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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q 
 
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended April 3, 2021
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission File No. 1-9973
 
THE MIDDLEBY CORPORATION
(Exact name of registrant as specified in its charter)  
Delaware36-3352497
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
 
 
1400 Toastmaster Drive,Elgin,Illinois60120
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:(847)741-3300
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o   
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer," "large accelerated filer," "smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockMIDDNasdaq Global Select Market
As of May 7, 2021, there were 55,632,403 shares of the registrant's common stock outstanding.



THE MIDDLEBY CORPORATION
 
QUARTER ENDED APRIL 3, 2021
  
INDEX
DESCRIPTIONPAGE
PART I.  FINANCIAL INFORMATION 
  
Item 1. 
   
 CONDENSED CONSOLIDATED BALANCE SHEETS as of APRIL 3, 2021 and JANUARY 2, 2021
  
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three months ended APRIL 3, 2021 and MARCH 28, 2020
  
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three months ended APRIL 3, 2021 and MARCH 28, 2020
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the three months ended APRIL 3, 2021 and MARCH 28, 2020
 
  
Item 2.
  
Item 3.
  
Item 4.
  
PART II. OTHER INFORMATION
  
Item 1A.
Item 2.
  
Item 6.



PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
 
ASSETSApr 3, 2021Jan 2, 2021
Current assets:  
Cash and cash equivalents$309,331 $268,103 
Accounts receivable, net of reserve for doubtful accounts of $19,443 and $19,225
427,935 363,361 
Inventories, net574,277 540,198 
Prepaid expenses and other73,933 81,049 
Prepaid taxes7,634 17,782 
Total current assets1,393,110 1,270,493 
Property, plant and equipment, net of accumulated depreciation of $237,875 and $229,871
336,257 344,482 
Goodwill1,928,644 1,934,261 
Other intangibles, net of amortization of $422,169 and $403,347
1,428,294 1,450,381 
Long-term deferred tax assets74,159 76,052 
Other assets129,449 126,805 
Total assets$5,289,913 $5,202,474 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Current maturities of long-term debt$21,093 $22,944 
Accounts payable213,431 182,773 
Accrued expenses479,913 494,541 
Total current liabilities714,437 700,258 
Long-term debt1,801,040 1,706,652 
Long-term deferred tax liability126,068 147,224 
Accrued pension benefits462,869 469,500 
Other non-current liabilities190,287 202,191 
Stockholders' equity:  
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued
  
Common stock, $0.01 par value; 63,651,773 and 63,651,773 shares issued in 2021 and 2020, respectively
147 147 
Paid-in capital361,487 433,308 
Treasury stock, at cost; 8,023,769 and 8,013,296 shares in 2021 and 2020
(538,896)(537,134)
Retained earnings2,663,074 2,568,756 
Accumulated other comprehensive loss(490,600)(488,428)
Total stockholders' equity1,995,212 1,976,649 
Total liabilities and stockholders' equity$5,289,913 $5,202,474 
 


See accompanying notes
1


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
 Three Months Ended
 Apr 3, 2021Mar 28, 2020
Net sales$758,058 $677,459 
Cost of sales482,184 427,269 
Gross profit275,874 250,190 
Selling, general and administrative expenses154,957 143,942 
Restructuring expenses794 834 
Gain on sale of plant(1,050) 
Income from operations121,173 105,414 
Interest expense and deferred financing amortization, net16,067 15,713 
Net periodic pension benefit (other than service costs)(11,373)(10,089)
Other (income) expense, net(1,691)3,326 
Earnings before income taxes118,170 96,464 
Provision for income taxes28,907 22,685 
Net earnings$89,263 $73,779 
Net earnings per share:
Basic$1.62 $1.33 
Diluted$1.59 $1.33 
Weighted average number of shares
Basic55,213 55,396 
Dilutive common stock equivalents753 2 
Diluted55,966 55,398 
Comprehensive income$87,091 $14,452 
 



















See accompanying notes
2


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

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

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

    



















See accompanying notes
3


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 Three Months Ended
 Apr 3, 2021Mar 28, 2020
Cash flows from operating activities--  
Net earnings$89,263 $73,779 
Adjustments to reconcile net earnings to net cash provided by operating activities--  
Depreciation and amortization30,432 26,599 
Non-cash share-based compensation7,609 4,159 
Deferred income taxes1,913 8,672 
Net periodic pension benefit (other than service costs)(11,373)(10,089)
Gain on sale of plant(1,050) 
Changes in assets and liabilities, net of acquisitions  
Accounts receivable, net(66,666)33,408 
Inventories, net(33,266)(28,094)
Prepaid expenses and other assets27,407 9,566 
Accounts payable31,662 15,001 
Accrued expenses and other liabilities(16,236)(45,864)
Net cash provided by operating activities59,695 87,137 
Cash flows from investing activities--  
Net additions to property, plant and equipment(8,725)(9,181)
Proceeds on sale of property, plant and equipment3,354  
Acquisitions, net of cash acquired(1,667)(30,041)
Net cash used in investing activities(7,038)(39,222)
Cash flows from financing activities--  
Proceeds under Credit Facility18,995 2,303,953 
Repayments under Credit Facility(23,683)(1,977,453)
Net proceeds under international credit facilities(1,757)786 
Net repayments under other debt arrangement(78)(11)
Repurchase of treasury stock(1,762)(74,600)
Debt issuance costs on Credit Facility (7,577)
Net cash (used in) provided by financing activities(8,285)245,098 
Effect of exchange rates on cash and cash equivalents(3,144)(6,470)
Changes in cash and cash equivalents--  
Net increase in cash and cash equivalents41,228 286,543 
Cash and cash equivalents at beginning of year268,103 94,500 
Cash and cash equivalents at end of period$309,331 $381,043 
 

See accompanying notes
4


THE MIDDLEBY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 2021
(Unaudited)
1)Summary of Significant Accounting Policies
a)Basis of Presentation
The condensed consolidated financial statements have been prepared by The Middleby Corporation (the "company" or “Middleby”), pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements are unaudited and certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the company believes that the disclosures are adequate to make the information not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the company's 2020 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2021. 
In the opinion of management, the financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the company as of April 3, 2021 and January 2, 2021, the results of operations for the three months ended April 3, 2021 and March 28, 2020, cash flows for the three months ended April 3, 2021 and March 28, 2020 and statement of stockholders' equity for the three months ended April 3, 2021 and March 28, 2020.
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, warranty reserves, insurance reserves, income tax reserves, non-cash share-based compensation and post-retirement obligations. Actual results could differ from the company's estimates.
b)Non-Cash Share-Based Compensation
The company estimates the fair value of market-based stock awards and stock options at the time of grant and recognizes compensation cost over the vesting period of the awards and options. Non-cash share-based compensation expense was $7.6 million and $4.2 million for the three months period ended April 3, 2021 and March 28, 2020, respectively.
c)Income Taxes
A tax provision of $28.9 million, at an effective rate of 24.5%, was recorded during the three months period ended April 3, 2021, as compared to a $22.7 million tax provision at a 23.5% effective rate in the prior year period. The effective tax rates in 2021 and 2020 are higher than the federal tax rate of 21% primarily due to state taxes. The effective tax rate for the three months period ended April 3, 2021 is higher than the comparable prior year rate primarily due to an increase in non-deductible costs.
5


d)Fair Value Measures 
Accounting Standards Codification ("ASC") 820 "Fair Value Measurements and Disclosures" defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 – Unobservable inputs based the company's own assumptions.
The company’s financial assets and liabilities that are measured at fair value and are categorized using the fair value hierarchy are as follows (in thousands):
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
As of April 3, 2021
Financial Assets:
    Interest rate swaps$ $3,014 $ $3,014 
Financial Liabilities:
    Interest rate swaps$ $37,368 $ $37,368 
    Contingent consideration$ $ $25,801 $25,801 
    Foreign exchange derivative contracts$ $750 $ $750 
As of January 2, 2021
Financial Liabilities:
    Interest rate swaps$ $51,093 $ $51,093 
    Contingent consideration$ $ $25,558 $25,558 
    Foreign exchange derivative contracts$ $2,191 $ $2,191 
The contingent consideration as of April 3, 2021 and January 2, 2021, relates to the earnout provisions recorded in conjunction with various purchase agreements. The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase agreement. On a quarterly basis, the company assesses the projected results for each acquired business in comparison to the earnout targets and adjusts the liability accordingly.
e)    Consolidated Statements of Cash Flows
Cash paid for interest was $16.6 million and $14.1 million for the three months ended April 3, 2021 and March 28, 2020, respectively. Cash payments totaling $12.8 million and $6.2 million were made for income taxes for the three months ended April 3, 2021 and March 28, 2020, respectively.
f)    Earnings Per Share
“Basic earnings per share” is calculated based upon the weighted average number of common shares actually outstanding, and “diluted earnings per share” is calculated based upon the weighted average number of common shares outstanding and other dilutive securities.
The company’s potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to 8,269 and 2,033 for the three months ended April 3, 2021, and March 28, 2020, respectively. For the three months ended April 3, 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes (as defined below) resulting in 744,334 diluted common stock equivalents to be included in the diluted net earnings per share for the period. There have been no conversions to date, See Note 12, Financing Arrangements for further details on the Convertible Notes. There were no anti-dilutive restricted stock grants excluded from common stock equivalents in any period presented.
6


2)    Acquisitions and Purchase Accounting

The company accounts for all business combinations using the acquisition method to record a new cost basis for the assets acquired and liabilities assumed. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the financial statements. The company recognizes identifiable intangible assets, primarily trade names and customer relationships, at their fair value using a discounted cash flow model. The significant assumptions used to estimate the value of the intangible assets include revenue growth rates, projected profit margins, discount rates, royalty rates, and customer attrition rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The results of operations are reflected in the consolidated financial statements of the company from the dates of acquisition.

The following represents summarized information of various acquisitions by the company that were not individually material in 2020. The company completed no acquisitions during the three months ended April 3, 2021.
2020 Acquisitions
During 2020, the company completed various acquisitions that were not individually material. The estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition dates for the 2020 acquisitions and are summarized as follows (in thousands):
Preliminary Opening Balance SheetPreliminary Measurement
Period
Adjustments
Adjusted Opening Balance Sheet
Cash$14,647 $ $14,647 
Current assets43,670 (13,391)30,279 
Property, plant and equipment3,014 (241)2,773 
Goodwill55,335 1,191 56,526 
Other intangibles63,201  63,201 
Other assets6,121 52 6,173 
Current liabilities(54,478)12,434 (42,044)
Long-term deferred tax liability(123) (123)
Other non-current liabilities(21,902)(45)(21,947)
Consideration paid at closing$109,485 $ $109,485 
Deferred payments8,666  8,666 
Contingent consideration16,144  16,144 
Net assets acquired and liabilities assumed$134,295 $ $134,295 
The long-term deferred tax liability amounted to $0.1 million and is related to the difference between the book and tax basis on other assets and liability accounts.
The goodwill and $23.1 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $14.0 million allocated to customer relationships, $20.7 million allocated to developed technology and $5.4 million allocated to backlog, which are being amortized over periods of 7 years, 7 to 12 years, and 3 to 9 months, respectively. Goodwill of $56.5 million and other intangibles of $63.2 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Of these assets, goodwill of $20.0 million and all other intangibles are expected to be deductible for tax purposes.


7


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 date amount to $8.7 million. The earnouts are payable between 2021 and 2023, if the company exceeds certain sales and earnings targets. The contractual obligations associated with the contingent earnout provisions recognized on the acquisition date amount to $16.1 million.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values for substantially all 2020 acquisitions to date. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
Pro Forma Financial Information
 
In accordance with ASC 805 Business Combinations, the following unaudited pro forma results of operations for the three months ended April 3, 2021 and March 28, 2020, assumes the 2020 acquisitions described above were completed on December 29, 2019 (first day of fiscal year 2020). The following pro forma results include adjustments to reflect amortization of intangibles associated with the acquisition and the effects of adjustments made to the carrying value of certain assets (in thousands, except per share data): 
Three Months Ended
 April 3, 2021March 28, 2020
Net sales$758,058 $689,593 
Net earnings91,882 67,302 
Net earnings per share:  
Basic$1.66 $1.21 
Diluted$1.64 $1.21 
 
The historical consolidated financial information of the Company and the acquisitions have been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. Pro forma data may not be indicative of the results that would have been obtained had these acquisitions occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Additionally, the pro forma financial information does not reflect the costs which the company has incurred or may incur to integrate the acquired businesses.
3)    Litigation Matters
From time to time, the company is subject to proceedings, lawsuits and other claims related to products, suppliers, employees, customers and competitors. The company maintains insurance to partially cover product liability, workers compensation, property and casualty, and general liability matters. The company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of accrual required, if any, for these contingencies is made after assessment of each matter and the related insurance coverage. The required accrual may change in the future due to new developments or changes in approach such as a change in settlement strategy in dealing with these matters. The company does not believe that any pending litigation will have a material effect on its financial condition, results of operations or cash flows.
8


4)    Recently Issued Accounting Standards
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 will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. 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. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings in the period of adoption. The company adopted this guidance on January 3, 2021, and it did not have a material impact on the company's Consolidated Financial Statements upon adoption.

Accounting Pronouncements - To be adopted
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting". Subject to meeting certain criteria, ASU 2020-04 provides optional expedients and exceptions to applying contract modification accounting under existing generally accepted accounting principles, for contracts that are modified to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. Some of the Company’s contracts with respect to its borrowings and interest rate swap contracts already contain comparable alternative reference rates that would automatically take effect upon the phasing out of LIBOR, while for others, the company anticipates negotiating comparable replacement rates with its counterparties.  In January 2021, the FASB issued ASU 2021-01 to provide supplemental guidance and to further clarify the scope. This guidance is effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements.


9


5)    Revenue Recognition

Disaggregation of Revenue

The company disaggregates its net sales by reportable operating segment and geographical location as the company believes it best depicts how the nature, timing and uncertainty of its net sales and cash flows are affected by economic factors. In general, the Commercial Foodservice Equipment and Residential Foodservice Equipment Groups recognize revenue at the point in time control transfers to their customers based on contractual shipping terms. Revenue from equipment sold under the company's long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. The following table summarizes the company's net sales by reportable operating segment and geographical location (in thousands):
 Commercial
 Foodservice
Food ProcessingResidential Kitchen Total
Three Months Ended April 3, 2021   
United States and Canada$338,837 $79,650 $108,574 $527,061 
Asia49,719 4,003 3,032 56,754 
Europe and Middle East82,017 20,425 51,844 154,286 
Latin America10,582 8,416 959 19,957 
Total$481,155 $112,494 $164,409 $758,058 
Three Months Ended March 28, 2020
United States and Canada$306,510 $72,882 $85,074 $464,466 
Asia37,524 7,639 978 46,141 
Europe and Middle East79,732 19,347 43,465 142,544 
Latin America19,358 4,398 552 24,308 
Total$443,124 $104,266 $130,069 $677,459 


10


Contract Balances

Contract assets primarily relate to the company's right to consideration for work completed but not billed at the reporting date and are recorded in prepaid expenses and other in the Condensed Consolidated Balance Sheet. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Accounts receivable are not considered contract assets under the revenue standard as contract assets are conditioned upon the company's future satisfaction of a performance obligation. Accounts receivable, in contracts, are unconditional rights to consideration.

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

The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):
 Apr 3, 2021Jan 2, 2021
Contract assets$18,899 $20,328 
Contract liabilities$108,766 $93,871 
Non-current contract liabilities$13,020 $13,523 

During the three months period ended April 3, 2021, the company reclassified $8.7 million to receivables, which was included in the contract asset balance at the beginning of the period. During the three months period ended April 3, 2021, the company recognized revenue of $59.1 million which was included in the contract liability balance at the beginning of the period. Additions to contract liabilities representing amounts billed to clients in excess of revenue recognized to date were $84.3 million during the three months period ended April 3, 2021. Substantially, all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were no contract asset impairments during the three months period ended April 3, 2021.
11


6)    Other Comprehensive Income
The company reports changes in equity during a period, except those resulting from investments by owners and distributions to owners, in accordance with ASC 220, "Comprehensive Income".
Changes in accumulated other comprehensive income(1) were as follows (in thousands):
 Currency Translation AdjustmentPension Benefit CostsUnrealized Gain/(Loss) Interest Rate SwapTotal
Balance as of January 2, 2021$(49,961)$(400,919)$(37,548)$(488,428)
Other comprehensive income before reclassification(10,614)(3,970)7,389 (7,195)
Amounts reclassified from accumulated other comprehensive income  5,023 5,023 
Net current-period other comprehensive income$(10,614)$(3,970)$12,412 $(2,172)
Balance as of April 3, 2021$(60,575)$(404,889)$(25,136)$(490,600)
Balance as of December 28, 2019$(105,705)$(228,336)$(16,892)$(350,933)
Other comprehensive income before reclassification(48,916)14,808 (26,486)(60,594)
Amounts reclassified from accumulated other comprehensive income  1,267 1,267 
Net current-period other comprehensive income$(48,916)$14,808 $(25,219)$(59,327)
Balance as of March 28, 2020$(154,621)$(213,528)$(42,111)$(410,260)
(1) As of April 3, 2021, pension and interest rate swap amounts are net of tax of $(90.0) million and $(8.8) million, respectively. During the three months ended April 3, 2021, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $(0.9) million and $4.3 million, respectively. As of March 28, 2020 pension and interest rate swap amounts are net of tax of $(45.5) million and $(15.3) million, respectively. During the three months ended March 28, 2020, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $3.1 million and $(9.3) million, respectively.
Components of other comprehensive income were as follows (in thousands):
 Three Months Ended
 Apr 3, 2021Mar 28, 2020
Net earnings$89,263 $73,779 
Currency translation adjustment(10,614)(48,916)
Pension liability adjustment, net of tax(3,970)14,808 
Unrealized gain (loss) on interest rate swaps, net of tax12,412 (25,219)
Comprehensive income$87,091 $14,452 
7)    Inventories
Inventories are composed of material, labor and overhead and are stated at the lower of cost or market. Costs for inventory have been determined using the first-in, first-out ("FIFO") method. The company estimates reserves for inventory obsolescence and shrinkage based on its judgment of future realization. Inventories at April 3, 2021 and January 2, 2021 are as follows (in thousands): 
 Apr 3, 2021Jan 2, 2021
Raw materials and parts$292,068 $263,200 
Work-in-process57,537 55,104 
Finished goods224,672 221,894 
 $574,277 $540,198 
12


8)    Goodwill
Changes in the carrying amount of goodwill for the three months ended April 3, 2021 are as follows (in thousands):
Commercial
Foodservice
Food
Processing
Residential KitchenTotal
Balance as of January 2, 2021$1,228,436 $255,798 $450,027 $1,934,261 
Measurement period adjustments to
goodwill acquired in prior year
(247)  (247)
Exchange effect(5,558)(2,552)2,740 (5,370)
Balance as of April 3, 2021$1,222,631 $253,246 $452,767 $1,928,644 

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

9)    Intangibles

Intangible assets consist of the following (in thousands):
 
 April 3, 2021January 2, 2021
Estimated
Weighted Avg
Remaining
Life
Gross
Carrying
Amount
Accumulated
Amortization
Estimated
Weighted Avg
Remaining
Life
Gross
Carrying
Amount
Accumulated
Amortization
Amortized intangible assets:      
Customer lists8.3$735,264 $(362,393)8.5$735,264 $(347,029)
Backlog0.134,729 (34,268)0.334,729 (31,924)
Developed technology9.856,931 (25,508)10.056,931 (24,394)
  $826,924 $(422,169) $826,924 $(403,347)
Indefinite-lived assets:      
Trademarks and tradenames $1,023,539   $1,026,804  


The aggregate intangible amortization expense was $18.8 million and $16.9 million for the three months period ended April 3, 2021 and March 28, 2020, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
 
Twelve Month Period coinciding with the end of the company's Fiscal First QuarterAmortization Expense
 
2022$65,516 
202360,567 
202454,282 
202541,939 
202637,501 
Thereafter144,950 
$404,755 

13


10)    Accrued Expenses
Accrued expenses consist of the following (in thousands):
 Apr 3, 2021Jan 2, 2021
Contract liabilities$108,766 $93,871 
Accrued payroll and related expenses105,085 93,926 
Accrued warranty75,094 69,667 
Accrued customer rebates30,630 43,703 
Accrued short-term leases22,041 22,493 
Accrued sales and other tax16,730 22,030 
Accrued professional fees13,782 12,133 
Accrued product liability and workers compensation12,402 12,909 
Accrued agent commission12,215 11,105 
Accrued interest rate swaps10,672 14,075 
Accrued liabilities held for sale 22,313 
Other accrued expenses72,496 76,316 
 $479,913 $494,541 

11)    Warranty Costs
In the normal course of business, the company issues product warranties for specific product lines and provides for the estimated future warranty cost in the period in which the sale is recorded. The estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are based on the best available information, actual claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.
A rollforward of the warranty reserve is as follows (in thousands):
 Three Months Ended
 Apr 3, 2021
Balance as of January 2, 2021$69,667 
Warranty expense20,881 
Warranty claims(15,454)
Balance as of April 3, 2021$75,094 

14


12)    Financing Arrangements
 Apr 3, 2021Jan 2, 2021
 (in thousands)
Senior secured revolving credit line$755,000 $755,000 
Term loan facility331,250 335,938 
Convertible senior notes732,088 632,847 
Foreign loans2,483 4,421 
Other debt arrangement1,312 1,390 
Total debt1,822,133 1,729,596 
Less:  Current maturities of long-term debt21,093 22,944 
Long-term debt$1,801,040 $1,706,652 

Credit Facility
On January 31, 2020, the company entered into an amended and restated five-year, $3.5 billion multi-currency senior secured credit agreement (as amended as described below, the "Credit Facility"). On August 21, 2020, the company entered into an amendment to the Credit Facility, prepaying $400.0 million aggregate principal amount of its term loan obligations owed. The Credit Facility, as amended, is in an aggregate principal amount of $3.1 billion, consisting of (i) a $350 million term loan facility and (ii) a $2.75 billion multi-currency revolving credit facility. The Credit Facility matures on January 31, 2025. The term loan facility amortizes in equal quarterly installments due on the last day of each fiscal quarter in an aggregate annual amount equal to 2.50% of the original aggregate principal amount of the term loan facility, with the balance, plus any accrued interest, due and payable on January 31, 2025. As of April 3, 2021, the company had $1.1 billion of borrowings outstanding under the Credit Facility, including $755.0 million of borrowings in U.S. Dollars and $331.3 million outstanding under the term loan. The company also had $2.3 million in outstanding letters of credit as of April 3, 2021, which reduces the borrowing availability under the Credit Facility.
At April 3, 2021, borrowings under the Credit Facility accrued interest at a rate of 1.625% above LIBOR per annum or 1.00% above the highest of the prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.00%. The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 3.32% at the end of the period. The interest rates on borrowings under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt less Unrestricted Cash to Pro Forma EBITDA (the “Leverage Ratio”) on a rolling four-quarter basis. Additionally, a commitment fee based upon the Leverage Ratio is charged on the unused portion of the commitments under the Credit Facility. This variable commitment fee was equal to 0.25% per annum as of April 3, 2021. The term loan facility had an average interest rate per annum, inclusive of hedging instruments, of 3.28% as of April 3, 2021.
In addition, the company has other international credit facilities to fund working capital needs outside the United States. At April 3, 2021, these foreign credit facilities amounted to $2.5 million in U.S. Dollars with a weighted average per annum interest rate of approximately 4.50%.
15


The company’s debt is reflected on the balance sheet at cost. The fair values of the Credit Facility, term debt and foreign and other debt is based on the amount of future cash flows associated with each instrument discounted using the company's incremental borrowing rate. The company believes its interest rate margins on its existing debt are consistent with current market conditions and therefore the carrying value of debt reflects the fair value. The interest rate margin is based on the company's Leverage Ratio. The carrying value and estimated aggregate fair value, a level 2 measurement, based primarily on market prices, of debt excluding the Convertible Notes is as follows (in thousands):
 Apr 3, 2021Jan 2, 2021
 Carrying ValueFair ValueCarrying ValueFair Value
Total debt excluding convertible senior notes$1,090,045 $1,090,045 $1,096,749 $1,096,749 
The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit Facility. At April 3, 2021, the company had outstanding floating-to-fixed interest rate swaps totaling $260.0 million notional amount carrying an average interest rate of 2.36% maturing in less than 12 months and $802.0 million notional amount carrying an average interest rate of 1.91% that mature in more than 12 months but less than 71 months.
The company believes that its current capital resources, including cash and cash equivalents, cash expected to be generated from operation, funds available from its current lenders and access to the credit and capital markets will be sufficient to finance its operations, debt service obligations, capital expenditures, product development and expenditures for the foreseeable future.

The terms of the Credit Facility, as amended, limit the ability of the company and its subsidiaries to, with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make restricted payments; enter into certain transactions with affiliates; and requires, among other things, the company to satisfy certain financial covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Facility) of 3.00 to 1.00, (ii) a maximum Total Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 5.50 to 1.00, and (iii) a maximum Secured Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 3.50 to 1.00; which may be adjusted to 4.00 to 1.00 for a four consecutive fiscal quarter period in connection with certain qualified acquisitions, subject to the terms and conditions contained in the Credit Facility. The Credit Facility is secured by substantially all of the assets of Middleby Marshall, the company and the company's domestic subsidiaries and is unconditionally guaranteed by, subject to certain exceptions, the company and certain of the company's direct and indirect material foreign and domestic subsidiaries. The Credit Facility contains certain customary events of default, including, but not limited to, the failure to make required payments; bankruptcy and other insolvency events; the failure to perform certain covenants; the material breach of a representation or warranty; non-payment of certain other indebtedness; the entry of undischarged judgments against the company or any subsidiary for the payment of material uninsured amounts; the invalidity of the company guarantee or any subsidiary guaranty; and a change of control of the company. At April 3, 2021, the company was in compliance with all covenants pursuant to its borrowing agreements.

Convertible Notes
The following table summarizes the outstanding principal amount and carrying value of the Convertible Notes:
 
Apr 3, 2021
Jan 2, 2021
 (in thousands)
Principal amounts:
Principal$747,500 $747,500 
Unamortized debt discounts (98,358)
Unamortized issuance costs(15,412)(16,295)
Net carrying amount$732,088 $632,847 
16


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