What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-03-01 · 209 added, 236 removed, 1156 unchanged (28% of the section changed)

15 unchanged sentences

In our opinion, The Middleby Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 30, 2023, 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.

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 Flavor Burst, Blue Sparq, Filtration Automation, Systems IV and Trade-Wind which are included in the 2023 consolidated financial statements of the Company and constituted 1.5% and 0.0% of total and net assets, respectively, as of December 30, 2023 and 0.3% and 0.0% 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 Flavor Burst, Blue Sparq, Filtration Automation, Systems IV and Trade-Wind.

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 30, 2023 and December 31, 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 30, 2023, and the related notes and financial statement schedule listed in the Index at Item 8 and our report dated February 28, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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Chicago, Illinois

March 1, 2023

February 28, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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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 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.

We have audited the accompanying consolidated balance sheets of The Middleby Corporation (the Company) as of December 30, 2023 and December 31, 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 30, 2023, 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 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2023, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 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.

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 30, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2024, expressed an unqualified opinion thereon.

Basis for Opinion

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(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.

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

Indefinite-Lived Intangible Assets Impairment Assessments

Description of the Matter At December 30, 2023, the Company's indefinite-lived intangible assets consist of trademarks and tradenames with an aggregate carrying value of approximately $1.3 billion.

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

If the fair value of the intangible asset is less than its carrying amount, an impairment loss is recognized in an amount equal to the difference.

Management recognized non-cash indefinite-lived intangible asset impairment losses of $78.1 million for the year ended December 30, 2023.

As disclosed by management, management utilizes the relief from royalty method to estimate the fair value of its trademarks and tradenames.

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

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

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

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

To test the estimated fair value of the Company’s trademarks and tradenames, we performed audit procedures that included, among others, assessing the methodologies, testing the significant assumptions discussed above and testing the completeness and accuracy of the underlying data.

We compared the significant assumptions used by management to current industry and economic trends, the Company’s historical results and other guideline companies within the same industry and evaluated whether changes in the Company’s business would affect the significant assumptions.

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

We involved our valuation specialists to assist with our evaluation of the methodology and auditing certain significant assumptions included in the fair value estimates.

Goodwill Impairment Assessment

Description of the Matter At December 30, 2023, the Company had goodwill of $2.5 billion on its consolidated balance sheet.

As discussed in Note 3 to the consolidated financial statements, goodwill is assessed for impairment on an annual basis or more frequently if indicators of potential impairment exist.

If the fair value of the reporting units (for goodwill) is less than its respective carrying value, an impairment loss is recognized in an amount equal to the difference.

Auditing the Company’s quantitative goodwill impairment assessment is complex because the estimation of fair values involves complex valuation methodologies and subjective management assumptions.

These assumptions for the goodwill assessment include the net sales growth, EBITDA margin, discount rate, and market multiples.

These significant assumptions used in the Company’s valuation model are forward looking and changes in these assumptions can have a material effect on the determination of fair values.

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 its impairment assessment for the Residential Kitchen reporting unit, including management’s review of the methods and significant assumptions described above.

Our audit procedures to test the annual impairment assessment for the Residential Kitchen reporting unit included, among others, assessing the valuation methodologies and assumptions described above, and the underlying data used to support such assumptions.

For example, we compared certain assumptions to industry, market and economic trends.

Where appropriate, we evaluated whether changes to the Company’s business and other factors would affect the assumption.

We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses.

We involved our valuation specialists to assist with our evaluation of the methodology and auditing certain significant assumptions included in the fair value estimates.

/s/ Ernst & Young LLP

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Chicago, Illinois

March 1, 2023

February 28, 2024

THE MIDDLEBY CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2022 AND JANUARY 1, 2022

DECEMBER 30, 2023 AND DECEMBER 31, 2022

(amounts in thousands, except share data)

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Long-term deferred tax assets 7,945 6,738

Pension benefits assets 38,535 —

Other assets 204,069 212,538

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CONSOLIDATED STATEMENTS OF EARNINGS

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

FOR THE FISCAL YEARS ENDED DECEMBER 30, 2023, DECEMBER 31, 2022

AND JANUARY 1, 2022

6 unchanged sentences

Restructuring expenses 14,134 9,716 7,655

Impairments 78,114 — —

Merger termination fee — — ( 110,000 )

Gain on sale of plant — — ( 763 )

Impairments — — 15,327

Income from operations 634,868 639,604 629,992

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Net periodic pension benefit (other than service cost & curtailment) ( 9,071 ) ( 42,681 ) ( 45,066 )

Curtailment loss — — 14,682

Other expense (income), net 4,213 28,893 ( 1,603 )

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

FOR THE FISCAL YEARS ENDED DECEMBER 30, 2023, DECEMBER 31, 2022

AND JANUARY 1, 2022

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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

FOR THE FISCAL YEARS ENDED DECEMBER 30, 2023, DECEMBER 31, 2022

AND JANUARY 1, 2022

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Stockholders'

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

Net earnings — — — 207,294 — 207,294

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

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

— — — — ( 172,583 ) ( 172,583 )

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

— — — — ( 20,656 ) ( 20,656 )

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

Stock issuance 2 25,985 — — — 25,987

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

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

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

Net earnings — — — 400,882 — 400,882

Currency translation adjustments — — — — 59,855 59,855

Change in unrecognized pension benefit costs, net of tax of $ 5,993

— — — — 11,988 11,988

Unrealized gain on interest rate swap, net of tax of $( 5,637 )

— — — — ( 16,569 ) ( 16,569 )

Stock compensation — 51,047 — — — 51,047

Stock issuance 1 19,793 — — — 19,794

Purchase of treasury stock — — ( 74,855 ) — — ( 74,855 )

Balance, December 30, 2023 $ 148 $ 479,216 $ ( 906,031 ) $ 3,899,754 $ ( 223,198 ) $ 3,249,889

(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 DECEMBER 31, 2022, JANUARY 1, 2022

FOR THE FISCAL YEARS ENDED DECEMBER 30, 2023, DECEMBER 31, 2022

AND JANUARY 1, 2022

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Depreciation and amortization 132,604 138,061 125,243

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

Non-cash share-based compensation 51,047 58,368 42,330

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Repayments under Credit Facility ( 948,496 ) ( 1,555,250 ) ( 1,135,058 )

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

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

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Other, net ( 211 ) ( 287 ) ( 303 )

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

Net cash (used in) provided by financing activities ( 390,939 ) 7,631 502,789

Effect of exchange rates on cash and cash equivalents 3,386 ( 10,225 ) ( 5,068 )

Changes in cash and cash equivalents—

Net (decrease) increase in cash and cash equivalents ( 18,361 ) ( 87,741 ) 173,603

Net increase (decrease) in cash and cash equivalents 85,495 ( 18,361 ) ( 87,741 )

Cash and cash equivalents at beginning of year 162,001 180,362 268,103

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

FOR THE FISCAL YEARS ENDED DECEMBER 30, 2023, DECEMBER 31, 2022

AND JANUARY 1, 2022

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

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

and thirty-four international manufacturing facilities.

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

and thirty-five international manufacturing facilities.

The company operates in three business segments:

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

The products offered by this group include conveyor ovens, combi-ovens, convection ovens, baking ovens, proofing ovens, deck ovens, speed cooking ovens, hydrovection ovens, ranges, fryers, rethermalizers, steam cooking equipment, food warming equipment, catering equipment, heated cabinets, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment, toasters, griddles, charcoal grills, professional mixers, stainless steel fabrication, custom millwork, professional refrigerators, blast chillers, coldrooms, ice machines, freezers, soft serve ice cream equipment, coffee and beverage dispensing equipment, home and professional craft brewing equipment, fry dispensers, bottle filling and canning equipment, and IoT solutions.

The Food Processing Equipment Group offers a broad portfolio of processing solutions for customers producing pre-cooked meat products, such as hot dogs, dinner sausages, poultry and lunchmeats and baked goods such as muffins, cookies and bread.

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The products offered by this group include a wide array of cooking and baking solutions, including batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing ovens, frying systems and automated thermal processing systems.

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

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

Other 2021 Acquisitions

2022 Acquisitions

During 2022, the company completed various acquisitions that were not individually material.

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Other intangibles 93,147 7,018 100,165

Long-term deferred tax asset 426 635 1,061

Other assets 1,420 3,414 4,834

Current portion of long-term debt ( 22,841 ) 2,043 ( 20,798 )

Current liabilities ( 57,158 ) ( 4,029 ) ( 61,187 )

Long-term deferred tax (liability) asset ( 3,010 ) 3,457 447

Long term debt ( 5,646 ) ( 3,995 ) ( 9,641 )

Long-term deferred tax liability ( 23,137 ) 2,049 ( 21,088 )

Other non-current liabilities ( 19,061 ) ( 8,019 ) ( 27,080 )

Consideration paid at closing $ 292,505 $ 2,337 $ 294,842

Deferred payments — 1,970 1,970

Contingent consideration 19,105 3,969 23,074

Net assets acquired and liabilities assumed $ 311,610 $ 8,276 $ 319,886

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 net long-term deferred tax liability amounted to $ 20.0 million.

The net deferred tax liability is comprised of $ 20.8 million related to the difference between the book and tax basis of identifiable intangible assets and $ 0.8 million net deferred tax asset related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $ 46.0 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

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.

Other intangibles also include $ 31.5 million allocated to customer relationships, $ 16.0 million allocated to developed technology, and $ 6.7 million allocated to backlog, which are being amortized over periods of 7 to 9 years, 5 to 11 years, and 3 to 12 months, respectively.

Goodwill of $ 113.8 million and other intangibles of $ 63.8 million are allocated to the Food Processing Equipment Group for segment reporting purposes.

Goodwill of $ 34.9 million and other intangibles of $ 35.6 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.

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 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

Cash $ 16,152 $ — $ 16,152

Current assets 23,762 234 23,996

Property, plant and equipment 17,058 4,383 21,441

Goodwill 142,741 ( 6,938 ) 135,803

Other intangibles 126,557 4,149 130,706

Other assets 26 173 199

Current liabilities ( 23,440 ) 182 ( 23,258 )

Long-term deferred tax liability ( 33,918 ) ( 2,072 ) ( 35,990 )

Other non-current liabilities ( 1,930 ) ( 111 ) ( 2,041 )

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

The long-term deferred tax liability amounted to $ 36.0 million.

The deferred tax liability is comprised of $ 32.7 million related to the difference between the book and tax basis of identifiable intangible assets and $ 3.3 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

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 $ 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.

Kamado Joe and Masterbuilt

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

Property, plant and equipment 7,773 ( 1,678 ) 6,095

Goodwill 110,052 44,490 154,542

Other intangibles 215,577 ( 28,677 ) 186,900

Other assets 2,143 ( 1,174 ) 969

Current liabilities ( 54,865 ) ( 8,111 ) ( 62,976 )

Long-term deferred tax liability ( 15,907 ) 2,718 ( 13,189 )

Other non-current liabilities ( 1,914 ) 946 ( 968 )

Net assets acquired and liabilities assumed $ 406,066 $ 2,821 $ 408,887

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, $ 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 $ 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.

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 $ 21.5 million and intangibles of $ 11.9 million are expected to be deductible for tax purposes.

Other 2022 Acquisitions

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

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

The deferred payments are payable between 2023 and 2024.

The contractual obligations associated with the deferred payments on the acquisition date amounts to $ 2.0 million.Three earnouts are payable to the extent certain EBITDA targets are met with measurement dates ending between 2022 and 2025.

One of these three earnouts is also payable yearly through 2027 based on product sales.

One earnout is payable yearly through 2028 based on product sales.

The contractual obligation associated with the contingent earnout provisions recognized on the acquisition date amount to $ 23.1 million.

2023 Acquisitions

During 2023, 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 2023 acquisitions and are summarized as follows (in thousands):

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Other intangibles 34,337 ( 722 ) 33,615

Long-term deferred tax asset 426 104 530

Other assets — 5 5

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

Current liabilities ( 3,774 ) ( 1,147 ) ( 4,921 )

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

Long-term deferred tax liability ( 958 ) 16 ( 942 )

3 unchanged sentences

Net assets acquired and liabilities assumed $ 105,691 $ 1,027 $ 106,718

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

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 net long-term deferred tax liability amounted to $ 0.9 million.

The net deferred tax liability is comprised of $ 0.3 million related to the difference between the book and tax basis of identifiable intangible assets and $ 0.6 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $ 17.9 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350.

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.

Other intangibles also include $ 7.2 million allocated to customer relationships, $ 7.9 million allocated to developed technology, and $ 0.6 million allocated to backlog, which are being amortized over periods of 7 years, 7 to 12 years, and 9 months, respectively.

Goodwill of $ 17.9 million and other intangibles of $ 7.8 million are allocated to the Food Processing Equipment Group for segment reporting purposes.

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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.

Four earnouts are payable to the extent certain sales and EBITDA targets are met with measurement dates ending between 2024 and 2026.

One earnout is payable upon the achievement of certain product rollout targets specific to the year of measurement.

The contractual obligation associated with the contingent earnout provisions recognized on the acquisition date amount to $ 15.0 million.

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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 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).

In accordance with ASC 805 Business Combinations , the following unaudited pro forma results of operations for the twelve months ended December 30, 2023 and December 31, 2022, assumes the 2022 and 2023 acquisitions described above were completed on January 2, 2022 (first day of fiscal year 2022).

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

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Net sales $ 4,046,332 $ 4,160,826

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

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.

Fiscal years 2023, 2022, and 2021 ended on December 30, 2023, December 31, 2022 and January 1, 2022, respectively, with each year including 52 weeks.

Certain prior year amounts have been reclassified to be consistent with current year presentation.

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

Accounts receivable, as shown in the consolidated balance sheets, are net of allowances for doubtful accounts of $ 23.5 million and $ 20.3 million at December 30, 2023 and December 31, 2022, respectively.

At December 30, 2023, all accounts receivable are expected to be collected within one year.

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

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

Inventories at December 30, 2023 and December 31, 2022 are as follows (in thousands):

Raw materials and parts $ 495,488 $ 595,325

42 unchanged sentences

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.

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

The fair value of the reporting unit exceeded its carrying unit by more than 10% and no impairment of goodwill was recognized.

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

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

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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 $ 1,309,776 $ 350,303 $ 751,755 $ 2,411,834

Goodwill acquired during the year 9,640 17,922 13,586 41,148

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Intangible assets consist of the following (in thousands):

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Amount Accumulated

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The company completed its annual impairment assessment for indefinite-lived intangible assets as of October 1, 2023.

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.

We identified indicators of impairment with certain trademarks within the each of its reporting units based on the qualitative assessment.

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

Based on the results of the quantitative assessments, the company recorded impairment charges of $ 78.1 million associated with several trademarks, of which $ 76.1 million was associated with the Residential Kitchen Equipment Group and $ 2.0 million with the Commercial Foodservice Equipment Group.

The gross value of all trademarks tested was approximately $ 246.2 million, including the impaired trademarks.

The fair values of the other trademarks tested with no impairment per the analyses, exceeded their carrying values by 10% or more.

The Kamado Joe, Masterbuilt and Char-Griller trademarks within the Residential Kitchen Equipment Group were impaired based on the quantitative assessments.

The fair value of trademarks were estimated to be $ 122.3 million as compared to the carrying value of $ 198.4 million and resulted in a $ 76.1 million indefinite-lived intangible asset impairment charge.

The diminution in fair value for the trademarks was macroeconomic conditions such as higher inventory levels in the channel following periods of disruption in supply chain and inflationary pressures on the carrying costs of inventory levels in the retail industry.

This led to lower than expected revenue in the current year and corresponding reductions of future revenue due to expectations for recovery in demand.

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

In performing the quantitative analyses on these trademark, significant assumptions include revenue growth rates, assumed royalty rates and the discount rate.

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.

Collectively, for the Kamado Joe, Masterbuilt and Char-Griller trademarks, a 10.0% reduction in revenues would result in an impairment charge of approximately $ 11.3 million .

A 50 basis point reduction of the royalty rates would result in an impairment charge of approximately $ 13.4 million .

A 50 basis point increase in the discount rates would result in an impairment charge of approximately $ 7.5 million .

The company performed a qualitative assessment as of October 1, 2023 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.

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

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 company continues to monitor global and regional economic market conditions, channel inventory levels, and the underlying demand for its products to assess 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.

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(g) Accrued Expenses

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

Accrued expenses consist of the following at December 30, 2023 and December 31, 2022, respectively (in thousands):

Contract liabilities $ 118,681 $ 185,824

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Accrued sales and other tax 24,568 24,044

Accrued contingent consideration 20,529 18,728

Accrued professional fees 18,461 19,541

Accrued contingent consideration 17,791 20,529

Accrued agent commission 16,956 17,381

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$ ( 109,713 ) $ ( 121,701 )

Unrealized loss on interest rate swap, net of tax of $ 16,836 and $( 4,501 )

Unrealized gain on interest rate swap, net of tax of $ 11,198 and $ 16,836

32,005 48,574

Unrealized gain on certain investments, net of tax of $ — and $ 433

Currency translation adjustments ( 145,490 ) ( 205,345 )

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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/(Loss) Certain Investments Total

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

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

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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 )

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

Other comprehensive income before reclassification 59,855 11,392 15,652 — 86,899

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(1) As of December 30, 2023 pension and unrealized gain/(loss) interest rate swap amounts are net of tax of $ 4.0 million, and $ 11.2 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.

During the twelve months ended December 30, 2023, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $ 6.0 million and $( 5.6 ) million, respectively.

(j) Fair Value Measures

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Level 3 – Unobservable inputs based on our own assumptions

The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value hierarchy at December 31, 2022 and January 1, 2022 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 30, 2023 and December 31, 2022 are as follows (in thousands):

Level 1 Fair Value

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Interest rate swaps $ — $ 42,779 $ — $ 42,779

Foreign exchange derivative contracts $ — $ 29 $ — $ 29

Financial Liabilities:

Contingent consideration $ — $ — $ 51,538 $ 51,538

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

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

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

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

The contingent consideration, as of December 30, 2023 and December 31, 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.

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The following table represents changes in the fair value of the contingent consideration liabilities for the fiscal years 2023 and 2022:

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Beginning balance $ 47,242 $ 34,983

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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 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.

These transactions amounted to a loss of $ 8.7 million, loss of $ 28.1 million and a gain of $ 0.3 million in 2023, 2022 and 2021, respectively, and are included in other expense on the statements of earnings.

(l) Shipping and Handling Costs

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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 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.

The company’s potentially dilutive securities amounted to 509,000 , 852,000 and 1,449,000 for fiscal 2023, 2022 and 2021, respectively.

The company's potentially dilutive securities consist of shares issuable on vesting of restricted stock units computed using the treasury method and amounted to approximately 67,000 , 73,000 and 56,000 for fiscal 2023, 2022 and 2021, respectively.

During fiscal 2023 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 442,000 , 779,000 and 1,393,000 diluted common stock equivalents to be included in the diluted net earnings per share, respectively.

7 unchanged sentences

Accounting Pronouncements - Recently 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):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange.

This guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

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

In March 2020, the Financial Accounting Standards Board (the " FASB") issued Accounting Standards Update ("ASU") 2 020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope, which amends ASU 2020-04 and clarifies the scope and guidance of Topic 848 to allow for derivatives impacted by the rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting.

The guidance is optional and is effective for a limited period of time.

In December 2022, the FASB also issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, to defer the sunset date of ASC 848 from December 31, 2022, to December 31, 2024.

These new standards were effective upon issuance and generally can be applied to applicable contract modifications.

All of the company's agreements previously utilizing LIBOR have transitioned to Secured Overnight Financing Rate ("SOFR") on or before July 1, 2023.

These changes did not have a material impact on its Consolidated Financial Statements and disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The new accounting rules require entities to apply “Revenue from Contracts with Customers (Topic 606)” to recognize and measure contract assets and contract liabilities in a business combination.

The new accounting rules were effective for the Company in the first quarter of 2023.

The company adopted this standard in the first quarter of 2023 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.

The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies.

The new standard is effective for the company on January 2, 2022 and only impacts annual financial statement footnote disclosures.

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

The new standard is effective for the company as of January 1, 2023 and only impacts annual financial statement footnote disclosures.

The company adopted this standard in the first quarter of 2023 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

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

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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.

The company adopted this standard in the first quarter of 2023 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

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

3 unchanged sentences

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.

The company adopted this standard in the first quarter of 2023 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

Accounting Pronouncements - To be adopted

In March 2023, the FASB issued Accounting Standards Update ASU 2023-01, Leases (Topic 842):

Common Control Arrangements.

This ASU clarified the accounting for leasehold improvements for leases under common control.

The guidance is effective for the company beginning on January 1, 2024.

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

In November 2023, the FASB issued Accounting Standard Update ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The amendment requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, as well as disclosure of the title and position of the Chief Operating Decision Maker (“CODM”).

The guidance is effective for the company beginning on January 1, 2024.

Early adoption is permitted.

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

In December 2023, the FASB issued Accounting Standard Update ASU No.

2023-09 Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which expands the disclosures required in an entity’s income tax rate reconciliation table.

This ASU requires consistent categories and greater disaggregation of information presented in the effective tax rate reconciliation and requires disclosure of income taxes paid both domestic and foreign jurisdictions.

The guidance is effective for the company beginning on January 1, 2025 and is required to be applied prospectively, with retrospective application to prior periods allowed.

Early adoption is permitted.

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

(4) REVENUE RECOGNITION

37 unchanged sentences

Total $ 2,521,471 $ 720,618 $ 794,516 $ 4,036,605

Twelve Months Ended January 1, 2022

Twelve Months Ended December 31, 2022

United States and Canada $ 1,750,986 $ 426,124 $ 701,909 $ 2,879,019

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

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Contract assets $ 47,072 $ 40,438

4 unchanged sentences

Additions to contract liabilities representing amounts billed to clients in excess of revenue recognized to date were $ 121.8 million during the twelve months period ended December 30, 2023.

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.

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The delayed draw term loan amortizes in quarterly installments due on the last day of each fiscal quarter, commencing on December 30, 2023, 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.

As of December 30, 2023, the company had $ 1.7 billion of borrowings outstanding under the Credit Facility, including $ 950 million outstanding under the term loan ($ 946 million, net of unamortized issuance fees) and $ 727 million outstanding under the delayed draw term loan.

The company also had $ 1.6 million in outstanding letters of credit as of December 30, 2023, which reduces the borrowing availability under the Credit Facility.

Remaining borrowing capacity under this facility was $ 2.8 billion at December 30, 2023.

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 %.

At December 30, 2023, borrowings under the Credit Facility accrued interest at a rate of 1.625 % above the daily simple or term Secured Overnight Financing Rate (“SOFR”) per annum or 0.625 % above the highest of the prime rate, the federal funds rate plus 0.50 % and one month Term SOFR plus 1.00 %.

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

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

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 %.

As of December 30, 2023, borrowings under the Credit Facility accrued interest at a minimum of 1.625 % above SOFR and the variable unused commitment fee will be at a minimum of 0.25 %.

Borrowings under the Credit Facility accrue interest at a minimum of 1.625 % above the daily simple SOFR or term SOFR for the applicable interest period (each of which includes a spread adjustment of 0.10 %).

The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 5.22 % at the end of the period and the variable commitment fee was equal to 0.25 % per annum as of December 30, 2023.

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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):

Dec 31, 2022 Jan 1, 2022

Dec 30, 2023 Dec 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

67 unchanged sentences

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.

As of December 30, 2023, 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.

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(a) Shares Authorized

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.

At December 30, 2023 and December 31, 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

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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 .

During 2023, the company repurchased 397,738 shares of its common stock under the program for $ 55.6 million, including applicable commissions and excise tax, which represented an average price of $ 139.68 .

As of December 30, 2023, 3,116,364 shares had been purchased under the 2017 stock repurchase program and 1,883,636 remain authorized for repurchase.

15 unchanged sentences

Shares Weighted

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

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

Granted 2,080 136.13

13 unchanged sentences

Units Weighted

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

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

Granted 333,031 147.13

35 unchanged sentences

A tax provision of $ 118.5 million, at an effective rate of 22.8 %, was recorded for fiscal 2023 as compared to $ 127.8 million at an effective rate of 22.7 %, in fiscal 2022.

The fiscal 2023 tax provision includes a $ 7.0 million tax benefit for the finalization of the 2022 tax returns.

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):

The effective rates in 2023 and 2022 were higher than the federal tax rate of 21.0 % primarily due to state taxes and foreign tax rate differentials.

At December 30, 2023 and December 31, 2022, the company had recorded the following deferred tax assets and liabilities (in thousands):

Deferred tax assets:

6 unchanged sentences

Basis difference on affiliates 12,099 14,473

Interest rate swaps — 4,573

Capitalized R&D costs 39,585 19,381

Convertible debt 15,860 25,637

7 unchanged sentences

Depreciable assets ( 40,036 ) ( 32,267 )

Basis difference on affiliates — ( 18,795 )

Operating lease right-of-use assets ( 21,139 ) ( 19,240 )

Interest rate swaps ( 10,927 ) ( 16,836 )

Pension and post-retirement benefits ( 9,719 ) —

Other ( 26,135 ) ( 27,317 )

4 unchanged sentences

Net deferred tax assets (liabilities) $ ( 208,198 ) $ ( 213,466 )

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.

The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $ 12.0 million and $ 10 million at December 30, 2023 and December 31, 2022, 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 $ 757.0 million on December 30, 2023.

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United States federal loss carryforwards total $ 9.6 million of which $ 3.1 million will expire through 2036 and $ 6.5 million have no expiration date.

State loss carryforwards total $ 22.6 million and expire through 2038 and international loss carryforwards total $ 44.4 million and expire through 2038;

however, some have no expiration date.

State loss carryforwards total $ 12.5 million and expire through 2038 and international loss carryforwards total $ 47.8 million that can be carried forward indefinitely.

Of these carryforwards, $ 38.4 million are subject to full valuation allowance.

3 unchanged sentences

Penalties recognized in fiscal years 2023, 2022 and 2021 was $ 0.0 million , $ 0.2 million and $( 1.0 ) million, respectively.

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):

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended January 1, 2022, December 31, 2022 and December 30, 2023 (in thousands):

Balance at January 1, 2022 $ 36,209

4 unchanged sentences

Lapse of statute of limitations ( 1,607 )

Balance at January 1, 2022 $ 36,209

Balance at December 31, 2022 $ 33,648

Increases to current year tax positions 2,126

Increase to prior year tax positions 534

Decrease to prior year tax positions ( 1,709 )

Settlements ( 1,974 )

Lapse of statute of limitations ( 1,852 )

14 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 $ 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.

The notional amount of foreign currency contracts outstanding was $ 253.1 million and $ 562.5 million as of December 30, 2023 and December 31, 2022, respectively.

The fair value of these forward contracts was an unrealized gain of less than $ 0.1 million at the end of the year.

(b) Interest Rate

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

The agreements swap one-month LIBOR for fixed rates.

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

Prior to July 1, 2023, the company amended its Credit Facility and the existing interest rate swap agreements to transition the interest reference rate from one-month LIBOR to one-month SOFR.

There were no other changes to the company's Credit Facility or timing of cash flows.

The amendment was entered into because the LIBOR rate historically used was no longer published after June 30, 2023.

The company utilized expedients within ASC 848 to conclude that this amendment should be treated as a non-substantial modification of the existing contract, resulting in no impact to the company's consolidated financial statements.

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 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.

The fair value of these instruments was an asset of $ 42.8 million and an asset of $ 65.0 million as of December 30, 2023 and December 31, 2022, respectively.

The change in fair value of these swap agreements in 2023 was a loss of $ 16.5 million, net of taxes.

A summary of the company’s interest rate swaps is as follows (in thousands):

Twelve Months Ended

Location Dec 31, 2022 Jan 1, 2022

Location Dec 30, 2023 Dec 31, 2022

Fair value Prepaid expenses $ 2,897 $ 6,805

Fair value Other assets $ 39,882 $ 58,180

Fair value Accrued expenses $ — $ 1,171

Fair value Other non-current liabilities $ — $ 20,464

Amount of gain/(loss) recognized in other comprehensive income Other comprehensive income $ 10,015 $ 79,472

16 unchanged sentences

The company has operating lease costs of $ 39.6 million, $ 35.7 million and $ 31.5 million in fiscal 2023, 2022 and 2021 respectively, including short-term lease expense and variable lease costs, which were immaterial in the year.

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

Leases (in thousands) December 30, 2023 December 31, 2022

Operating lease right-of-use assets:

12 unchanged sentences

Total $ 113,967

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

Other Lease Information (in thousands, except lease term and discount rate) Twelve Months Ended December 30, 2023 Twelve Months Ended December 31, 2022

Supplemental cash flow information

3 unchanged sentences

Operating leases 28,524 20,725

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Weighted-average remaining lease terms - Operating 5.2 years 5.5 years

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

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

See note 12 for further details .

(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) Includes depreciation on right of use assets.

2 unchanged sentences

(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 sale of plant is included in Commercial Foodservice and Residential Kitchen for 2021.

Geographic Information

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Net Periodic Pension Cost (Benefit):

Service cost $ — $ — $ — $ 773

Interest cost 1,315 46,046 923 25,032

5 unchanged sentences

Benefit obligation – beginning of year $ 27,550 $ 946,153 $ 36,423 $ 1,544,147

Service cost — — — 773

Interest on benefit obligations 1,315 46,046 923 25,032

Member contributions — — — 81

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

Actuarial loss (gain) 539 1,970 ( 8,060 ) ( 409,462 )

Net benefit payments ( 1,745 ) ( 59,018 ) ( 1,736 ) ( 59,682 )

4 unchanged sentences

Company contributions 1,114 6,012 1,173 5,442

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

Member contributions — — — 81

Investment gain (loss) 1,384 81,945 ( 2,728 ) ( 207,270 )

Benefit payments and plan expenses ( 1,745 ) ( 59,018 ) ( 1,736 ) ( 59,682 )

40 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 December 31, 2022 and January 1, 2022 (in thousands):

The following tables summarize the basis used to measure the pension plans’ assets at fair value as of December 30, 2023 and December 31, 2022 (in thousands):

Fiscal 2023 Fiscal 2022

9 unchanged sentences

High Yield 1,063 1,063 — 1,041 1,041 —

Other 705 705 — — — —

Global Real Estate Investment Trust 663 663 — 602 602 —

47 unchanged sentences

Other 1,806 — — — 1,806

Convertible Bonds 185 — — — 185

Direct 83,280 — 83,280 — —

28 unchanged sentences

(12) RESTRUCTURING AND ACQUISITION INTEGRATION INITIATIVES

Commercial Foodservice Equipment Group:

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 $ 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.

During fiscal years 2023 and 2022, the company initiated cost reduction initiatives related to the Residential Kitchen Equipment Group including headcount reductions and facility consolidations.

These actions resulted in expenses of $ 9.4 million and $ 5.1 million, in the twelve months ended December 30, 2023 and December 31, 2022, respectively.

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

The primary realization of cost savings from the restructuring initiatives began in 2023 with expected annual savings of approximately $ 12.0 million.

At December 30, 2023, the restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year 2024.

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.

The restructuring expenses for the other segments of the company were not material during fiscal years 2023, 2022 and 2021.

THE MIDDLEBY CORPORATION

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

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

FOR THE FISCAL YEARS ENDED DECEMBER 30, 2023, DECEMBER 31, 2022

AND January 1, 2022

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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