodology used by the Company and considered each input relative to current economic factors.

We performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the indefinite-lived intangible asset that would result from changes in the assumptions.

In addition, we tested the mathematical accuracy of the models.

/s/ Ernst & Young LLP

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CONSOLIDATED BALANCE SHEETS

JANUARY 1, 2022 AND JANUARY 2, 2021

DECEMBER 31, 2022 AND JANUARY 1, 2022

(amounts in thousands, except share data)

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CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE FISCAL YEARS ENDED JANUARY 1, 2022, JANUARY 2, 2021

AND DECEMBER 28, 2019

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022, JANUARY 1, 2022

AND JANUARY 2, 2021

(amounts in thousands, except per share data)

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Merger termination fee — ( 110,000 ) —

Gain on litigation settlement — — ( 14,839 )

Gain on sale of plant — ( 763 ) ( 1,982 )

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Curtailment loss — — 14,682

Other (income) expense, net ( 1,603 ) 3,071 ( 2,328 )

Other expense (income), net 28,893 ( 1,603 ) 3,071

Earnings before income taxes 564,415 619,504 268,057

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE FISCAL YEARS ENDED JANUARY 1, 2022, JANUARY 2, 2021

AND DECEMBER 28, 2019

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022, JANUARY 1, 2022

AND JANUARY 2, 2021

(amounts in thousands)

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Unrealized gain (loss) on interest rate swaps, net of tax 61,638 24,484 ( 20,656 )

Unrealized gain on certain investments, net of tax $ 1,330 $ — $ —

Unrealized (loss) gain on certain investments, net of tax ( 1,330 ) 1,330 —

Other comprehensive income (loss):

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE FISCAL YEARS ENDED JANUARY 1, 2022, JANUARY 2, 2021

AND DECEMBER 28, 2019

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022, JANUARY 1, 2022

AND JANUARY 2, 2021

(amounts in thousands)

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Net earnings — — — 207,294 — 207,294

Adoption of ASU 2017-12 (1)

— — — ( 11 ) 11 —

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

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

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

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

Net earnings — — — 488,492 — 488,492

Adoption of ASU 2020-06 (1)

— ( 79,430 ) — 5,055 — ( 74,375 )

Currency translation adjustments — — — — ( 47,693 ) ( 47,693 )

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— — — — 151,223 151,223

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

Unrealized gain on interest rate swap, net of tax of $ 8,619

— — — — 24,484 24,484

Unrealized gain on certain investments, net of tax of $ 443

— — — — 1,330 1,330

Stock compensation — 42,330 — — — 42,330

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Purchase of treasury stock — — ( 29,265 ) — — ( 29,265 )

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

Purchase of capped calls, net of tax of $( 13,132 )

— ( 41,421 ) — — — ( 41,421 )

Balance, January 1, 2022 $ 147 $ 357,309 $ ( 566,399 ) $ 3,062,303 $ ( 359,084 ) $ 2,494,276

Net earnings — — — 436,569 — 436,569

Adoption of ASU 2020-06 (2)

— ( 79,430 ) — 5,055 — ( 74,375 )

Currency translation adjustments — — — — ( 107,691 ) ( 107,691 )

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— — — — 61,638 61,638

Unrealized gain on certain investments, net of tax of $ 443

Unrealized loss on certain investments, net of tax of $( 443 )

— — — — ( 1,330 ) ( 1,330 )

Stock compensation — 58,368 — — — 58,368

Stock issuance — 2,522 — — — 2,522

Purchase of treasury stock — — ( 264,777 ) — — ( 264,777 )

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— ( 7,301 ) — — — ( 7,301 )

Balance, January 1, 2022 $ 147 $ 357,309 $ ( 566,399 ) $ 3,062,303 $ ( 359,084 ) $ 2,494,276

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

2017-12, "Derivatives and Hedging (Topic 815):

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

The adoption of this guidance resulted in the recognition of less than $( 0.1 ) million as an adjustment to the opening balance of retained earnings.

Balance, December 31, 2022 $ 147 $ 408,376 $ ( 831,176 ) $ 3,498,872 $ ( 278,472 ) $ 2,797,747

(1) As of January 3, 2021 the company adopted ASU No.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED JANUARY 1, 2022, JANUARY 2, 2021

AND DECEMBER 28, 2019

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022, JANUARY 1, 2022

AND JANUARY 2, 2021

(amounts in thousands)

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Non-cash restructuring — 1,924 —

Other non-cash items ( 12,127 ) ( 11,805 ) —

Changes in assets and liabilities, net of acquisitions

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Premiums paid for capped call ( 9,655 ) ( 54,553 ) ( 104,650 )

Net repayments under foreign bank loan ( 2,030 ) 1,305 ( 405 )

Net repayments under other debt arrangement ( 303 ) ( 45 ) ( 179 )

Net (repayments) proceeds under foreign bank loan ( 24,470 ) ( 2,030 ) 1,305

Payments of deferred purchase price ( 7,930 ) ( 5,861 ) ( 3,700 )

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Debt issuance costs — ( 9,242 ) ( 10,974 )

Other, net ( 287 ) ( 303 ) ( 45 )

Net cash provided by (used in) financing activities 7,631 502,789 ( 252,468 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED JANUARY 1, 2022, JANUARY 2, 2021

AND DECEMBER 28, 2019

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022, JANUARY 1, 2022

AND JANUARY 2, 2021

(1) NATURE OF OPERATIONS

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-nine U.S.

and twenty-eight international manufacturing facilities.

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

and thirty-four international manufacturing facilities.

The company operates in three business segments:

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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 tumblers, massagers, grinders, slicers, reduction and emulsion systems, mixers, blenders, formers, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions, and forming equipment, as well as a variety of automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment.

The company also provides a comprehensive portfolio of complementary food preparation equipment such as tumblers, massagers, grinders, slicers, reduction and emulsion systems, mixers, blenders, formers, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions, and forming equipment, as well as a variety of automated loading and unloading systems, automated washing systems, auto-guided vehicles, 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.

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The termination fee received is reflected in the Consolidated Statements of Comprehensive Earnings as the "merger termination fee" and $ 19.7 million of deal costs associated with the transaction are reflected in selling, general and administrative expenses in the Consolidated Statements of Comprehensive Earnings.

2020 Acquisitions

Other 2021 Acquisitions

During 2021, the company completed various acquisitions that were not individually material.

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Consideration paid at closing $ 304,136 $ ( 274 ) $ 303,862

Deferred payments 8,666 ( 468 ) 8,198

Contingent consideration 9,404 ( 200 ) 9,204

Net assets acquired and liabilities assumed $ 313,540 $ ( 474 ) $ 313,066

The long-term deferred tax asset amounted to $ 0.3 million and is related to the difference between the book and tax basis on other assets and liability accounts.

The long-term deferred tax asset amounted to $ 0.4 million.

The net deferred tax asset is comprised of $ 0.6 million of deferred tax asset related to tax loss carryforwards and $ 0.2 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $ 84.6 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

Other intangibles also include $ 10.6 million allocated to customer relationships, $ 31.2 million allocated to developed technology and $ 6.3 million allocated to backlog, which are being amortized over periods of 6 to 9 years, 6 to 12 years, and 3 to 9 months, respectively.

Goodwill of $ 59.2 million and other intangibles of $ 63.8 million from these acquisitions are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.

Other intangibles also include $ 35.4 million allocated to customer relationships, $ 3.4 million allocated to developed technology, and $ 3.8 million allocated to backlog, which are being amortized over periods of 7 years, 7 to 10 years, and 3 months, respectively.

Goodwill of $ 51.2 million and other intangibles of $ 66.6 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes.

Goodwill of $ 65.0 million and other intangibles of $ 60.6 million are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.

Of these assets, goodwill of $ 114.2 million and intangibles of $ 126.0 million 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 2021 and 2022.

The contractual obligations associated with the deferred payments on the acquisition dates amount to $ 8.2 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 dates amount to $ 15.3 million.

One purchase agreement includes earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded and upon the achievement of product rollout targets.

One earnout is payable upon the achievement of product rollout targets.

The second earnout is payable during 2026 if the company exceeds certain earnings targets.

The contractual obligation associated with the contingent earnout provisions recognized on the acquisition date amounts to $ 9.2 million.

Novy Invest NV

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

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

Preliminary Opening Balance Sheet Preliminary Measurement

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

Preliminary Opening Balance Sheet Measurement

Adjustments Adjusted Opening Balance Sheet

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The goodwill and $ 106.6 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

Other intangibles also include $ 40.0 million allocated to customer relationships, $ 2.7 million allocated to developed technology and $ 1.1 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 months, respectively.

Other intangibles also include $ 24.1 million allocated to customer relationships, which is being amortized over a period of 10 years.

Goodwill of $ 135.8 million and other intangibles of $ 130.7 million from this acquisition are allocated to the Residential Kitchen Equipment Group for segment reporting purposes.

Goodwill and other intangibles are not expected to be deductible for tax purposes.

The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values for all acquisitions completed during 2021.

The intangible assets are pending external valuation and are preliminarily valued using historical information from the Residential Kitchen Equipment Group and qualitative assessment of the business at acquisition date.

Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions.

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

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

Kamado Joe and Masterbuilt

On December 27, 2021, the company completed its acquisition of all of the member interests of Masterbuilt Holdings, LLC ("Kamado Joe and Masterbuilt") and their residential outdoor brands of Kamado Joe and Masterbuilt, a leader in outdoor residential cooking located in the Atlanta, Georgia area, for a purchase price of approximately $ 400.7 million, net of cash acquired.

The purchase price included $ 403.6 million in cash and 12,921 shares of Middleby common stock valued at $ 2.5 million.

The purchase price is subject to adjustment based upon a working capital provision provided by the purchase agreement.

The company expects to finalize this in the second quarter of 2022.

Preliminary Opening Balance Sheet

On December 27, 2021, the company completed its acquisition of Masterbuilt Holdings, LLC, including its residential outdoor brands ("Kamado Joe and Masterbuilt"), a leader in outdoor residential cooking located in the Atlanta, Georgia area, for a purchase price of approximately $ 403.6 million, net of cash acquired.

The purchase price was comprised of $ 403.6 million in cash and 12,921 shares of Middleby common stock valued at $ 2.5 million.

During the third quarter of 2022, the company finalized the purchase price adjustment provided for by the purchase agreement, resulting in a payment to sellers of $ 2.8 million.

The final allocation of consideration paid for the Kamado Joe and Masterbuilt acquisition is summarized as follows (in thousands):

Preliminary Opening Balance Sheet Measurement

Adjustments Adjusted Opening Balance Sheet

Cash $ 5,381 $ ( 70 ) $ 5,311

Current assets 137,826 ( 5,623 ) 132,203

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The long-term deferred tax liability amounted to $ 13.2 million.

The net deferred tax liability is comprised of $ 2.3 million of deferred tax asset related to tax loss carryforwards and $ 18.2 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The net deferred tax liability is comprised of $ 2.3 million of deferred tax asset related to tax loss carryforwards, $ 4.6 million of deferred tax asset related to the difference between the book and tax basis of identifiable intangible assets, and $ 20.1 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $ 145.4 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

Other intangibles also include $ 50.3 million allocated to customer relationships and $ 6.5 million allocated to backlog, which are being amortized over periods of 7 years and 3 months, respectively.

Other intangibles also include $ 31.4 million allocated to customer relationships, $ 3.0 million allocated to developed technology, and $ 7.1 million allocated to backlog, which are being amortized over periods of 10 to 12 years, 11 years, and 3 to 6 months, respectively.

Goodwill of $ 154.5 million and other intangibles of $ 186.9 million of the company are allocated to the Residential Kitchen Equipment Group for segment reporting purposes.

Of these assets, goodwill of $ 54.5 million and intangibles of $ 186.9 million are expected to be deductible for tax purposes.

Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions.

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

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

Other 2022 Acquisitions

During the year ended January 1, 2022, the company completed various acquisitions that were not individually material.

As of December 31, 2022, the company completed various acquisitions that were not individually material.

The following estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition dates for the other 2022 acquisitions and are summarized as follows (in thousands):

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Other intangibles 93,147 2,112 95,259

Long-term deferred tax asset 426 104 530

Other assets 1,420 3,034 4,454

Current portion of long-term debt ( 22,841 ) 2,154 ( 20,687 )

Current liabilities ( 57,158 ) ( 241 ) ( 57,399 )

Long term debt ( 5,646 ) ( 2,320 ) ( 7,966 )

Long-term deferred tax liability ( 23,137 ) 637 ( 22,500 )

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The long-term deferred tax liability amounted to $ 22.5 million.

The net deferred tax liability is comprised of $ 0.6 million of deferred tax asset related to tax loss carryforwards and $ 3.6 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The deferred tax liability is comprised of $ 19.5 million related to the difference between the book and tax basis of identifiable intangible assets and $ 3.0 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $ 42.9 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

Other intangibles also include $ 41.1 million allocated to customer relationships, $ 3.4 million allocated to developed technology, and $ 7.9 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 months, respectively.

Goodwill of $ 30.5 million and other intangibles of $ 89.0 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes.

Other intangibles also include $ 38.2 million allocated to customer relationships, $ 6.2 million allocated to developed technology, and $ 8.0 million allocated to backlog, which are being amortized over periods of 7 years, 5 to 10 years, and 3 to 6 months, respectively.

Goodwill of $ 112.3 million and other intangibles of $ 59.1 million are allocated to the Food Processing Equipment Group for segment reporting purposes.

Goodwill of $ 30.0 million and other intangibles of $ 35.4 million are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.

Goodwill of $ 2.3 million and other intangibles of $ 0.8 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes.

Of these assets, goodwill of $ 20.8 million and intangibles of $ 11.7 million are expected to be deductible for tax purposes.

One earnout is payable upon the achievement of product rollout targets.

The second earnout is payable during 2026 if the company exceeds certain earnings targets.

Four purchase agreements include earnout provisions providing for a contingent payment due to the sellers for the achievement of certain targets.

Three earnouts are payable to the extent certain EBITDA targets are met with measurement dates ending between 2022 and 2025.

One earnout is payable yearly through 2026 based on product sales.

The contractual obligation associated with the contingent earnout provisions recognized on the acquisition date amount to $ 22.5 million.

Certain intangible assets are pending external valuation and are preliminarily valued using historical information from the Residential Kitchen Equipment Group and Commercial Foodservice Equipment Group and qualitative assessments of the individual businesses at acquisition date.

Certain intangible assets are preliminarily valued using historical information from the Commercial Foodservice Equipment Group, Food Processing Equipment Group and Residential Kitchen Equipment Group and qualitative assessments of the individual businesses at acquisition date.

Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions.

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Pro Forma Financial Information

In accordance with ASC 805 Business Combinations , the following unaudited pro forma results of operations for the twelve months ended January 1, 2022 and January 2, 2021, assumes the 2020 and 2021 acquisitions described above were completed on December 29, 2019 (first day of fiscal year 2020).

In accordance with ASC 805 Business Combinations , the following unaudited pro forma results of operations for the twelve months ended December 31, 2022 and January 1, 2022, assumes the 2021 and 2022 acquisitions described above were completed on January 3, 2021 (first day of fiscal year 2021).

The following pro forma results include adjustments to reflect 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):

Twelve Months Ended

January 1, 2022 January 2, 2021

December 31, 2022 January 1, 2022

Net sales $ 4,135,012 $ 3,895,490

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

Fiscal years 2021, 2020, and 2019 ended on January 1, 2022, January 2, 2021 and December 28, 2019, respectively, and included 52, 53 and 52 weeks, respectively.

Fiscal years 2022, 2021, and 2020 ended on December 31, 2022, January 1, 2022 and January 2, 2021, respectively, and included 52, 52 and 53 weeks, respectively.

Certain prior year amounts have been reclassified to be consistent with current year presentation, including non-cash unrealized foreign exchange on non-functional currency third party debt, previously reported in changes in assets and liabilities, net of acquisitions to other non-cash items as an adjustments to reconcile net earnings to cash provided by operating activities on the Consolidated Statements of Cash Flows.

(b) Cash and Cash Equivalents

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Accounts receivable, as shown in the consolidated balance sheets, are net of allowances for doubtful accounts of $ 18.8 million and $ 19.2 million at January 1, 2022 and January 2, 2021, respectively.

At January 1, 2022, 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 $ 20.3 million and $ 18.8 million at December 31, 2022 and January 1, 2022, respectively.

At December 31, 2022, 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 January 1, 2022 and January 2, 2021 are as follows (in thousands):

Inventories at December 31, 2022 and January 1, 2022 are as follows (in thousands):

Raw materials and parts $ 595,325 $ 421,361

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

The company performed a qualitative assessment as of October 3, 2021 over all three reporting units and determined it is not more likely than not that the fair values of our reporting units are less than the carrying amounts and therefore quantitative analysis is not required.

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

The company performed a qualitative assessment as of October 2, 2022 over all three reporting units.

As a result of the financial performance for the Residential Kitchen reporting unit, the company completed a quantitative analysis.

The fair value of the reporting unit exceeded its carrying unit by approximately 20% 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):

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Processing Residential Kitchen Total

Balance as of December 28, 2019 $ 1,153,552 $ 257,679 $ 438,516 $ 1,849,747

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

Goodwill acquired during the year 63,849 — 266,170 330,019

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Exchange effect ( 19,623 ) 616 ( 33,522 ) ( 52,529 )

Balance as of January 1, 2022 $ 1,285,087 $ 250,715 $ 707,667 $ 2,243,469

Balance as of December 31, 2022 $ 1,296,494 $ 363,585 $ 751,755 $ 2,411,834

Intangible assets consist of the following (in thousands):

January 1, 2022 January 2, 2021

December 31, 2022 January 1, 2022

Amount Accumulated

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The company completed its annual impairment assessment for indefinite-lived intangible assets as of October 2, 2022.

Based on this qualitative assessment, the company determined it is not more likely than not that the fair values of our reporting units are less than the carrying amounts and therefore a quantitative impairment analysis was not required.

We identified indicators of impairment with certain tradenames within the Commercial Foodservice and Residential Kitchen reporting units based on the qualitative assessment.

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

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

The Kamado Joe and Masterbuilt trademarks were at risk at October 2, 2022.

The company believes the assumptions utilized within the quantitative analysis are reasonable and consistent with assumptions that would be used by other marketplace participants.

The fair values of all other trademarks exceeded their carrying values by an amount sufficient to not be deemed "at risk." The company performed a qualitative assessment as of October 2, 2022 for all other trademarks and trade names and determined it is more like than not that the fair value of its other indefinite-life intangible assets are greater than the carrying amounts.

The company elected to perform a qualitative assessment on the other indefinite-life intangible assets noting no events that indicated that the fair value was less than the carrying value that would require a quantitative impairment assessment.

The estimates of future cash flows used in determining the fair value of goodwill and indefinite-lived intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital.

Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets.

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

The company continues to monitor the impacts from the COVID-19 pandemic and subsequent accelerated recovery, along with inflationary impacts from the war in Ukraine to assess the outlook for demand of its products and the impact on its business and financial performance.

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

During 2020 testing, the company recorded impairment charges of $ 11.6 million associated with several trade names, 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.

Definite-lived intangible assets are amortized over their estimated useful lives and tested for impairment in accordance with the methodology discussed above under "Property, Plant and Equipment."

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(g) Accrued Expenses

Accrued expenses consist of the following at January 1, 2022 and January 2, 2021, respectively (in thousands):

Accrued expenses consist of the following at December 31, 2022 and January 1, 2022, respectively (in thousands):

Contract liabilities $ 185,824 $ 133,315

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Accrued sales and other tax 24,044 22,684

Accrued contingent consideration 20,529 18,728

Accrued professional fees 19,541 19,292

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Accrued product liability and workers compensation 11,326 10,952

Accrued interest rate swaps 1,171 14,075

Accrued liabilities held for sale — 22,313

Other accrued expenses 91,769 73,033

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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 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.

(i) Accumulated Other Comprehensive Income (Loss)

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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 Unrealized Gain Certain Investments Total

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

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

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

Other comprehensive income before reclassification ( 47,693 ) 137,187 6,015 1,330 96,839

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Net current-period other comprehensive income $ ( 107,691 ) $ 127,995 $ 61,638 $ ( 1,330 ) $ 80,612

Balance as of January 1, 2022 $ ( 97,654 ) $ ( 249,696 ) $ ( 13,064 ) $ 1,330 $ ( 359,084 )

(1) As of January 1, 2022 pension, unrealized gain/(loss) interest rate swap and gain on certain investments amounts are net of tax of $( 39.5 ) million, $( 4.5 ) million and $ 0.4 million, respectively.

During the twelve months ended January 1, 2022, the adjustments to pension benefit costs unrealized gain/(loss) interest rate swap and gain on certain investments were net of tax of $ 49.6 million, $ 8.6 million and $ 0.4 million, respectively.

Balance as of December 31, 2022 $ ( 205,345 ) $ ( 121,701 ) $ 48,574 $ — $ ( 278,472 )

(1) As of December 31, 2022 pension and unrealized gain/(loss) interest rate swap amounts are net of tax of $( 2.0 ) million, and $ 16.8 million, respectively.

During the twelve months ended December 31, 2022, the adjustments to pension benefit costs unrealized gain/(loss) interest rate swap and gain/(loss) on certain investments were net of tax of $ 37.5 million, $ 21.3 million and $( 0.4 ) million, respectively.

(j) Fair Value Measures

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

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

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

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 January 1, 2022 and January 2, 2021 are as follows (in thousands):

The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value hierarchy at December 31, 2022 and January 1, 2022 are as follows (in thousands):

Level 1 Fair Value

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Level 3 Total

As of January 1, 2022

As of December 31, 2022

Financial Assets:

Interest rate swaps $ — $ 64,985 $ — $ 64,985

Foreign exchange derivative contracts $ — $ 1,095 $ — $ 1,095

Financial Liabilities:

Interest rate swaps $ — $ 21,635 $ — $ 21,635

Contingent consideration $ — $ — $ 47,242 $ 47,242

Foreign exchange derivative contracts $ — $ 474 $ — $ 474

As of January 1, 2022

Financial Assets:

Interest rate swaps $ — $ 3,645 $ — $ 3,645

Foreign exchange derivative contracts $ — $ 1,095 $ — $ 1,095

Financial Liabilities:

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Contingent consideration $ — $ — $ 34,983 $ 34,983

Foreign exchange derivative contracts $ — $ 2,191 $ — $ 2,191

The contingent consideration, as of January 1, 2022 and January 2, 2021, relates to the earnout provisions recorded in conjunction with various purchase agreements.

The contingent consideration, as of December 31, 2022 and January 1, 2022, relates to the earnout provisions recorded in conjunction with various purchase agreements.

The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase 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.

During fiscal 2021 the increase in contingent consideration was associated with 2021 acquisitions and there were no material performance assumption adjustments.

Discount rates for valuing contingent consideration are determined based on the company rates and specific acquisition risk considerations.

Changes in fair value associated with the earnout provisions are recognized in Selling, general and administrative expenses within the Consolidated Statements of Earnings.

The following table represents changes in the fair value of the contingent consideration liabilities for the fiscal years 2022 and 2021:

December 31, 2022 January 1, 2022

Beginning balance $ 34,983 $ 25,558

Payments of contingent consideration ( 5,103 ) ( 528 )

New contingent consideration 22,299 8,567

Changes in fair value ( 4,937 ) 1,386

Ending balance $ 47,242 $ 34,983

(k) Foreign Currency

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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 $ 0.3 million, loss of $ 2.9 million and a loss of $ 0.9 million in 2021, 2020 and 2019, respectively, and are included in other expense on the statements of earnings.

These transactions amounted to a loss of $ 28.1 million, gain of $ 0.3 million and a loss of $ 2.9 million in 2022, 2021 and 2020, respectively, and are included in other expense on the statements of earnings.

(l) Shipping and Handling Costs

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The company's 2021 Stock Incentive Plan (the "2021 Plan"), allows for the granting of stock options, stock appreciation rights, restricted stock and restricted stock units, performance stock, phantom units and other equity-based awards.

The company estimates the fair value of restricted stock grants, restricted stock units and performance stock at the time of grant and recognizes compensation costs over the vesting period of the grants.

The company estimates the fair value of restricted stock grants, restricted stock units and performance stock units at the time of grant and recognizes compensation costs over the vesting period of the grants.

The expense, net of forfeitures, is recognized using the straight-line method.

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

The company’s potentially dilutive securities consist of shares issuable on exercise of outstanding options and vesting of restricted stock grants computed using the treasury method and amounted to approximately 1,449,000 , 43,000 , and 9,000 for fiscal 2021, 2020 and 2019, respectively.

The company’s potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to approximately 56,000 for fiscal 2021.

During fiscal 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes resulting in approximately 1,393,000 diluted stock equivalents to be included in the diluted net earnings per share.

There have been no conversions to date.

The company’s potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to 852,000 , 1,449,000 and 43,000 for fiscal 2022, 2021 and 2020, respectively.

The company's potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to approximately 73,000 and 56,000 for fiscal 2022 and 2021, respectively.

During fiscal 2022 and 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes (as defined below) resulting in approximately 779,000 and 1,393,000 diluted common stock equivalents to be included in the diluted net earnings per share, respectively.

There have been no material conversions to date.

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

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Accounting Pronouncements - Recently Adopted

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 is 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.

Effective January 3, 2021, the company early adopted ASU 2020-06 using the modified retrospective approach.

Adoption of the new standard resulted in an increase to the opening balance of retained earnings of $ 5.1 million, a decrease to additional paid-in capital of $ 79.4 million, and an increase to convertible senior notes of $ 98.4 million.

In addition, the company ceased recording non-cash interest expense associated with amortization of the debt discount and calculates earnings per share using the if-converted method to the extent those shares are not anti-dilutive.

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)", which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

This guidance also clarifies and simplifies other areas of ASC 740.

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

The company adopted this guidance on January 3, 2021, and it did not have a material impact on the company's Consolidated Financial Statements upon adoption.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition related to reference rate reform.

The amendments in this update were effective immediately for all entities.

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

Accounting Pronouncements - To be adopted

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

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Early adoption is permitted, including adoption in an interim period.

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

The company adopted this standard in the first quarter of 2022 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

Accounting Pronouncements - To be adopted

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods.

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

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty.

The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The standard should be applied prospectively, and it allows for a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

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

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815):

Fair Value Hedging—Portfolio Layer Method.

The new standard expands and clarifies the use of the portfolio layer method for fair value hedges of interest rate risk.

The new standard allows non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method.

The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The new guidance on hedging multiple layers in a closed portfolio should be applied prospectively and the guidance on the accounting for fair value basis adjustments should be applied on a modified retrospective basis.

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

(4) REVENUE RECOGNITION

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Profit on the equipment performance obligations is estimated as the difference between the total estimated revenue and expected costs to complete a contract.

Contract cost estimates are based on labor productivity and availability, the complexity of the work to be performed;

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

Contract cost estimates are based on labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials and labor, and the performance of subcontractors.

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

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Foodservice Food Processing Residential Kitchen Total

Twelve Months Ended January 1, 2022

Twelve Months Ended December 31, 2022

United States and Canada $ 1,766,257 $ 410,853 $ 701,909 $ 2,879,019

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Total $ 2,032,761 $ 480,746 $ 737,285 $ 3,250,792

Twelve Months Ended December 28, 2019

Twelve Months Ended January 2, 2021

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

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

January 1, 2022 January 2, 2021

December 31, 2022 January 1, 2022

Contract assets $ 40,438 $ 21,592

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Non-current contract liabilities $ 12,495 $ 11,602

During the twelve months period ended January 1, 2022, the company reclassified $ 16.3 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 1, 2022, the company recognized revenue of $ 77.3 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 $ 129.0 million during the twelve months period ended January 1, 2022.

During the twelve months period ended December 31, 2022, the company reclassified $ 16.1 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 31, 2022, the company recognized revenue of $ 123.3 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 $ 174.4 million during the twelve months period ended December 31, 2022.

In addition, contract liabilities increased due to acquisitions during fiscal 2022.

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 January 1, 2022.

There were no contract asset impairments during twelve months period ended December 31, 2022.

(5) FINANCING ARRANGEMENTS

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Term loan facility 975,785 993,340

Delayed draw term loan facility 750,000 —

Convertible senior notes 737,918 734,417

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Long-term debt $ 2,676,741 $ 2,387,001

Credit Facility

On October 21, 2021, the company entered into an amended and restated five-year, $ 4.5 billion multi-currency senior secured credit agreement (the "Credit Facility") that amends and restates the company's pre-existing $ 3.1 billion credit facility which had an original maturity of January 31, 2025.

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Fees associated with the amendment of the term loan facilities are 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 Credit Facility.

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 (the "2020 Capped Call Transactions") and the company used the net proceeds of the offering of the Convertible Notes to pay the aggregate amount of $ 104.7 million for them.

In December 2021, the company entered into two tranches of privately negotiated Capped Call Transactions (the "2021 Capped Call Transactions") in the aggregate amount of $ 54.6 million.

The 2020 and 2021 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.

Credit Facility

As of January 1, 2022, the company had $ 1.7 billion of borrowings outstanding under the Credit Facility, including $ 1.0 billion outstanding under the term loan ($ 993 million, net of unamortized issuance fees).

The company also had $ 2.7 million in outstanding letters of credit as of January 1, 2022, which reduces the borrowing availability under the Credit Facility.

Remaining borrowing capacity under this facility was $ 2.8 billion at January 1, 2022.

At January 1, 2022, borrowings under the Credit Facility accrued interest at a rate of 1.375 % above LIBOR per annum or 0.375 % above the highest of the prime rate, the federal funds rate plus 0.50 % and one month LIBOR plus 1.00 %.

On August 11, 2022, the company borrowed $ 750 million against the delayed draw term facility as provided under the Credit Agreement.

The funds were used to reduce outstanding borrowings under the revolver.

The delayed draw term loan amortizes in quarterly installments due on the last day of each fiscal quarter, commencing on December 31, 2022, in an amount equal to 0.625 % of the principal drawn, with the balance, plus any accrued interest payable by October 21, 2026.

As of December 31, 2022, the company had $ 2.0 billion of borrowings outstanding under the Credit Facility, including $ 1.0 billion outstanding under the term loan ($ 976 million, net of unamortized issuance fees) and $ 750 million outstanding under the delayed draw term loan.

The company also had $ 1.9 million in outstanding letters of credit as of December 31, 2022, which reduces the borrowing availability under the Credit Facility.

Remaining borrowing capacity under this facility was $ 2.5 billion at December 31, 2022.

At December 31, 2022, 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 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.

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Borrowings under the Credit Facility will accrue interest at a minimum of 1.625 % above LIBOR and the variable unused commitment fee will be at a minimum of 0.25 %.

The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 2.32 % at the end of the period and the variable commitment fee was equal to 0.20 % per annum as of January 1, 2022.

The term loan facility had an average interest rate per annum, inclusive of hedging instruments, of 2.93 % as of January 1, 2022.

The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 4.27 % at the end of the period and the variable commitment fee was equal to 0.25 % per annum as of December 31, 2022.

The term loan and delayed draw term loan facilities had an average interest rate per annum, inclusive of hedging instruments, of 4.36 % as of December 31, 2022.

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

At January 1, 2022, these foreign credit facilities amounted to $ 2.2 million in U.S.

At December 31, 2022, these foreign credit facilities amounted to $ 5.9 million in U.S.

Dollars with a weighted average per annum interest rate of approximately 1.13 %.

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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 1, 2022 Jan 2, 2021

Dec 31, 2022 Jan 1, 2022

Carrying Value Fair Value Carrying Value Fair Value

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

At January 1, 2022, the company had outstanding floating-to-fixed interest rate swaps totaling $ 94.0 million notional amount carrying an average interest rate of 1.45 % maturing in less than 12 months and $ 708.0 million notional amount carrying an average interest rate of 1.98 % that mature in more than 12 months but less than 63 months.

In February 2022, subsequent to year end fiscal 2021, the company entered into an additional floating-to-fixed interest rate swap agreements totaling $ 375.0 million notional amount carrying an average interest rate of 1.50 %.

At December 31, 2022, the company had outstanding floating-to-fixed interest rate swaps totaling $ 233.0 million notional amount carrying an average interest rate of 2.13 % maturing in less than 12 months and $ 850.0 million notional amount carrying an average interest rate of 1.73 % that mature in more than 12 months but less than 62 months.

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

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and a change of control of the company.

At January 1, 2022, the company was in compliance with all covenants pursuant to its borrowing agreements.

At December 31, 2022, the company was in compliance with all covenants pursuant to its borrowing agreements.

Convertible Notes

3 unchanged sentences

Principal $ 747,499 $ 747,500

Unamortized debt discount — ( 98,358 )

Unamortized issuance costs ( 9,581 ) ( 13,083 )

3 unchanged sentences

Contractual interest expense $ 7,475 $ 7,454 $ 2,720

Interest cost related to amortization of the debt discount and issuance costs 3,484 7,971

Interest cost related to amortization of debt issuance costs 3,587 3,484 7,971

Total interest expense $ 11,062 $ 10,938 $ 10,691

The estimated fair value of the Convertible Notes was $ 1.2 billion as of January 1, 2022 and was determined through consideration of quoted market prices.

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.

The estimated fair value of the Convertible Notes was $ 844.5 million as of December 31, 2022 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 $ 396.0 million as of January 1, 2022.

The if-converted value of the Convertible Notes exceeded their respective principal value by $ 30.7 million as of December 31, 2022.

The Convertible Notes are general unsecured obligations of the company.

4 unchanged sentences

The company initially separated the Convertible Notes into liability and equity components.

The equity component of the Convertible Notes of approximately $ 105.0 million was included in the additional paid-in capital and the resulting debt discount was being amortized to interest expense at an effective interest rate of 1.5 %, which is no longer applicable upon adoption of ASU 2020-06 as discussed in Note 3 to the Consolidated Financial Statement.

In fiscal 2021, upon adoption of ASU 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, the equity component was essentially reversed, increasing the liability and no longer requiring the company to recognize non-cash interest expense associated with the amortization of the debt discount.

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.

3 unchanged sentences

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.

At December 31, 2022, none of these conditions existed.

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.

11 unchanged sentences

Under the 2021 Capped Call Transactions, the number of shares of common stock issuable at the conversion prices of $ 216.50 and $ 225.00 is expected to be 3.5 million shares and 3.3 million shares, respectively.

During the twelve months period ended January 1, 2022, no Convertible Notes have been converted to date.

Under the 2022 Capped Call Transactions, the number of shares of common stock issuable at the conversion price of $ 229.00 is expected to be 3.3 million shares.

During the twelve months period ended December 31, 2022, one Convertible Note has been converted to date.

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.

1 unchanged sentence

Capped Call Transactions

The 2020 Capped Call Transactions and 2021 Capped Call Transactions (collectively, the "Capped Call Transactions") are expected generally to reduce the potential dilution and/or offset the cash payments the company is required to make in excess of the principal amount of the Convertible Notes upon conversion of the Convertible Notes in the event that the market price per share of the company's common stock is greater than the strike price of the Capped Call Transactions (which initially corresponds to the initial conversion price of the Convertible Notes and is subject to certain adjustments under the terms of the Capped Call Transactions), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Transactions.

The company entered into two tranches of privately negotiated Capped Call Transactions in December 2021 (the "2021 Capped Call Transactions") in the aggregate amount of $ 54.6 million.

On March 15, 2022, the company entered into an additional tranche of privately negotiated Capped Call Transactions (the "2022 Capped Call Transactions") in the amount of $ 9.7 million.

The 2020, 2021, and 2022 Capped Call Transactions (collectively, the "Capped Call Transactions") are expected generally to reduce the potential dilution and/or offset the cash payments the company is required to make in excess of the principal amount of the Convertible Notes upon conversion of the Convertible Notes in the event that the market price per share of the company's common stock is greater than the strike price of the Capped Call Transactions (which initially corresponds to the initial conversion price of the Convertible Notes and is subject to certain adjustments under the terms of the Capped Call Transactions), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Transactions.

The 2020 Capped Call Transactions have an initial cap price of $ 207.93 per share of the company's common stock.

The 2021 Capped Call Transactions have initial cap prices of $ 216.50 and $ 225.00 per share of the company's common stock.

The 2022 Capped Call Transactions have an initial cap price of $ 229.00 per share 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.

5 unchanged sentences

2023 $ 45,583

2026 1,850,752

2027 and thereafter 1,375

1 unchanged sentence

(a) Shares Authorized

At January 1, 2022 and January 2, 2021, the company had 95,000,000 authorized shares of common stock and 2,000,000 authorized shares of non-voting preferred stock.

At December 31, 2022 and January 1, 2022, 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.

In May 2022, the company's Board of Directors approved the company to repurchase an additional 2,500,000 shares of its outstanding common stock under the current program.

During 2021, the company repurchased 141,500 shares of its common stock under the program for $ 26.6 million, including applicable commissions, which represented an average price of $ 188.17 .

During 2022, the company repurchased 1,553,961 shares of its common stock under the program for $ 249.0 million, including applicable commissions, which represented an average price of $ 160.27 .

As of January 1, 2022, 1,164,665 shares had been purchased under the 2017 stock repurchase program and 1,335,335 remain authorized for repurchase.

As of December 31, 2022, 2,718,626 shares had been purchased under the 2017 stock repurchase program and 2,281,374 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.

4 unchanged sentences

On May 10, 2021, the 2021 Stock Incentive Plan (the "2021 Plan") was approved, which included a maximum amount of 1,350,000 shares allowed to be awarded plus the shares remaining for future grants under the 2011 Stock Incentive Plan (the "2011 Plan") as of the approval date and any shares outstanding that are subsequently forfeited or expired.

Thus, no further shares are available to grant under the 2011 Plan and the maximum amount of shares available for future grants under the 2021 Plan as of January 1, 2022 is 1,642,966 .

Thus, no further shares are available to grant under the 2011 Plan and the maximum amount of shares available for future grants under the 2021 Plan as of December 31, 2022 is 1,367,271 .

Non-cash share-based compensation of $ 58.4 million, $ 42.3 million and $ 19.6 million was recognized for fiscal 2022, 2021 and 2020, respectively, associated with restricted share grants and restricted stock units.

5 unchanged sentences

The approximate fair value of restricted shares vested were $ 29.1 million, $ 7.3 million, $ 44.8 million for fiscal 2022, 2021 and 2020, respectively.

A summary of the company’s nonvested restricted share grant activity and their corresponding fair value on the date of grant for fiscal year ended January 1, 2022 is as follows:

A summary of the company’s nonvested restricted share grant activity and their corresponding fair value on the date of grant for fiscal year ended December 31, 2022 is as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 2,776 ) 126.71

Nonvested shares at January 1, 2022 180,306 $ 113.31

As of January 1, 2022, there was $ 3.7 million of total unrecognized compensation cost related to nonvested restricted share grant compensation arrangements, if all performance conditions are fully achieved.

Nonvested shares at December 31, 2022 14,356 $ 134.43

As of December 31, 2022, there was $ 0.3 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 0.5 years.

5 unchanged sentences

The weighted average grant date fair value was $ 150.07 , $ 166.41 and $ 134.25 per share for restricted stock units in fiscal 2022, 2021 and 2020, respectively.

No restricted stock units have vested.

A summary of the company’s nonvested restricted stock unit activity at target shares and their corresponding fair value on the date of grant for fiscal year ended January 1, 2022 is as follows:

The approximate fair value of restricted stock units vested were $ 9.1 million for fiscal 2022.

A summary of the company’s nonvested restricted stock unit activity at target shares and their corresponding fair value on the date of grant for fiscal year ended December 31, 2022 is as follows:

Units Weighted

1 unchanged sentence

Granted 241,321 150.07

Nonvested shares at January 1, 2022 335,124 $ 161.85

As of January 1, 2022, there was $ 66.2 million of total unrecognized compensation cost related to nonvested restricted stock unit compensation arrangements, if all performance conditions are fully achieved.

Vested ( 52,211 ) 150.36

Forfeited ( 2,779 ) 162.08

Nonvested shares at December 31, 2022 521,455 $ 157.55

As of December 31, 2022, there was $ 70.8 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 1.65 years.

22 unchanged sentences

Deferred tax changes — ( 2.2 ) ( 0.7 )

Tax refunds ( 0.7 ) — —

Change in valuation allowances — 0.4 ( 0.1 )

0.4 ( 0.1 ) 0.1

Tax on unremitted earnings 0.3 0.4 1.2

Federal Refund — ( 0.7 ) —

Internal restructuring ( 2.3 ) — —

Other ( 0.7 ) ( 1.6 ) ( 2.0 )

1 unchanged sentence

(1) Net of changes in related tax attributes.

The company’s effective tax rate for 2021 was 21.1 % as compared to 22.7 % in 2020.

The effective tax rate for 2021 reflects favorable tax adjustments for deferred tax rate changes, tax refunds and adjustments for the finalization of 2020 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.

At January 1, 2022 and January 2, 2021, the company had recorded the following deferred tax assets and liabilities (in thousands):

A tax provision of $ 127.8 million, at an effective rate of 22.7 %, was recorded for fiscal 2022 as compared to $ 131.0 million at an effective rate of 21.1 %, in fiscal 2021.

The fiscal 2022 tax provision includes a deferred tax benefit of approximately $13 million associated with legal entity restructuring the company undertook to integrate and simplify the company’s business operations.

The fiscal 2022 tax provision also reflects higher non-deductible stock compensation expense, where the prior year included favorable tax adjustments for deferred tax rate changes, tax refunds and adjustments for the finalization of 2020 tax returns.

The effective rates in 2022 and 2021 are higher than the federal tax rate of 21.0 % primarily due to state taxes and foreign tax rate differentials.

On August 16, 2022, the Inflation Reduction Act ("IRA") was enacted into law.

The IRA enacted a 15% corporate minimum tax effective in 2023, a 1% tax on share repurchases after December 31, 2022, and created and extended certain tax-related energy incentives.

We currently do not expect the tax-related provisions of the IRA to have a material impact on our financial results.

At December 31, 2022 and January 1, 2022, the company had recorded the following deferred tax assets and liabilities (in thousands):

Deferred tax assets:

5 unchanged sentences

Operating lease liability 19,890 18,643

Basis difference on affiliates 14,473 —

Interest rate swaps — 4,573

10 unchanged sentences

Operating lease right-of-use assets ( 19,240 ) ( 18,029 )

Interest rate swaps ( 16,836 ) —

Other ( 27,317 ) ( 17,195 )

4 unchanged sentences

Net deferred tax assets (liabilities) $ ( 213,466 ) $ ( 153,741 )

The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $ 9.7 million and $ 7.5 million at January 1, 2022 and January 2, 2021, 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 $ 538.0 million on January 1, 2022.

The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $ 10.0 million and $ 9.7 million at December 31, 2022 and January 1, 2022, 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 $ 17.1 million as of January 1, 2022.

The company has a deferred tax asset on net operating loss carryforwards totaling $ 13.0 million as of December 31, 2022.

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

3 unchanged sentences

Of these carryforwards, $ 29.8 million are subject to full valuation allowance.

As of January 1, 2022, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $ 36.2 million (of which $ 36.2 million would impact the effective tax rate if recognized) plus approximately $ 7.1 million of accrued interest and $ 6.0 million of penalties.

As of December 31, 2022, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $ 33.6 million (of which $ 33.6 million would impact the effective tax rate if recognized) plus approximately $ 8.0 million of accrued interest and $ 6.9 million of penalties.

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

1 unchanged sentence

Penalties recognized in fiscal years 2022, 2021 and 2020 was $ 0.2 million, $( 1.0 ) million and $( 0.2 ) million, respectively.

Although the company believes its tax returns are correct, the final determination of tax examinations may be different than what was reported on the tax returns.

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 28, 2019, January 2, 2021 and January 1, 2022 (in thousands):

Balance at December 28, 2019 $ 31,559

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended January 2, 2021, January 1, 2022 and December 31, 2022 (in thousands):

Balance at January 2, 2021 $ 30,329

Increases to current year tax positions 1,760

9 unchanged sentences

Lapse of statute of limitations ( 1,607 )

Balance as of January 1, 2022 $ 36,209

Balance as of December 31, 2022 $ 33,648

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.

4 unchanged sentences

Income tax years open for our other major jurisdictions range from 2016 through the current year.

Although the company believes its tax returns are correct, the final determination of tax examinations may be different than what was reported on the tax returns.

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

(8) FINANCIAL INSTRUMENTS

4 unchanged sentences

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

The notional amount of foreign currency contracts outstanding was $ 350.5 million and $ 155.6 million as of January 1, 2022 and January 2, 2021, respectively.

The fair value of these forward contracts was an unrealized gain of $ 1.1 million at the end of the year.

The notional amount of foreign currency contracts outstanding was $ 562.5 million and $ 350.5 million as of December 31, 2022 and January 1, 2022, respectively.

The fair value of these forward contracts was an unrealized loss of $ 0.5 million at the end of the year.

(b) Interest Rate

1 unchanged sentence

The agreements swap one-month LIBOR for fixed rates.

In February 2022, the company entered into an additional floating-to-fixed interest rate swap agreement that uses a daily Secured Overnight Financing Rate ("SOFR") in lieu of LIBOR.

The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income.

The fair value of these instruments was a liability of $ 18.0 million and $ 51.1 million as of January 1, 2022 and January 2, 2021, respectively.

The fair value of these instruments was an asset of $ 65.0 million and a liability of $ 18.0 million as of December 31, 2022 and January 1, 2022, respectively.

The change in fair value of these swap agreements in 2022 was a gain of $ 61.6 million, net of taxes.

1 unchanged sentence

Twelve Months Ended

Location Jan 1, 2022 Jan 2, 2021

Location Dec 31, 2022 Jan 1, 2022

Fair value Prepaid expenses $ 6,805 $ —

Fair value Other assets $ 58,180 $ 3,645

14 unchanged sentences

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.

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

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.

2 unchanged sentences

The company has operating lease costs of $ 35.7 million, $ 31.5 million and $ 30.1 million in fiscal 2022, 2021 and 2020 respectively, including short-term lease expense and variable lease costs, which were immaterial in the year.

Leases (in thousands) January 1, 2022 January 2, 2021

Leases (in thousands) December 31, 2022 January 1, 2022

Operating lease right-of-use assets:

12 unchanged sentences

Total $ 105,492

Other Lease Information (in thousands, except lease term and discount rate) Twelve Months Ended January 1, 2022 Twelve Months Ended January 2, 2021

Other Lease Information (in thousands, except lease term and discount rate) Twelve Months Ended December 31, 2022 Twelve Months Ended January 1, 2022

Supplemental cash flow information

3 unchanged sentences

Operating leases 20,725 16,353

January 1, 2022 January 2, 2021

December 31, 2022 January 1, 2022

Weighted-average remaining lease terms - Operating 5.5 years 5.6 years

16 unchanged sentences

Depreciation expense (4)

24,432 5,912 13,596 679 44,619

Amortization expense (5)

8 unchanged sentences

Depreciation expense (4)

23,814 5,601 12,655 611 42,681

Amortization expense (5)

8 unchanged sentences

Depreciation expense (4)

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

Amortization expense (5)

7 unchanged sentences

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

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

See note 3(f) and 12 for further details .

(4) Termination fee from Welbilt merger is included in Corporate and Other.

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

See note 12 for further details .

(4) Includes depreciation on right of use assets.

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

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

(7) Termination fee from Welbilt merger is included in Corporate and Other.

(8) Gain on sale of plant is included in Commercial Foodservice and Residential Kitchen for 2021 and Gain on sale of plant is included in Commercial Foodservice for 2020.

(8) Gain on litigation settlement is included in Residential Kitchen.

Geographic Information

26 unchanged sentences

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 was recognized in fiscal 2020.

In December 2020, it was agreed that the Group Pension Scheme will be closed to future pension accruals effective April 5, 2021.

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

10 unchanged sentences

Amortization of prior service cost — 2,589 — 2,879

Curtailment loss — — — 14,682

$ 608 $ ( 43,289 ) $ 930 $ ( 45,223 )

2 unchanged sentences

Service cost — — — 773

Prior service cost — — — 2,309

Interest on benefit obligations 923 25,032 841 17,340

Member contributions — — — 81

Actuarial (gain) loss ( 1,617 ) ( 135,475 ) 4,146 186,945

Actuarial gain ( 8,060 ) ( 409,462 ) ( 1,617 ) ( 135,475 )

Net benefit payments ( 1,736 ) ( 59,682 ) ( 1,698 ) ( 65,138 )

Curtailment loss — — — 14,682

Exchange effect — ( 153,882 ) — ( 18,008 )

3 unchanged sentences

Company contributions 1,173 5,442 1,233 4,890

Investment gain 1,299 123,708 811 69,824

Investment (loss) gain ( 2,728 ) ( 207,270 ) 1,299 123,708

Member contributions — — — 81

12 unchanged sentences

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

Current year actuarial (gain) loss $ ( 1,887 ) $ ( 181,518 ) $ 4,334 $ 211,494

Current year actuarial gain $ ( 4,259 ) $ ( 148,515 ) $ ( 1,887 ) $ ( 181,518 )

Actuarial loss recognized ( 758 ) ( 4,272 ) ( 1,118 ) ( 12,832 )

Prior service cost — — — 3,335

Prior service cost recognized — ( 7,666 ) — ( 3,457 )

25 unchanged sentences

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 January 1, 2022 and January 2, 2021 (in thousands):

The following tables summarize the basis used to measure the pension plans’ assets at fair value as of December 31, 2022 and January 1, 2022 (in thousands):

Fiscal 2022 Fiscal 2021

30 unchanged sentences

Other 1,806 — — — 1,806

Convertible Bonds 185 — — — 185

Direct 83,280 — 83,280 — —

53 unchanged sentences

(b) Defined Contribution Plans

As of January 1, 2022, the company maintained two separate defined contribution 401(k) savings plans covering all employees in the United States.

As of December 31, 2022, 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.

3 unchanged sentences

During the fiscal years 2022, 2021 and 2020, 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 $ 5.4 million, $ 10.1 million and $ 6.4 million in the twelve months ended January 1, 2022, January 2, 2021 and December 28, 2019 respectively, primarily for severance related to headcount reductions associated with COVID-19 pandemic and facility consolidations.

These actions resulted in expenses of $ 2.0 million, $ 5.4 million and $ 10.1 million in the twelve months ended December 31, 2022, January 1, 2022 and January 2, 2021 respectively.

These expenses are reflected in restructuring expenses in the Consolidated Statements of Earnings.

The primary realization of cost savings from the restructuring initiatives began in 2020 with expected annual savings of approximately $ 20.0 million.

At December 31, 2022, the restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year 2023.

Residential Kitchen Equipment Group:

During fiscal year 2022, the company initiated cost reduction initiatives related to the Residential Kitchen Equipment Group of $ 5.1 million, primarily related to headcount reductions and facility consolidations.

These expenses are reflected in restructuring expenses in the Consolidated Statements of Earnings.

The primary realization of cost savings from the restructuring initiatives began in 2023 with an expected annual savings of approximately $ 8.0 million.

At January 1, 2022, the restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year 2022.

The restructuring expenses for the other segments of the company were not material during fiscal years 2021, 2020 and 2019.

At December 31, 2022, the restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year 2023.

The restructuring expenses for the other segment of the company were not material during fiscal years 2022, 2021 and 2020.

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 sale was completed in January 2021.

THE MIDDLEBY CORPORATION

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE FISCAL YEARS ENDED JANUARY 1, 2022, JANUARY 2, 2021

AND December 28, 2019

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022, JANUARY 1, 2022

AND January 2, 2021

(amounts in thousands)

17 unchanged sentences

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